VALUE: After Hours (S07 E39): Why Having No Price Target Can Make You a Better Investor

During their recent episode, Taylor, Carlisle, and Bogumil Baranowski discussed Why Having No Price Target Can Make You a Better Investor. Here’s an excerpt from the episode:

Bogumil: It has to be pushed out by a better idea. I used to be much more sensitive on the valuation side, and I dropped the idea of a price target. I worked with a lot of people at different points in time that were set on a price target. I think a price target, it gives you a false sense of precision that you know that this is a $50 stock. You have a huge dilemma when you reach the $50, because what are you going to do next. Like, this could be a $100 stock, right? [chuckles] And it could be $150 stock. I think psychologically it’s very hard. So, I have no price targets. If something makes sense, I’ll keep on holding it.

I’m writing a piece now. [chuckles] I’m exploring this situation when I’ve owned something for 10 years, 12 years. And at some point, it becomes part of some short-lived euphoria, and it clearly gets inflated by the market. I have a huge dilemma here, because I could sell it. I mean, I have all the reasons to sell it, because I feel like this valuation will not hold, or this stock will take a lot of time to grow into this valuation.

But what do I do next? There are tax consequences for a lot of clients, that’s one thing that makes me slow down. And second, going back to an idea, I think it’s this untold secret or truth investing. It’s very hard for a lot of people, including me, to go back to an idea. So, I’d rather just wait it out and see a dead money period, or even a drawdown in a holding. It’s tough. It’s hard, but–

I had Chris Mayer on the show many times, and Chris talks about those 100-baggers, and we’re all fascinated with the idea. But what he really talks about, is that there’s so many periods when it’s so hard to hold onto those stocks, because they go absolutely nowhere. Even among the Magnificent Seven, a lot of them went nowhere for two years.

I was in rooms when people would ask me, “Why are you still holding it? I mean, it hasn’t moved, the whole market is up, but one of these incredible companies, they’re not moving. What do you do? And if you sell, when do you go back? When it sells off 10%, 20%, 30%, it might never sell off again,” like that. So, I’d rather err on the side of sitting on my hands and doing nothing.

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