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« Weighing the Week Ahead: Time to Worry about China? | Main | The Most Important Economic Questions for Investors »

March 27, 2012

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Chris Tinker

I think that you will find that price targets are rarely worth the paper they are written on - they are not really designed to reflect a rational risk/reward trade off as they are done at a single stock - or at most a sector level and the time frames are rarely explicit. Essentially they represent a guess of where a DCF model might suggest "value" lies and typically feature a presumption about a "normal" valuation multiple. This approach is typically not systematic or "learnt" in the sense that a failure to reach a target rarely prompts a variation in the forecast approach. Bottom line is that Analysts are not rewarded for their target prices so they receive relatively little focus.

 Lasse Rochstad-Lim


Hi Jeff,

I note that there was a reference to your article above by Mr Mick Weinstein at Trading Deck in Marketwatch. However, i have noticed that MW now very often use very "catchy headlines" which does disservice to the articles content. The article has the heading "Analysts Price Targets are for Losers". That did grab my attention. However that is not exactly what your article says...

Anyway .......

I have advocated in MW and CBNC that someone ought to start a proper ranking of analysts accuracy. I don't think there is one. Please correct me if I am wrong.

If someone could build a record over say 5 to 10 years showing how accurate their BUY/SELL/HOLD recommendations and their price target is, it would be meaningfull.

My experience, like yours and many other investors is that Analyst's price targets are often not very relevant nor accurate.

Tudor Investment Holdings Pte Ltd
Singapore

Chris Tinker

Hi Jeff,
I agree entirely with your thoughts on this. My market timing and valuation approach does exactly that - it re estimates on the basis of new information on Earnings, cash flow, sales, book value and Ebitda. It enables me to put together a rolling 1 month, 2 month and 12 month target price which changes daily dependent upon information shifts INCLUDING changes in the price. Risk is then a function of how far the price is from value and the outlook (trend) of that value. I've been running this approach for 8 year now and really struggle with comprehending how any static price target approach can possibly work.

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