Value Trap Analysis- Blackstone (BX)

Financial Modeling and Valuation
Individual Essay Assignment – Value Trap
Analysis
(In favor of Blackstone (BX))

The term “value
trap” refers to the tendency that certain value investors stick to their stocks
with possibly attractive price to earnings ratio even when the stocks does not
appreciate in price. When in a value trap, a portfolio of value stocks can be
flat or even lose money for a sustained period. For example, many investors believe
that technology stocks are overvalued. They stay on the sidelines and miss
investments opportunities in companies like Amazon or Tesla. In this section,
we want to explore how one can spot value traps and how one can avoid them. The
essay calls for defining and proposing new measures or ideas on how to assess
value and growth stocks and how to define market environments that would be
propitious to be in value stocks.
Similar to
the investment project summary, the deliverable for this essay is a two-page
write-up that will construct an argument in favor of an investment opinion. For
example, this opinion could be as follows:
“Yes, we believe some
value-oriented investors are in a value-trap and they have missed ten years of
great investment opportunity in recent years after the credit crisis. We
recommend that investors start increasing substantially their allocation to the
technology and growth sectors of the economy.’’
All written reports for
this project should be single-spaced and completed using appropriate report
formatting. For additional direction on
formatting, we refer you to the APA Style Manual available in the “Getting Started”
section of Blackboard. All reports are
limited to the length stated. Your
write-up must include all necessary tables and charts in the body of the
report, additional appendices that go beyond the length maximum are not
allowed.
The goal is
to be able to document that argument with data, and to be forward looking. While it is very difficult to predict the
market, it is important to notice that you will write this essay as an
investment advisor. Therefore, your potential clients expect you to have a view
and defend that view. Otherwise they will not pay you an advisory fee. Below
are some suggested steps that you could take to construct your argument. You
are free to follow or not to follow these suggestions. As its name indicates,
these are only suggestions. Nothing prevents you from constructing your essay
in a totally different way.
Define an
investment universe: That will allow you to focus on one index or investment pool. For
example, the S&P 500 or NASDAQ or the Media sector.
Support your
opinion with data: While this essay is more an opinion piece, it will be more convincing to
your potential investors if you can demonstrate that you have studied the data
and anchoring your view on solid data.
Construct a
forward-looking opinion: As mentioned previously, we are trying to produce an opinion as close as
possible to a practical and real-life investment advisory business. In this
context, you need to clearly express a view and give clear guidance of
investment advice with respect to the value trap idea

Grading Rubric
You will
be evaluated on a scale of 1 to 5 for each of the following components of your
essay for a total point value of 20 points.
·
Format – Assignment parameters
(length, subject, objectives) observed, clear and coherent focus (good sense of
audience); orderly development of ideas; sentence fluency coherent, unified,
varied; correct spelling, punctuation, capitalization; appropriate word choice.
·
Insight alpha and risk assessment –
provide substantive rational for your view on the validity or invalidity of the
value trap proposition. Provide a clear explanation of how your view adds
value, and how it is different from the prevailing wisdom. Determine the risk
measures that are the most relevant for your proposition and estimate clearly
all the downside risk measures associated with your view.
·
Analytics –
Clearly identify the source of data and the relevance of the data in the
context of your essay. Provide a clear
explanation, relevance and justification of the analytical models.
·
Recommendation and Forecasting time horizon –
provide clear recommendation and defend your view in a rational way. Provide a
clear time-horizon for the validity of your value trap proposition. In other
words, how long do you think your proposition will remain valid going forward?

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