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The Defensive Value Investor by John Kingham

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Chapter 7. Value Traps

“Can you believe that in 1975 I bought Waumbec Mills, another New England textile company? Of course, the purchase price was a ‘bargain’ based on the assets we received and the projected synergies with Berkshire’s existing textile business. Nevertheless – surprise, surprise – Waumbec was a disaster, with the mill having to be closed down not many years later.”

Warren Buffett

Companies trading at attractive prices are almost always unpopular. That’s fine with me, as long as the unpopularity is caused by a minor problem that can be fixed quickly and cheaply. What I want to avoid are value traps – companies that are unpopular because they’re heading into permanent decline or where a major crisis is about to explode.

In the ...

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