As per Scott Fearon, CFA, on Bad Connection: What Today’s Investors Can Learn from the Death of the Pay Phone
Back in the late 1990s, I received a steady stream of research reports from prestigious Wall Street brokerages recommending the stocks of, you guessed it, publicly traded pay phone companies. There were four of them still in business at the time, and as the reports pointed out, they were all attractively “cheap” by traditional valuation measures, such as their price-to-earnings multiples or market capitalization-to-revenues ratios. Not only that, but recently enacted deregulation was allowing pay phone operators to boost the prices they could charge for local calls, leading to predictions of new “windfalls” on Wall Street and in the financial media. Of course, in hindsight, we can see that those forecasts were wildly off the mark and that there was a clear reason those stocks were such bargains: They were well on their way to oblivion. The widespread adoption of cellular phones had already started, and it wasn’t going to stop. But at the time, many investors dropped their coins into the slots of these classic value traps and never got them back.