Understanding Value Traps

If you believe a stock has an a true ("intrinsic") value, you will try to buy it below that level (when it's "cheap"). So why sell if it gets even cheaper.

A stock that stays at a large discount to intrinsic value is a "value trap". It's an important issue for value investors and there are are few methods of avoid value traps.

One way to avoid a value trap with a cheap stock (like Benjamin Graham liked) is to buy them with catalysts, i.e. new management or new plans to unlock that value through buybacks, dividends, or sale/merger.

The best way to avoid a value trap is to buy a growing business that increases value over time.