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Managing a Portfolio I - Stop Wasting Time, Start Adding Value, Part V
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Managing a Portfolio I - Stop Wasting Time, Start Adding Value, Part V

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In six parts Andrew Stotz will teach you how to Stop Wasting Time and Start Adding Value on the two topics: Stock picking and Managing a portfolio. ...

In six parts Andrew Stotz will teach you how to Stop Wasting Time and Start Adding Value on the two topics: Stock picking and Managing a portfolio.

In the last two parts the focus will be on managing a portfolio. In this fifth part YOU will learn why target prices destroys value and how accurate financial analysts are in their predictions.

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Managing a Portfolio I - Stop Wasting Time, Start Adding Value, Part V Managing a Portfolio I - Stop Wasting Time, Start Adding Value, Part V Presentation Transcript

  • STOP Wasting Time START Adding Value2014-05-27 Target Prices Destroys Value WARNING: Analysts are Mainly Wrong Part V: Managing a Portfolio I
  • Pick stocks Managing a portfolio Forecasting Value drivers Five factors of return Risk matters more Stop targets Reduce action Every day is new 27 May 2014 2 In six parts Andrew Stotz will teach how to Stop Wasting Time and Start Adding Value in stock picking and portfolio management. In Part V & VI the focus will be on portfolio management. Source: A. Stotz Investment Research
  • RISK MATTERS Risk management matters more than maximizing return Markets rebound - stocks not always 27 May 2014 3Source: A. Stotz Investment Research
  • STOP TARGETS AVOID target prices They destroy value 27 May 2014 4Source: A. Stotz Investment Research
  • CAN AN INVESTOR RELY ON TARGET PRICES TO MAKE MONEY? Source: A. Stotz Investment Research
  • Started with 16,500 stocks in Asia ex- Japan from year-end 2003 to 2013 Removed 9,000 stocks that were small, had low trading volume or were inactive during any of the years Then removed the 2,200 China A-shares stocks, leaving 5,300 available stocks Our tested universe had 1,200 stocks which, over the 10 years, were covered by at least three analysts and had target prices 27 May 2014 6 CAN AN INVESTOR RELY ON TARGET PRICES TO MAKE MONEY? Source: A. Stotz Investment Research
  • 27 May 2014 7 Methodology Identify the 12-month expected return based on analyst consensus target price Compare this to the actual return over that period and look at the difference. We repeat this every month to consider analysts’ adjustments over the year Average the results that we get across the period Make a histogram of intervals of consensus accuracy CAN AN INVESTOR RELY ON TARGET PRICES TO MAKE MONEY? Source: A. Stotz Investment Research
  • ANALYSTS ARE OVERLY OPTIMISTIC 27 May 2014 8Source: A. Stotz Investment Research
  • WHAT DOES ACCURATE MEAN TO YOU? 27 May 2014 9Source: A. Stotz Investment Research This is our definition of an accurate target
  • “Right” 18% of the stocks “Right” 35% of the stocks ANALYSTS IN ASIA WERE OVERLY OPTIMISTIC 27 May 2014 10Sources: A. Stotz Investment Research, FactSet
  • ANALYSTS CAN’T PREDICT TURNING POINTS 27 May 2014 11Source: A. Stotz Investment Research
  • ANALYSTS CAN’T PREDICT TURNING POINTS 27 May 2014 12Sources: A. Stotz Investment Research, FactSet
  •  In Asia, only 18% of the time were analysts’ targets accurate  On about half of all stocks the average analyst missed his target by more than 30% - WOW!  Analysts can’t predict turning points  Abandon any reliance on target prices, maybe even stop making them 27 May 2014 13 WHAT WE HAVE LEARNED Source: A. Stotz Investment Research
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