Cheap cash-rich companies on SGX: Opportunity or trap?

A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the 'bargain purchase' will make that puff all profit. - Investor Warren Buffett, in 1989 Berkshire Hathaway shareholder letter, beginning a section on his bargain-buy mistakes

THE concept is attractive in theory but far harder, even foolhardy, to execute in practice. If you can buy a $1 stock on paper trading at 60 or 70 cents, why not? Such is the thinking behind bargain-hunting, or attempting to buy stocks trading cheaply by various metrics.

The siren song of cheap stocks has lured many a wannabe value investor to his doom. For example, investors wrongly think that just because a stock is trading at a price to book (PB) ratio of less than one, it is cheap and worth buying.