Category: ForecastingFolly

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ForecastingFolly

Forecasting Folly:Aarti Drugs

This post is in continuation of my forecasting folly series (see here)

One characteristic of a bull market is that brokerage reports tend to  “chase the price”.

What usually happens is that a brokerage firmt issues a report with a buy recommendation and a target price.

However the markets being exuberant, the stock price moves up quickly leaving the target price in the dust.

Hence the equity analyst is forced to issue another report with a higher target price and the process repeats itself.

This “chase the price” is beautifully illustrated by the example of Aarti Drugs.Many thanks to Abhishek Pradhan for bringing this to my attention.

On June 26,2013, Sunidhi Securities issued a buy recommendation on Aarti Drugs with a target price of Rs.260.The stock was quoting at 190 Rs/share then

Then the bull market took off and prices of all securities started zooming.

So on May 02.2014, Sunidhi Securities issued another buy recommendation on Aarti Drugs with a target price of Rs.444.The stock was quoting at 355 Rs/share then.

The bull market continued unabated.

So Sunidhi Securities did what any self-respecting brokerage would.

On August 12.2014, Sunidhi Securities again issued a buy recommendation on Aarti Drugs with a target price of Rs.1031.The stock was quoting at 699Rs/share then.

So in one year the target price has gone up by 4x !!

Forecasting Folly, anyone ?

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ForecastingFolly

Forecasting Folly:MHRIL

This post is in continuation of my forecasting folly series (see here)

As the Just Dial IPO creates a buzz, I am reminded of another IPO-Mahindra Holidays & Resorts India Ltd (who run the popular Club Mahindra chain of resorts)  which listed on June 2009 with an offer price of Rs.300 per share.

Four Years Later, the stock is hovering around Rs.255 per share-around 15% below its offer price.Not only that, the promoters have also sold a part of their stake last month to institutional investors at Rs.255 per share

Now, it is interesting to remember what Arun Nanda,Chairman of MHRIL said at the time of the IPO

Between Anand Mahindra and I, we decided to leave a lot on the table and we feel that this should deal us very attractively priced. We have left a lot on the table.If you look at three previous years, our CAGR grew at more than 100% and we get 35% sales from existing customers referring new customers. So honestly speaking, I am quite bullish about the business and in fact I tell my friends that this is a wealth stock, this is one stock which will create tremendous wealth for its customers.

 

Forecasting Folly, anyone?

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ForecastingFolly

Forecasting Folly:Parekh Aluminex

This post is in continuation of my forecasting folly series (see here).

On Nov 16,2012, Firstcall Research put out a buy recommendation on Parekh Aluminex with a price target of Rs.357.

What happened next was a truly tragic and a black swan event.

On Jan 6, 2013, the founder and the driving force behind the company Amitabh Parekh passed away (Blogged his obituary here)

The stock started tanking immediately and brought out the fact one-man companies carry an inherent KeyMan risk.

Now, the price of Parekh Aluminex is quoting at a 52 week low of 72.75 Rs.This is around 20% of the original target price set only 5 months back !

Forecasting Folly, anyone?

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ForecastingFolly Speeches

Trying too hard

Am grateful to reader Pramod for sharing this wonderful article.This is a speech by Dean Williams of Batterymarch Financial Management given in 1981 to the Financial Analysts Federation.There are plenty of gems in this must-read speech which every investor must read.

[gview file=”https://alphaideas.in/wp-content/uploads/2013/04/Williams-Trying_too_Hard.pdf”]

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ForecastingFolly

Forecasting Folly:Cox & Kings

This post is in continuation of my forecasting folly series (see here)

On March 31, 2012, Dalal Street’s finest at ICICI Direct put out a buy call on Cox & Kings.The then prevailing price was around 163 Rs and the target price given was Rs.195 (implying an upside of around 20%).

By Nov 16, 2012, the price of Cox&Kings had fallen to around 140 Rs.The good folks at ICICI Direct maintained their buy call and revised the target price to 170 Rs

Now exactly 4 months later, on April 16, 2013 ,Cox&Kings closed at 126 Rs.This is around 36% below the original target price.

Forecasting folly, anyone?