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Deep value stocks can be risky to own if you don’t put in the proper amount of homework, lack conviction in your investment thesis, or just don’t have the time horizon to hang onto a laggard before the market has a chance to correct its pricing mistake to the upside. Undoubtedly, there’s a fine line between a deep-value stock and a value trap. Indeed, everybody wants to avoid the latter, but far too many mistake the former for the latter in search of higher reward potential.
At the end of the day, catching fast-falling knives can be riskier than momentum investing if you don’t put in the proper amount of due diligence. That said, if you’re a seasoned investor who’s spotted a vast disparity between a stock’s market price and its intrinsic value, it may be worthwhile to punch your ticket. Just don’t expect the stock to be where you think it ought to be overnight. It could…
