Joel Greenblatt: Avoiding Value Traps

Falling into a value trap is one of the biggest risks value investors face. Unfortunately, there is no set framework for analyzing and discovering traps or even a fixed description of what constitutes a value trap.

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However, according to Wall Street legend Joel Greenblatt, a value trap can be defined as a "low return" business or a company that is destroying value for shareholders.

These businesses are often undervalued, and as a result, look attractive to value investors, but they are usually cheap because they deserve to be "I won't pay for a value destroyer," Greenblatt once told...