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Alternative Value Traps:

Last week I wrote a post on my Ultimate Value Trap discussing the competitive disadvantages and chronic mismanagement of General Motors (GM). Today I thought it might be fun to list a number of other companies to give a perspective of how much capital has been lost as some value investors have perpetually bought into these names over the past twelve months.

While a drop in valuation doesn’t necessarily mean an investment has lost all of its core fundamentals; these stocks have demonstrated an inability to manage risk effectively, have or had poor management, suffer from serious competitive disadvantages and questionable protection by management of shareholder interests.

1-Year cumulative losses (as of July 14th) for the following Value Trap candidates:

Lehman Brothers: down 83.1%
Citigroup: down 71.0%
Wachovia: down 81.3%
Wamu: down 92.4%
National City: down 88.7%
Biovail: down 63.9%
Canwest Global: down 75.9%
Freddie Mac: down 88.4%
Fannie Mae: down 85.2%
Air Canada: down 69.4%
AbitibiBowater: down 77.3%

* GM this morning announced a suspension to their annual dividend.

(I do not hold positions in any of the mentioned stocks)

{ 7 comments… add one }
  • Dividend Tree July 15, 2008, 8:26 am

    Any reasons why no C and BAC ?

  • Nurse B, 911 July 15, 2008, 2:13 pm

    Citi is there right near the top.

    BAC I didn’t include because I have a sneaky suspicion that they’re not going to turn out to be a value trap and are better positioned based on risk than many of the other US financials.

    FWIW BAC is only off 68% YoY, lol.

  • Scott July 15, 2008, 9:45 pm

    I’m more than a little surprised that you haven’t nominated at least one Canadian bank. Is there a more appropriate poster child for poor management and veiled risk controls than CIBC?

  • Nurse B, 911 July 16, 2008, 8:09 am

    CM is only off 50% I think on a YoY basis? I considered putting it on the list, but they have yet to cut the dividend and since I hold a indirect position through MFC I didn’t want to show a bias.

    But they are really good at making sure those F*CK up fairies get out of the closet to cause havoc every so often.

  • Sami July 17, 2008, 3:38 pm

    How do you define a value trap?

    In all honesty value traps are only discovered in hindsight. price decline by x% does not qualify it for a value trap.

    on the other hand I agree that price decline do not make a business a “value investment”.

  • Nurse B, 911 July 17, 2008, 7:11 pm


    I define a Value Trap as having more than one competitive disadvantage such as an inability to manage risk, competing on price, reactive vs. proactive management, etc. Basically the business isn’t functioning as it should on a fundamental basis. The price declines were simply illustrated to provide a context of the consequences of investing in the chosen stocks with the view that they were value stocks last year.

  • Sami July 18, 2008, 12:55 pm

    I agree with you if the definition included sustainable disadvantages. value traps can not be due to cyclical factors, eg., credit crises.

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