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Wednesday, 5 Sep 2018
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The Problem With Broker Recommendations

I get the odd email asking if I could explain why one broker thinks a stock is work X and has a BUY recommendation whilst another thinks it is worth Y and has a SELL recommendation. It's a regular inconsistency and a function of a few factors:

Method

There are many different ways to calculate the value of a company so if you want to make sense of a piece of research and understand a target price, you need to know which one they are using (they may include - intrinsic value, PE-based, sum of the parts, NTA, relative value). To work out the basis of a broker's valuation or target price there's no alternative - you need to read the research.

The trend towards snapshot research opinions is very simplistic but is now a commercial necessity

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