Cheaper isn't Always Better: How to Avoid the Stock Value Trap

The term “value trap” refers to a stock that has a low valuation in terms of classic fundamental metrics such as the price-to-earnings (p/e) ratio, pays a high dividend, yet is a poor investment that underperforms the market and is “dead money.” To understand value traps, investors should consider the old saying, “You get what you pay for.” Though my mother always taught me to be frugal as a kid, she also emphasized that I should not be cheap. For example, if you buy nice clothing made from better material, ...