Summary: Many value stocks are cheap because they deserve to be. Some of them no longer have sustainable businesses, and as a result their current discounted multiple will look really expensive relative to where their business is headed. These types of stocks are often referred to as 'value traps" and value investors do everything they can to avoid them. In this episode, we talk about value traps, why they are impossible to avoid completely, and some rules that can help minimize them.
Jack's article: http://blog.validea.com/the-double-edged-sword-of-avoiding-value-traps/
Tobias E. Carlisle's The Acquirer's Multiple site and research: https://acquirersmultiple.com/
https://mebfaber.com/2018/01/17/episode-90-dan-rasmussen-crown-jewel-alternative-universe-private-equity/
Improving the Performance of Deep Value Strategies: https://alphaarchitect.com/2019/12/12/improving-the-performance-of-deep-value-strategies/
Focused Value research study: https://jii.pm-research.com/content/10/2/63
ABOUT THE PODCAST
Excess Returns is an investing podcast hosted by Jack Forehand (@practicalquant) and Justin Carbonneau (@jjcarbonneau), partners at Validea. Justin and Jack discuss a wide range of investing topics including factor investing, value investing, momentum investing, multi-factor investing, trend following, market valuation and more with the goal of helping those who watch and listen become better long-term investors.
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