It was during a routine sharing among my fellow blog writers - EzHuat
and YoloHuat that sparked off the inspiration for this post. I would usually ask or share with them my “Target Price” for the stocks that I am interested to buy/sell. It was only when YoloHuat mentioned that “Target
Price” has helped her to stay disciplined; that I realised that this could be a good strategy to share with my readers too.
Motivation for adopting “Target Price”
Strategy
At the start of my investment journey, I used to buy/sell whenever
I think the price is right which is no different from betting on 4D or Toto. I wanted a more systematic approach in buying & selling my stocks instead of relying on “feeling”.
After reading many investment books, my conclusion is that every stock has a value; and a price. Ideally, we should buy a stock with a price less than its value. So the first question is really “How do we assess the company’s
value?”
Assessing Company’s Value
There are tons of literature out there to explain how we could assess
a company’s value. Hence I would not want to go into the technicalities here. A point to note is that the type of indicator (i.e Price-to-Earnings ratio, Net Asset Value, etc) has certain limitations and might be dependent
on the type or nature of the business. For example, Net Asset Value might be more relevant to assess companies which rely on assets as their main business model or income source. Such companies include property developers
as their business model is dependent on their asset prices (i.e. land and property prices).
In my previous post,
I shared that my current focus is to build up REITs/TRUSTs in my investment portfolio. Hence, over here, I shall share my current list criteria to estimate the value for REITs/TRUSTs: (1) Dividend yield is at least 7% return; (2) PE Ratio of 12 and below (with exception of MapleTree Logistic Trust as I assessed that their recent acquisitions could improve the ratio in future); (3) Net Asset Value at 80% and below; (4) Potential upside to its stock price by at least 10% based on ongoing and upcoming businesses in the coming years.
Setting Target Prices
Based on my above list of criteria, I tend to set target buying prices at around 10% lower than its value price. The current investment outlook is highly volatile and the market has passed the 7th year bull-run. This is one reason why I am carefully selecting the stocks that I would be willing
to hold for the longer term. Regardless of the length of my investment time frame, my aim is still to sell the stocks when their selling price is at least 20% of the buy price, depending on the market outlook.
Beauty of “Target Price” Strategy
The “Target Price” strategy has served me well so far. Nowadays,
I will only walk into a deal if the stock price meets my Target Price. In my view, the beauty of this strategy lies in its
possibility to build up my own set of target prices based on my defined potential value. This would allow investors, who are more conservative, to set target buying price with greater margin of safety; so that their cash would leave their pockets only when the price is right.
Will the “Target Price” Strategy
work for you?
There are just so many investment strategies and school of thoughts.
My view is that it is important to see whether this strategy could fit well with your investment profile. Over the years, I have and am still improving on my investment skills as I gained more experience and knowledge.
I would love to hear your views on this too so feel free to share with
me here!
Together, let us all Go & Huat ah!
GoHuat
Related Posts
Hi triplehuat,
ReplyDeleteWould you be able to share more on this 80% NAV?
Does this mean you only buy if market price is 80% of NAV?
Also how do you assess if the stock price can go up 10% further due to better biz
Thanks for your queries! :)
ReplyDeleteThe 80% NAV is just 1 of my buying criteria for reits. It acts as a guide for me to buy a share at a price lower than its actual asset value, and provides a margin of safety. So ideally, I will want to buy a share with as large a discount to their NAV as possible. There are reits whose NAV is below 80%. However they did not fit well into my overall investment outlook or fulfill other criteria (i.e. div yield or PE ratio). I also like to point out that the 80% NAV is not a strict criteria for me. I do give some leeway up to 85% for some cases when I assessed that existing NAV might just be temporary depressed by factors such as exchange rates.
On how I assess the stock price to be able to go up due to better business, I mainly draw my assessments from their ongoing (i.e. Increasing rental occupancy rate? Potential to raise rental rates? Anchor tenants? etc) and upcoming future business (i.e. Quality of recent acquisitions that will contribute to future earnings? Tenants already available? etc). All these help me to estimate the companies' future business and potential % increase. To add on, before I even start to shortlist and analyse the companies, I would have already built my global outlook for the coming years first. Hence these companies should be able to fit into my assessed global outlook frame.
Thanks!
Thank you for your reply. I think I will need to assess myself as I have been constantly losing due to buying when I "feel" it is low.
DeleteWill look more into mapletree logistic trust especially!
Thank you
Wishing you all the best in finding an investment style and strategy that is suitable for yourself! Cheers!
Delete