How many of us have been caught in a “value trap”?
Prior to making stock selections, I pour over lots of fundamental variables.
I’m a value investor. I’m looking for undervalued stocks, or stocks that have fallen out of favour.
Back in 2011, I purchased Research in Motion (RIMM, RIM.TO), with the conviction that it had fallen too far and still held lots of value. However, the price of RIMM stock continued to fall. I suffered losses.
But just like Admiral Ackbar, I was able to recognize the “trap” and escape. I only held onto this stock for a few months, so the losses weren’t too bad.
Before you make a stock selection,
Research beyond the fundamentals.
– Has this company’s business changed?
– Are the company’s products still strong?
– Does this company have a moat? Is it still ahead of it’s competition?
In the case of RIMM, in hindsight, I should have realized that their products/services weren’t keeping up with the competition. I was only looking at the fundamental variables.
RIMM isn’t the only stock that I’ve fallen into a trap with.
Even if you’ve done your research, a stock can still languish for long periods of time.
The most important lesson that I’ve learned is,
“Cut your losses”
Sometimes Mr. Market doesn’t agree with you. A stock price can stay “undervalued” for quite a while. Don’t hold onto this stock forever. Sell the stock. Move on to another investment opportunity.
Eventually your research will pay off.