Motley Fool: Avoiding Value Traps

Investors are always told to look forward and not back when buying shares. But when a reader recently wrote me extolling Character Group (LSE: CCT) I replied saying that I didn’t like the shares because of the company’s chequered past. On reflection, though, I wondered whether I should have been so scathing because of the company’s past indiscretions.

Character Group, which buys licences to make merchandise such as toys and dolls, was a popular share among private investors in the nineties. For example, it won the rights to reproduce the figures in the Star Wars movie, which should have been a licence to print money. But the project turned out to be a major flop, and clearing unsold Star Wars merchandise forced the company to issue a profit warning….

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