http://createwealth8888.blogspot.com/2009/07/why-buy-and-hold-and-dont-even-bother_26.html <---- If you may wish to read Part first. Beware the risks of Value and Average Down Traps
While shares with low valuation may be an undiscovered gem and market may have mispriced them or at other times, shares that appear cheap, and getting cheaper could be due to Big Boys getting out as they believe the company fundamentals continue to deteriorate. Low stock valuation may be a Value Trap.
Warren Buffet and the likes of Warren Buffet (the Big Boys: Institutions) have enormous resources at their disposal to do due diligence to uncover undiscovered gem and avoid the Value Trap. But, it can be very challenging for many small boy value investors as it can take a great deal of time and enormous resources to recognize that a stock is a real undiscovered gem and not a fake one.
As stock price falls further, the margin of safety gets wider, the small boy value investors likely to fall into the next trap: Average Down Trap, and start averaging down with more shares with their free capital and likely to average down until they run out of capital.
So beware of Value and Average Down Traps. Take care!
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