STOP
Wasting Time
START
Adding Value2014-06-03
REVEALED: Analysts Can't
Even Predict the Direction of
a Stock
Part VI: Man...
Pick stocks
Managing
a portfolio
Forecasting
Value drivers
Five factors of return
Risk matters more
Stop targets
Red...
STOP TARGETS
AVOID
target prices
They
destroy
value
3 Jun 2014 3Source: A. Stotz Investment Research
CAN ANALYSTS GIVE
THE RIGHT DIRECTION?
3 Jun 2014 4Source: A. Stotz Investment Research
CAN ANALYSTS’ TARGET PRICES
PREDICT THE FUTURE DIRECTION
OF A STOCK?
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 tr...
Methodology
 At each month’s end use consensus target price to determine if it predicts an
upside/downside of each stock ...
CONSENSUS IS SIMILAR
TO A COIN FLIP
3 Jun 2014 8
58 56 57
62
32 34
59
50
37
52
50
-
10
20
30
40
50
60
70
80
90
100
2003 20...
MOST RIGHT IN A BULL-RUN,
MOST WRONG IN A BEAR-MARKET
3 Jun 2014 9
Sources: A. Stotz Investment Research, FactSet.
Note: *...
 About a 50% chance that just the direction of
consensus target price was correct
 Target prices are rarely accurate, bu...
REDUCE ACTION
Action destroys value
Stay invested
3 Jun 2014 11Source: A. Stotz Investment Research
Think that every day is new
- unrealized loss is real
3 Jun 2014 13Source: A. Stotz Investment Research
Share this with your friends
www.andrewstotz.com
Follow
me on:
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Managing a Portfolio II - Stop Wasting Time, Start Adding Value, Part VI

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

You have learned how target prices destroy value and how inaccurate financial analysts are in their
predictions. In part 6 YOU will learn about the accuracy of analysts in predicting just the DIRECTION a stock will move, and how similar it is to the toss of a coin.

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Managing a Portfolio II - Stop Wasting Time, Start Adding Value, Part VI

  1. 1. STOP Wasting Time START Adding Value2014-06-03 REVEALED: Analysts Can't Even Predict the Direction of a Stock Part VI: Managing a Portfolio II
  2. 2. Pick stocks Managing a portfolio Forecasting Value drivers Five factors of return Risk matters more Stop targets Reduce action Every day is new 3 Jun 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
  3. 3. STOP TARGETS AVOID target prices They destroy value 3 Jun 2014 3Source: A. Stotz Investment Research
  4. 4. CAN ANALYSTS GIVE THE RIGHT DIRECTION? 3 Jun 2014 4Source: A. Stotz Investment Research
  5. 5. CAN ANALYSTS’ TARGET PRICES PREDICT THE FUTURE DIRECTION OF A STOCK? Source: A. Stotz Investment Research
  6. 6. 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 3 Jun 2014 6 CAN ANALYSTS’ TARGET PRICES PREDICT THE FUTURE DIRECTION OF A STOCK? Source: A. Stotz Investment Research
  7. 7. Methodology  At each month’s end use consensus target price to determine if it predicts an upside/downside of each stock relative to its current price at that point in time  If consensus predicts a stock will have an upside/downside in the next 12 months and the stock moves in that same direction then we assign 1 for that month, if not we assign 0  Sum the monthly 1’s then divide this by the number of months that had target prices – above 0.5 means consensus target price gave the right direction for that stock in that year  Then calculate the percentage of stocks where consensus gave the right direction for each year, relative to the total number of stocks covered in that year CAN ANALYSTS’ TARGET PRICES PREDICT THE FUTURE DIRECTION OF A STOCK? 3 Jun 2014 7Source: A. Stotz Investment Research
  8. 8. CONSENSUS IS SIMILAR TO A COIN FLIP 3 Jun 2014 8 58 56 57 62 32 34 59 50 37 52 50 - 10 20 30 40 50 60 70 80 90 100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Consensusgivesthe right direction about target price 10yr-average (%of total stocks) Sources: A. Stotz Investment Research, FactSet
  9. 9. MOST RIGHT IN A BULL-RUN, MOST WRONG IN A BEAR-MARKET 3 Jun 2014 9 Sources: A. Stotz Investment Research, FactSet. Note: *China A-shares are analyzed separately from Asia ex-Japan, data is from 2006-2012 45 45 47 50 51 52 53 54 64 65 - 10 20 30 40 50 60 70 80 90 100 Consensusgivesthe right direction about target price Asiaex-Japan (%of total stocks) Taiwan had a10yr- return of 4.2%p.a. Philippineshad a10yr- return of 20.1%p.a.
  10. 10.  About a 50% chance that just the direction of consensus target price was correct  Target prices are rarely accurate, but worse - analysts can’t even figure out whether a stock will go up or down  Analysts are most right in bull-markets  Stop wasting time with targets 3 Jun 2014 10 WHAT WE HAVE LEARNED Source: A. Stotz Investment Research
  11. 11. REDUCE ACTION Action destroys value Stay invested 3 Jun 2014 11Source: A. Stotz Investment Research
  12. 12. Think that every day is new - unrealized loss is real 3 Jun 2014 13Source: A. Stotz Investment Research
  13. 13. Share this with your friends www.andrewstotz.com Follow me on:

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