The stock market’s wild trading recently has raised the specter of a bear market emerging from hibernation. That means it’s time for investors conditioned to buy all declines to be mindful of the “value trap” — a declining stock, sector, or index that appears cheap after a selloff but keeps declining.
Or in Wall Street parlance, when investors try to “catch a falling knife.”
This year’s biggest value trap has been the energy sector — especially companies involved with oil production. From June 2014 through August 17, oil dropped from its peak of slightly more than $100 per barrel, to the low-$40 range, before rebounding to near-$50 on Monday.
