Target Prices Destroys Value

When managing your portfolio one important thing to consider is to limit the downside. To limit your downside is very important for your terminal wealth, and your terminal wealth is what matters. If you can limit your downside, the compounded returns will do the job for you building your terminal wealth over a longer time period. An important lesson to learn is that markets’ rebound, but stocks’ don’t always.Now to the title of this blog post, “Target Prices Destroys Value”, what do I mean by that? Actually, I mean exactly what it says, they will destroy your value. I’ve done research on Asian markets to see how accurate analysts’ target prices are. As you probably already know, no one can foresee the future. With that in mind I would define a target price as accurate if the the target price is within the range of +/-10% of the actual price of the stock 12 months after the target price was set. Unfortunately, in Asia, only 18% of analysts’ target prices are accurate per this definition. What is even more scary is that more than half of the time analysts’ miss their target prices by more than 30%, being both overly optimistic and overly pessimistic.

In the¬†slideshare below you can find out whether analysts’ at least can predict when the market turns. My conclusive advice to YOU is to make sure to limit YOUR downside and stop relying on target prices!