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Where are the Target Prices Mr MCM? - Views on News from Equitymaster
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Where are the Target Prices Mr MCM?
Nov 4, 2016

It's nothing short of troubling for some of our MCM subscribers...

'What are the target prices for these stocks you've recommended? I can't find them anywhere!', they ask. And strangely, there is no answer. There is no target price.

Not a pre-defined one, at least. And not surprisingly, many are left confused and skeptical. We admit that an explanation is in order.

So just why is there no pre-determined target price for an MCM stock at the time of recommendation? There's a bunch of reasons actually. Here they are:

  • One of our basic sell criterion is to sell a stock when it crosses a return of 50% to 100%. But even after such return is achieved, we sometimes find that a stock has more steam left. Now what does 'more steam left' mean? For one, sometimes we get to buy stocks ultra-cheap. In which case, even after the stock has gained 50% or more, we might be of the opinion that the company is still looking quite undervalued. In which case it becomes a good idea to continue to hold on to it. We've successfully done this with many stocks in the past. Take a look at our latest sell on Kanoria Chemicals and Industries. We sold it at a 145% gain. When we recommended a buy on it, it was trading at a dirt cheap valuation of 0.32 times price to book value. Even after its initial gain of 50%, it was still quite cheap so we decided it was better to continue to hold. You will find many more examples. Just have a look at our long list of MCM closed positions.
  • Another reason is that MCM in a sense is a special service. In that unlike many of our other services, stock recommendations are not an absolute, standalone recommendations. Rather, here we ask you to set aside a chunk of your money for the service, and then tell you how you must spread out that money in the different types of actions we ask you to take, including investing in a dynamic fixed deposit component. This makes individual stock buy/sell decision-making not a standalone independent exercise. Instead they are also made with due consideration to what we are doing in the other parts of the MCM corpus at that point. The percentage allocation to stocks at that point, market valuations, availability of other stocks at cheaper prices etc all play a role. To illustrate, if our stock component is at 25% of total funds (which is the minimum in this service) and some of the stocks have reached full price, despite that we might choose to continue to hold them. Conversely, if we have reached our maximum of 75% allocation of total funds in stocks, and we find that a better bargain is available than one of our existing stocks, we might prematurely sell it to replace it with the cheaper new one.
  • There will be times when we'll need to give a sell on a stock well before its time due to an unexpected change in fundamentals or any other such stock specific factor.
  • Yet another reason for selling a stock before time could be if it breaches the two-year holding period. As you may know, we have a maximum holding period two years as one of our sell criteria. At that point, it doesn't matter if a stock has reached a particular price or not, we still recommend to sell it off. And that could be even at a loss.
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DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

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DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
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