Value Trap

 Value Trap:  

Value trap implies getting trapped in a stock whose price seemed very attractive when you invested, but it continues to remain low for a long period of time, because it wasn’t very valuable after all. Even seasoned investors tend to make the mistake of buying a stock because it has fallen sharply. What declines the most need not bounce back the most. The stock price is just a quote in the market, and, on its own, does not have any significance whatsoever. It has to be measured in conjunction with the company’s performance, earnings, book value, dividends, etc. A high-priced stock may actually be cheap on a valuation basis, while a low-priced penny stock may actually be very costly if the underlying business does not support that price.

Illogical Trader

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