How do you know when to buy low or sell high?
As the title states, the Value Trap Indicator will effectively help you buy low and sell high when you are investing. The Value Trap Indicator is able to do this by utilizing basic ratios encompassing 7 investing categories, only allowing those who follow my method to buy a company when it is on solid footing and an undervalued price. As another backtest to prove the Value Trap Indicator’s effectiveness, I looked at the company financial history of Corning ($GLW) from 1994-2012. The formula correctly predicted this stock’s crash, and would’ve warned patient investors of this value trap prompting them to sell high before it crashed in 2001.
Note that the stock was a buy in early 2012, and still looked good late into the year. The stock looks primed for a strong uptrend, for the intelligent investor who is willing to wait and see. For investors wanting to use the Value Trap Indicator in their stock decision making process, use the current market price in your calculations, but with all other data from the latest 10-k report (latest 3 reports for earnings growth).
Sell High, Avoid Turmoil
Now if we peek at previous history, we see a buy signal in Q4 of 1995. At an average stock price [Q4 Stock Price High minus Q4 Stock Price Low in company’s 10-k] of $28.75, this play would’ve yielded a profit of 45.6% when sold in Q4 of 1996 at $41.87, when the Value Trap Indicator crossed over 900. This is solid proof of the equation prompting an investor to sell high. Following this guidance also would’ve protected investors from the turmoil of the following years as the company experienced growing pains. Also, a rule of the Value Trap Indicator is to never buy when a company has negative earnings for the year, as Corning did in 2001. This prevents investors from “trying to catch a falling knife” and again would’ve benefited investors who took heed to the false buy signal in Q4 of 2001 that was precipitated by an even greater stock price crash.
To understand the fundamental background of the Value Trap Indicator and examine its 7 elements, read through the Investing for Beginners 101 guide. How has the information in this website helped you with your investing? Leave a comment, I’d love to find out.
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**Sell High, Buy Low with the Value Trap Indicator**