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 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
- 1. STOP Wasting Time START Adding Value2014-05-27 Target Prices Destroys Value WARNING: Analysts are Mainly Wrong Part V: Managing a Portfolio I
- 2. 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
- 3. RISK MATTERS Risk management matters more than maximizing return Markets rebound - stocks not always 27 May 2014 3Source: A. Stotz Investment Research
- 4. STOP TARGETS AVOID target prices They destroy value 27 May 2014 4Source: A. Stotz Investment Research
- 5. CAN AN INVESTOR RELY ON TARGET PRICES TO MAKE MONEY? Source: A. Stotz Investment Research
- 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 27 May 2014 6 CAN AN INVESTOR RELY ON TARGET PRICES TO MAKE MONEY? Source: A. Stotz Investment Research
- 7. 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
- 8. ANALYSTS ARE OVERLY OPTIMISTIC 27 May 2014 8Source: A. Stotz Investment Research
- 9. WHAT DOES ACCURATE MEAN TO YOU? 27 May 2014 9Source: A. Stotz Investment Research This is our definition of an accurate target
- 10. “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
- 11. ANALYSTS CAN’T PREDICT TURNING POINTS 27 May 2014 11Source: A. Stotz Investment Research
- 12. ANALYSTS CAN’T PREDICT TURNING POINTS 27 May 2014 12Sources: A. Stotz Investment Research, FactSet
- 13. 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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