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 How Accurate are the Fair Values, Provided by Investment Banks?

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TSbryan5073
post Mar 20 2012, 11:36 PM, updated 13y ago

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From your years of experience, how accurate are the intrinsic and/or fair values provided by the Investment Banks in their research reports?

Or rather which IB provides the most accurate/reliable research reports?
river.sand
post Mar 21 2012, 08:20 AM

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hmm... I don't know how accurate they are. But according to author Lisa Epstein, analyst reports from investment banks tend to sound optimistic. The reason is that they want to get you buying.
htt
post Mar 21 2012, 08:31 AM

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cherroy
post Mar 21 2012, 10:01 AM

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There is no such thing of accurate fair value of a stock.
Fair value is a subjective figure which depended on individual opinion.
For eg. an orange, A said fair value is RM1.00, B said Rm1.20, C said Rm1.50.
As long as one can come out some facts and opinion to back it, all are "correct".
dreamer101
post Mar 21 2012, 10:25 AM

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TS,

It is NOT IMPORTANT what the fair value is as they claimed. What you want is their THINKING PROCESS and the REASONING behind their assessment.

Do not rely on the answer. Look for the process to get to that answer.

Dreamer
TSbryan5073
post Mar 21 2012, 03:29 PM

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QUOTE(cherroy @ Mar 21 2012, 10:01 AM)
There is no such thing of accurate fair value of a stock.
Fair value is a subjective figure which depended on individual opinion.
For eg. an orange, A said fair value is RM1.00, B said Rm1.20, C said Rm1.50.
As long as one can come out some facts and opinion to back it, all are "correct".
*
I know there is no precise figure for a fair value of a stock, what I meant was:

- How reliable are the Research Reports by the Investment Banks?
- How much can we trust the Fair Value they give? (Which will in turn indicate how much effort they put in to calculate the FV)
- Can we do a better work calculating the Fair Value?
- All in all, it's a matter of how much can we rely on their reports?, that's all.

What do you guys think?

This post has been edited by bryan5073: Mar 21 2012, 03:30 PM
cherroy
post Mar 21 2012, 04:05 PM

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QUOTE(bryan5073 @ Mar 21 2012, 03:29 PM)
I know there is no precise figure for a fair value of a stock, what I meant was:

- How reliable are the Research Reports by the Investment Banks?
- How much can we trust the Fair Value they give? (Which will in turn indicate how much effort they put in to calculate the FV)
- Can we do a better work calculating the Fair Value?
- All in all, it's a matter of how much can we rely on their reports?, that's all.

What do you guys think?
*
Fair valuation given can change instantly overnight.
Today report gives fair value Rm5.00.
Next day revise to Rm3.00
Today have buy call
Tomorrow can have hold/sell call.

Reliable?
It is based on opinion respective.
So tell me, what is the reliability of opinion?

Why do you want to calculate fair value?

A stock should be evaluated whether it is not worth to invest or not Now only.
Who care what is the fair value, you care about as today market is worth or not to buy only, or to sell as well.

Report can give A stock fair value at RM5.00, the market price also can never achieve Rm5.00 for 10 years.
Or exceed the Rm5.00 forever without looking back .
So tell me what is the point of fair value?

This post has been edited by cherroy: Mar 21 2012, 04:06 PM
TSbryan5073
post Mar 21 2012, 04:27 PM

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QUOTE(cherroy @ Mar 21 2012, 04:05 PM)
Fair valuation given can change instantly overnight.
Today report gives fair value Rm5.00.
Next day revise to Rm3.00
Today have buy call
Tomorrow can have hold/sell call.

Reliable?
It is based on opinion respective.
So tell me, what is the reliability of opinion?

Why do you want to calculate fair value?

A stock should be evaluated whether it is not worth to invest or not Now only.
Who care what is the fair value, you care about as today market is worth or not to buy only, or to sell as well.

Report can give A stock fair value at RM5.00, the market price also can never achieve Rm5.00 for 10 years.
Or exceed the Rm5.00 forever without looking back .
So tell me what is the point of fair value?
*
To compare the stock's price and its value lo, so that we can know whether it is undervalued or not, so that we know whether to buy it or not...

Chill out cherroy bro... blink.gif blush.gif

This post has been edited by bryan5073: Mar 21 2012, 04:27 PM
firee818
post Mar 21 2012, 04:35 PM

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The investment banks analysts have put the BEST effort in computation of the fair value.

But, why most of the time the fair price calculated didn't reflect on the market?
1). They cannot get all the relevant information.
2). They don't know precisely the potential/future prospect of the companies. e.g. oil palm plantation co, how do they know the bosses are negotiating to buy land for planting.
3). They have miscalculated fair value by the false/fake information given.
4). They have been collabration with the directors, i.e not independent stock analysts.

However, the fair price calculated/reports can provide a good guide for u to analyse the companies, but u should not trust them 100%.


TSbryan5073
post Mar 21 2012, 04:51 PM

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QUOTE(firee818 @ Mar 21 2012, 04:35 PM)

The investment banks analysts have put the BEST effort in computation of the fair value.

But, why most of the time the fair price calculated didn't reflect on the market?
1). They cannot get all the relevant information.
2). They don't know precisely the potential/future prospect of the companies. e.g. oil palm plantation co, how do they know the bosses are negotiating to buy land for planting.
3). They have miscalculated fair value by the false/fake information given.
4). They have been collabration with the directors, i.e not independent stock analysts.

However, the fair price calculated/reports can provide a good guide for u to analyse the companies, but u should not trust them 100%.
*
Jeez you sound like working at an investment bank!  hmm.gif lol (no offence, just joking)

Well then, I guess the FVs they calculated are the best reference available for us lo... unsure.gif

This post has been edited by bryan5073: Mar 21 2012, 04:53 PM
cherroy
post Mar 21 2012, 04:51 PM

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QUOTE(bryan5073 @ Mar 21 2012, 04:27 PM)
To compare the stock's price and its value lo, so that we can know whether it is undervalued or not, so that we know whether to buy it or not...

Chill out cherroy bro...  blink.gif  blush.gif
*
Rely blindly on figure without understanding the figure, is as good as no figure. smile.gif

If the fair value is so "accurate" to identify undervalued and lead to success in investment, then many analysts already become billionaire already.

As a starting point make it simple.
You invest Rm1.00 in a company, if the company can generate profit Rm0.03 for you, is it worth?
or
invest in RM1.00 in a company, while the company has cash of RM1.10 per share, is it worth?


TSbryan5073
post Mar 21 2012, 05:03 PM

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QUOTE(cherroy @ Mar 21 2012, 04:51 PM)
Rely blindly on figure without understanding the figure, is as good as no figure.  smile.gif

If the fair value is so "accurate" to identify undervalued and lead to success in investment, then many analysts already become billionaire already.

As a starting point make it simple.
You invest Rm1.00 in a company, if the company can generate profit Rm0.03 for you, is it worth?
or
invest in RM1.00 in a company, while the company has cash of RM1.10 per share, is it worth?
*
Well, I always thought those highly skilled analysts are rich guys. Apparently, they aren't?

@ generate profit RM0.03 for me: So I'll assume this 3 cents = dividend, it would be 3% yield, so it's not much different from FD

@ Company has cash of RM1.10 per share: Assuming the 10% = Free Cash Flow, then not bad. The company is in good shape and most probably can pay us a hefty sum of dividends after using it for other purposes (acquisitions, buy back shares etc.)

I'd probably go for the 2nd company.

Is my interpretation correct? Forgive me if wrong... Newbie here... tongue.gif Pls correct me if wrong. Always willing to learn wink.gif Thanks!

This post has been edited by bryan5073: Mar 21 2012, 05:05 PM
htt
post Mar 21 2012, 05:15 PM

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QUOTE(bryan5073 @ Mar 21 2012, 05:03 PM)
Well, I always thought those highly skilled analysts are rich guys. Apparently, they aren't?

@ generate profit RM0.03 for me: So I'll assume this 3 cents = dividend, it would be 3% yield, so it's not much different from FD

@ Company has cash of RM1.10 per share: Assuming the 10% = Free Cash Flow, then not bad. The company is in good shape and most probably can pay us a hefty sum of dividends after using it for other purposes (acquisitions, buy back shares etc.)

I'd probably go for the 2nd company.

Is my interpretation correct? Forgive me if wrong... Newbie here... tongue.gif Pls correct me if wrong. Always willing to learn wink.gif Thanks!
*
Money not in your hands is not money... tongue.gif
noswear
post Mar 21 2012, 05:33 PM

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ahhaha i think u should make your topic more interesting

ie shark (speculator) vs investment bank analyst

which would you choose... rclxms.gif
foofoosasa
post Mar 21 2012, 06:28 PM

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Well my opinion is..
I never trust any value computed by any IBs. Never
Few simple reason,

We have seen the fact that there is conflict of interest between the companies recommended and IBs. They only care their own interest not we the investor. They can be the shark behind or manipulator or just care the interest in the perspective of the researched company instead of us.

Value do Change Every time, though it won't change as frequent as share price...as long as "price sensitive" information is known to public..the value of company do change. All the assumption or expectation used by analyst we don't know.They only give us the outcome of computation of the value. So it is pointless in my opinion. Usually I ignore all those value/ TP provided by them but only care to look other important information in the research report.

But if you noticed that most of IB here provide TP instead of value. That's slightly difference between the two term.

just my 2 cents

This post has been edited by foofoosasa: Mar 21 2012, 06:28 PM
TSbryan5073
post Mar 21 2012, 07:21 PM

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QUOTE(foofoosasa @ Mar 21 2012, 06:28 PM)
Well my opinion is..
I never trust any value computed by any IBs. Never
Few simple reason,

We have seen the fact that there is conflict of interest between the companies recommended and IBs. They only care their own interest not we the investor. They can be the shark behind or manipulator or just care the interest in the perspective of the researched company instead of us.

Value do Change Every time, though it won't change as frequent as share price...as long as "price sensitive" information is known to public..the value of company do change. All the assumption or expectation used by analyst we don't know.They only give us the outcome of computation of the value. So it is pointless in my opinion. Usually I ignore all those value/ TP provided by them but only care to look other important information in the research report.

But if you noticed that most of IB here provide TP instead of value. That's slightly difference between the two term.

just my 2 cents
*
Value change becoz of price sensitive info? Eh... With all due respect, did you get it wrong? blush.gif

From what I know, I thought price is the one affected by news, no? Value is like how much is the company stock actually worth, right?

This post has been edited by bryan5073: Mar 21 2012, 07:21 PM
simplesmile
post Mar 21 2012, 11:35 PM

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QUOTE(bryan5073 @ Mar 21 2012, 03:29 PM)
I know there is no precise figure for a fair value of a stock, what I meant was:

- How reliable are the Research Reports by the Investment Banks?
- How much can we trust the Fair Value they give? (Which will in turn indicate how much effort they put in to calculate the FV)
- Can we do a better work calculating the Fair Value?
- All in all, it's a matter of how much can we rely on their reports?, that's all.

What do you guys think?
*
After my experience with MEGB, I'm not going to trust any fair value from analyst reports. Nowadays I just read the reports to gain some insights on what's happening in the company, the company's plan and direction.

I tell you the analysts foresight is not farther than the foresight of an investor with common sense. Sometimes analysts just copy notes from company briefing or presentation and paste into their analyst report.
TSbryan5073
post Mar 22 2012, 12:50 AM

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QUOTE(simplesmile @ Mar 21 2012, 11:35 PM)
After my experience with MEGB, I'm not going to trust any fair value from analyst reports. Nowadays I just read the reports to gain some insights on what's happening in the company, the company's plan and direction.

I tell you the analysts foresight is not farther than the foresight of an investor with common sense. Sometimes analysts just copy notes from company briefing or presentation and paste into their analyst report.
*
Wow thanks for your invaluable information!
foofoosasa
post Mar 22 2012, 05:13 AM

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QUOTE(bryan5073 @ Mar 21 2012, 07:21 PM)
Value change becoz of price sensitive info? Eh... With all due respect, did you get it wrong?  blush.gif

From what I know, I thought price is the one affected by news, no? Value is like how much is the company stock actually worth, right?
*
Let say company A suddenly announce their product suddenly have problem causing 50% drop in revenue,so the value do change.For example, Nokia.
Having said that generally good company may eventually recover but it takes times.. Don't forget reputation damage all those hidden cost ( I think is the most serious)

This post has been edited by foofoosasa: Mar 22 2012, 05:31 AM
skiddtrader
post Mar 22 2012, 05:17 AM

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Since you seem to be a fan of WB, I will quote him. - "Don't ask a barber if you need a haircut."

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