3 'nightmare' ASX 200 value traps I wouldn't buy with free money

Want to sleep well at night? Don't touch these shares.

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Part of the job of a successful investor in ASX 200 shares is sorting out the wheat from the chaff, the winners from the losers. The stock market is home to hundreds of different companies. Only some will prove to be winners over time. Other companies will inevitably end up burning and burying their investors, and prove to be value traps.

I'm an investor who has had my fair share of other winners and losers. So today, let's discuss three ASX shares that I think will prove to be nightmare investments and that you couldn't convince me to buy even if you gave me free money.

Three ASX 200 shares I'd steer clear of for a good night's sleep

Magellan Financial Group Ltd (ASX: MFG)

Magellan has had one of the most dramatic falls back to earth of any ASX 200 share in recent memory over the past few years. Back in early 2020, this company was riding high at over $70 a share. But fast forward to today, and the stock is languishing at under $7.

A series of scandals continues to reverberate within this company. Its star stock picker Hamish Douglass, left the company in 2021 amid a blaze of controversy. After that, he promptly offloaded a huge chunk of shares after calling this notion "absurd" only a few months prior.

Even today, Magellan continues to bleed funds under management (FUM) seemingly every month. As such, I think this continues to be a poor investment, and I would happily steer clear.

Qantas Airways Limited (ASX: QAN)

I don't enjoy unloading on ASX 200 stock Qantas, which was, at least until recently, a point of national pride and a symbol of Australia to the world. However, One cannot deny that long-term Qantas shareholders have not seen much in the way of wealth creation. To illustrate, the shares closed at the same levels this week as you could have bought them way back in 1999.

That's a long time to cruise at the same altitude.

But I think airlines are some of the weakest shares one can invest in from a fundamental standpoint. They have enormous overhead costs, extremely volatile demand for their services, and profits that are subject to the whims of a flurry of external factors, including fuel costs, travel demand, currency fluctuations and the economic cycle.

Further, most of Qantas' competitors on the international stage are at least partially state-owned. Talk about a tilted playing field.

Warren Buffett agrees. He once said that "if a far-sighted capitalist had been present at Kitty Hawk [site of the first Wright brothers flight], he would have done his successors a huge favor by shooting Orville down".

So with all this in mind, I would never recommend Qantas, or any other airline for that matter, to an ASX 200 investor who actually wants to make money on the share market. Sorry patriots.

WAM Capital Ltd (ASX: WAM)

Finally, let's talk about WAM Capital Ltd (ASX: WAM). This listed investment company (LIC) has been around for a while. It is not technically an ASX 200 share but has a market capitalisation that puts it amongst the largest ASX 200 stocks on our market.

Yet far from delivering share price growth, you could have bought WAM Capital shares this week for the same price that they were going for in 2002.

Just like other Wilson Asset Management LICs like WAM Research Ltd (ASX: WAX), WAM Strategic Value Ltd (ASX: WAR) and WAM Global Ltd (ASX: WGB), the latter of which I once had the misfortune of owning, this company's share price just never seems to go anywhere.

If you had the ill luck of buying WAM Capital stock back in 2017, when they were going for $2.60, you'd be nursing a loss of more than 40% today.

An income-hungry investor might point to WA Capital's present dividend yield of over 10% and be tempted to buy. However, the company's latest financial updates tell us that it doesn't have enough profits to cover even one year's worth of dividend payments at their most recent levels.

In my view, this is a nightmare investment that I wouldn't recommend to anyone wishing to sleep well at night. Particularly a retiree.

Motley Fool contributor Sebastian Bowen has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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