tag:blogger.com,1999:blog-2149523431587168680.post4156751959588170820..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Portfolio Strategies: Value TrapsNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2149523431587168680.post-21627475231022477022014-09-16T16:31:16.833-04:002014-09-16T16:31:16.833-04:00It's not a paper, it's a book which includ...It's not a paper, it's a book which includes a lot of back testing using different value metrics based some papers and other studies. The numbers are not specific to retailers, but I do think it would be interesting to see if the returns increased ex-retail. One of the reasons, Graham, bought a large basket of these types of companies was to mitigate the risks of a few losers and possible bankruptcies.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-6578876548000529002014-09-15T02:02:39.650-04:002014-09-15T02:02:39.650-04:00"I did want to flag for you that from multipl..."I did want to flag for you that from multiple academic researches conducted based on historical data, it seems that buying cheap companies with losses actually outperform those that makes money in a portfolio context. "<br /><br />--<br />Does the paper says if it includes companies that make loss, never recover and go bankrupt? <br />It only includes those who survive, by definition they are only measuring companies that rebound, these would include a few multi-baggerCipto.Hhttps://www.blogger.com/profile/05491332366259469801noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-18485468114889129292014-09-13T12:57:27.037-04:002014-09-13T12:57:27.037-04:00I think there's a parallel between exurban gro...I think there's a parallel between exurban growth and the value trap. Americans do continue to move to exurbs, though they don't necessarily love them: they contribute to longer commutes (a major stressor), poorer connections to others, and lower quality of life on many intangible metrics. <br /><br />But the exurbs offer tangible benefits: more square feet and acres for the money, typically lower taxes, frequently higher test scores in the schools. Speaking very generally, people tend to value the tangible--4 bedrooms, 4.5 bathrooms!--over the intangible--the ability to walk down a street to a park, window shopping as you go--when making relative merit calculations, even though in terms of how life is experienced those calculations are frequently reversed. So, metrically "cheap" companies look good on their tangibles, but are disasters on their intangibles--their "experience" of a marketplace in which they no longer have a place. <br /><br />Maybe that's another reason why older people are opposed to Wal Mart: they've lived long enough to understand the importance of intangibles. Aharonnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-72387941316805618442014-09-11T12:35:29.988-04:002014-09-11T12:35:29.988-04:00Great post as always Nate.
I recently finished re...Great post as always Nate.<br /><br />I recently finished reading Deep Value by Tobias Carlisle (the blogger behind Greenbackd). In his book, he talks about the great mysteries of the mean reversion phenomenon. Apparently even the grand master Graham could not explain why this holds true over time. However, mean reversion is essential to the validity of value investing as a doctrine (this thought is echoed in your previous post). <br /><br />I found your explanation of the value trap to make intuitive sense. However, I did want to flag for you that from multiple academic researches conducted based on historical data, it seems that buying cheap companies with losses actually outperform those that makes money in a portfolio context. I think this has to do market overreacting more to loss making companies therefore they trade even cheaper thus creating a negative feedback loop. When there is negative expectation built-in, it is easy for the stock to rebound if the company cranks out 2 quarters of positive operating results. <br /><br />What's your thought on this point? Would be great to hear your view.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-43770295680869635062014-09-09T10:00:53.230-04:002014-09-09T10:00:53.230-04:00Solid post, Nate.
I sincerely believe that succes...Solid post, Nate.<br /><br />I sincerely believe that successful value investing completely hinges upon one's ability to identify value traps, which is obviously easier said than done. After all, as you said, a company that looks great (in other words, a company that has a fortress balance sheet and a history of solid earnings) will probably trade at high valuations, which leaves a value investor looking at maybe a few legitimate plays and a big number of traps.<br /><br />Two intelligent investors may look at the same company and come up with two entirely different viewpoints; one investor might see a great buy, the other might see a horrible value trap. I absolutely agree that competitive advantage(s), industry dynamics, demographic trends, etc. are the most important distinguishing factors when it comes to value investing, rather than financials for this very reason. <br /><br />A lot of retail investors prefer to cut corners and take a very mechanical approach to value investing (say, screening stocks with a P/E of <8 and a P/B of <1) but I think that approach almost never works. In fact, I would be so bold as to say that most stocks trading at such low valuations deserve their low valuations and will probably never close to the gap with their perceived intrinsic values. Your RadioShack example is a solid representation of a a cheap stock that, on its surface, would sucker a lot of investors relying on mechanical methods.<br /><br />Because traps drastically outnumber true value opportunities, I'd say value investing is 85% in qualitative analysis. After all, when you're looking at a stock trading at 5x P/E, determining if such a low valuation is warranted is probably priority one.Ravareknoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-61800755234374389552014-09-09T08:17:15.993-04:002014-09-09T08:17:15.993-04:00I love your newsletters - always very intriguing -...I love your newsletters - always very intriguing - anytime soon I will subscribe to your premium edition...<br />Keep on the good work !<br />Best regards<br />Olaf Hein, Hamburg/Germany o.hein@sparta.deAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-25955523312916859102014-09-09T05:24:45.196-04:002014-09-09T05:24:45.196-04:00Very good post Nate!Very good post Nate!Jonashttp://www.vardebyran.senoreply@blogger.com