Photo: Bloomberg TV
Hedge fund titan Jim Chanos, the founder of Kynikos Associates, gave a presentation last week at ValueX Vail on how to spot a company that looks good, but is actually a value trap. [via Jacob Wolinksy at ValueWalk]Chanos, who famously shorted Enron before the company’s demise, says that good, value stocks have definitive traits such as predictable, consistent cash flow, defensive and/or defensible business, Independence from superior management, low/reasonable valuation, margin of safety using many metrics and reliable, transparent financial statement.
Value traps, on the other hand, have some common characteristics. They may have cyclical products and/or may be overly dependent on one product, hindsight drives expectations in these companies, they use marquis management and/or famous investor(s), and it probably appears cheap using management’s metric and accounting issues, according to Chanos.
In his presentation, Chanos mentions five different value traps and names some stocks, too.
We’ve included all of his slides thanks to Vitaliy Katsenelson who posted them on Scribd.
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