According to Investopedia, value trap is a condition in which a stock looks cheap because the numbers of indicators valuasinya (PER, PBV, etc) is quite low, but the low valuations are in fact not to say cheap, but Indeed it is the valuations naturally, for example because the company didn't have a good fundamental performance, nor does it offer any prospects. The language simply, value trap is when you find stocks that look cheap, whereas the original cheapo.
And based on experience, value trap can be grouped so the two types. First, the stock looks very low valuasinya compared to other stocks in the same sector, as compared to other stocks BEI in General, but because the company in question from the first till now never had performance Nice, prospeknya not clear, and the company name is rarely known to the public, then so be it is wholly not want to ride-ride, because it's almost not there investors who want to buy (What to buy? LHA wong kok shoddy goods).
For example, if you perform a screening by calculating the PBV of every stock in the BEI, then you will see many shares his PBV less than 1 times, normally including second or third liner not liquid with low nominal price below 500 Silver or even deket deket-gocap, but from the first till now the airline is Yes there is-there only. Or if the only ride occasionally then edges back down again. For example (here the author deliberately choose stocks that once crowded discussed in market) Benakat Integra (BIPI), ivory Development (GAMA), to Pure Mas Indonesia (MAMI). In some cases, sometimes never occur stocks value trap this high rise until his PBV is not cheap anymore, but usually it is not difficult to see that it's just because the Airport command/bukan as investors buy up busy-busy the airline, and in the end nonetheless shares down again. In February 2017 and then, shares of Lotte Chemical Titan (FPNI), who had previously never everywhere at level 120 's (PBV 0.5 times), suddenly alone rose quickly to penetrate 600 in March (PBV 2.5 times), but after that it went down again to as low as 150 – 200, and PBV him so zero coma all this again.
And the reason why the shares ' cheap ' above do not want to ride-ride (except if fried airport), but his stamp market is already lower than the net asset value of the company, was due to investors any professional will not only see the value a company's net asset value/ekuitasnya only, but also of the earnings power, aka the ability of the company in generating profits. Because that is the function of a company: generating profit. So if you buy companies with a net asset value of $ billion at the price of Rp30 billion, but the company continues to lose money even for this long, then you may have just lost the Rp30 billion last at all. Because if the trend meruginya the company continues in the future, then the net asset value of $ billion last will continue to shrink until it eventually becomes zero.
Value Trap: Dying Company
Okay, that last type of value trap first. Second, it often happens that a company had doubled the performance of the fundamental but kesininya loss continues, and as a result its shares also dropped on to eventually become the valuasinya looks cheap. For example, coal companies, which in the years 2009 – 2012 and then registered a good performance along with the booming commodities, and automatic coal stocks in that period are valued very expensive, but entering 2012 year of performance of the listed company of coal began to fall, and continued to go down until the year 2016. As a result of coal stocks also went down, some of them even until his living PBV 0.1 times the year 2016 (shares the INDY, time at the price of 200 – 300).
Well, when coal stocks have been in such large amounts, while their performance in the past actually is quite good, the bargain hunter (including the author) will start buying shares of coal, with hope if later the emitennya back registered a rise in profits, then automatically shares will also rise, and rise the pun can be quite high because since the beginning of the valuations they've super duper discount.
And indeed, on this day we could see the coal stocks have gone up hundreds of percent compared to their lowest position in mid-2016. But if you look again, not all coal stocks go up a lot in the last two years. Some of the coal stocks, just call it the Borneo Lumbung energy & Metal (BORN), Berau Coal Energy (BRAU), Dayaindo Resources (KARK), to the Famous Intipratama (ready), is still suspended and never heard reportedly again (KARK instead been delisting is), because the company already trigger collapse before it recovered coal sector (BORN and BRAU experience a default, KARK many touches the case even when coal was still victorious in 2010 – 2011, While READY ketauan do repo transactions to the detriment of retail investors).
In fact, the author still recall, when the stock BORN several years ago continued to descend until it finally stuck in the gocap, then the PBV, based on their financial reports, also live-zero comma umpteen times, and it is a very attractive valuation remember when at the time it is BORN, through coal company which is very profitable. Yup, because BORN is the only company that produces coal Tbk high-calorie type of coking coal, that cost 2-3 times more expensive than ordinary coal, the greater its profits margins.
However, if when it is investors coming into this at the price of gocap BORN, then so be it and. In this case we can call a BORN as a value trap. And not just BORN, there had also been used to stock the company's vessels including blue chip in his era, i.e. the Rate Diamond Tanker (BLTA), whose shares dropped steadily to valuasinya be cheap, but in fact its stock now sampe even death/ disuspen. At the international level, in November 2008 the shares of Lehman Brothers (LEH) jeblok from $80 's to US under US $20, valuasinya be attractive (PBV about 0.7 times). Because although LEH when it's the middle of the losers, but investors already memorized very well that this is the company LEH investment banking global scale with a brilliant historical performance, have a track record of long and consistent during the 150 years, survives even when the Americans hit by the great depression in 1930 's, that in fact is a much bigger crisis than the crisis in 2008. So PBV 0.7 times the last relatively cheap. Consequently in mid-2008, there are many large fund managers who got into the stock at the price of US LEH $20-20s or below, including George Soros, when it was in the hope that its poor performance in 2008 is only the LEH. So if in the following years the performance of LEH began to recover, then automatically the shares would rise again.
However it turns out, Lehman Brothers go bankrupt instead! And is also out of stock at all/no longer traded again on the NYSE (so that losses its shareholders become 100%). So it can also be inferred that when the bargain hunter buys the stock price down in LEH due to see that valuasinya already cheap for the size of the stocks of companies that are too big to fail, then actually they've just stuck value trap, because it turns out that even LEH fail beneran.
Well, if compared with the kind of value trap that first, then the type of the value the second trap is what often eat the sacrifice, not only investors but also the seasoned investor beginner class snapper though (e.g. ya Om Soros last). I mean, if a company since the beginning never had good performance/loss meululu, prospeknya bleak and not clear his efforts the fuck, and almost never heard the name of his PT, then why did we buy shares?
But when there is a stock of large companies shrank, so although most successful indeed rise again when the fundamentals of the company in question recovered (and consequently, investors who bought it at the price of great success under cuan), but partly even continued to go down until the value to zero, and the stock is what we call the value trap. And actually, the great master of us all, Warren Buffett, has also been a victim of this type of trap is value. When he was in the years 1960-1990s buying stocks Berkshire Hathaway (BRK) on the PBV 0.4 times, prices are very cheap for the size of the textile companies ever victorious in his time (BRK have been standing and in operation since the beginning of the 19th century), but it turns out that kesininya BRK in fact continued to incur losses until the company shut down the business of textiles at all. The biggest difficulty for a value investor when he buys a ' cheap ' stocks as stocks LEH or BRK is when he cannot distinguish whether the Middle companies struggling, or even dying . If the company merely struggling alone, aka still able to survive and are still in operation although the losers/its profits down, then there is still hope that eventually their performance would recover again. But if his company is dying, yes that means live waiting time before they went bankrupt, and its shares became worthless at all.
And history shows that there are an awful lot of big companies in the past, which now no longer exist. Of the 500 Fortune 500 companies resident in 1950 's, only eight of them who were still in the Fortune 500.
Okay, so how do we can buy cheap stocks that his company only longer struggling , and instead of dying? Well, in theory, is actually easy to set it apart, though to practice requires sufficient experience: If you notice, the companies that are dying are those who have debt too big compared to the value of assets a white garment, especially if such debts contains high interest. Some companies are referred to above, namely BORN, BRAU, BLTA, and also took on debt, all of which LEH is a very very big before they went bankrupt. So when the economy again not great, its business sector or more lethargic, then when other firms merely experienced a decline in profit, the company that usually would cede his debts suffered a great loss. Because when their operating income down, but the burden of debt repayments and the interest will be fixed/did not enter the overall fall, so companies will be losers. And if the business climate was not also improved after some time, then the losses would occur continually until finally removes the net asset value of the company at all.
And at this point, technically a corporation could be called bankrupt. The analogy is like if you buy shares of its own money, pake and then going on the market crashes, then the shares you hold will down/you suffer a loss. But as long as you don't cut loss, do not have to pay the interest margin, and are also not subject to forced sell, then when the market finally climb back, your stocks will also join up, and porto you will be green again. But if you buy stocks on margin and then pake going market crash, then its your loss will be doubled because you remain burdened the margin loan interest, and some stocks that you hold will be forced for sale at low prices ( forced sell). Consequently when the market finally recovered, of your assets in stocks already depleted not left. Actually, this is what happened on an awful lot of novice investors in the year 2008.
That's why, in recent times the opportunity when we discuss stocks of coal in the year 2016 and then (at that time the stock is still cheap at dkk ADRO-cheap), the author mentions that our favorite stocks in this sector there are four, namely the coal mine Bukit Asam (PTBA), Indo Tambangraya (ITMG), Harum Energy (HRUM), and Natural Resource Indonesia (KKGI). The reason, besides the historical performance of moncer due, the balance of the four issuers are also relatively clean coal from debt. And indeed the fourth performance of successful companies recovered again in the last two years, as well as its shares rose a lot. Indeed, some of the stocks of coal loan gede like Indika Energy (INDY) and Earth Resources (Earth) is apparently not up to such a fate BORN, even the INDY ride much. But it was a risk, then these stocks more risky/could have been is a value trap, compared to four coal stocks are referred to above.
In conclusion, as long as we can be careful, so not too difficult to avoid a value trap. And again, if we're stuck buying cheap shares when the stock cheap or cheesy, but her company want to go bankrupt, then as long as we previously applying effective diversification which we do not just buy 1 – 2 stocks are cheap but a few, then based on the experience, even though there may be one or two stocks that turned out to be was a value trap, but other stocks will still generate profit jumbo after some time. And consequently the performance of the porto we overall will remain good, so again, the question of value trap this need not be too concerned about.
And btw, in addition to two types of value trap above, actually there is one more type of value trap, i.e. stocks with low PBV whereas equity value of the company is not a real/tidak of looks, or stocks with low PER whereas a white garment is also not a real profit/not derived from the company's operations. Well, but seeing as the article is already pretty long, then this problem we will discuss another time.
