Be careful of your Stock Analyst recommendations – Here is a good Reason
If you had invested or traded in Glenmark Pharmaceuticals few months or days prior to their first quarterly earnings results on the basis of your stock analyst recommendations, you know exactly what I am talking about!
Glenmark Pharmaceuticals declared its earnings report after market hours on 11 May 2017, which turn out to be disappointing and also way below street expectation.
Apart from US and India markets, Glenmark’s business witnessed a setback in all key markets. Sales in Europe and Latin America fell 15.1% and 44.5%, respectively.
Sales of active pharmaceutical ingredients also declined 10.4%
So what happened at pre-opening on 12 May 2017?
It immediately crashed 10% and was down 16.19% by EOD.
Here is how Glenmark chart looked like during trading-hours on 12 May 2017
But what is it got to do with the Stock analyst?
Well, many of these top notch stock analyst gave out Buy and Outperform price targets for Glenmark Pharma and in turn people traded and invested without any due diligence.
Here is a screenshot showing an example of what analysts’ recommendation are of Glenmark Pharma.
Now compare these forecasts with the performance of Glenmark Pharma.
Not only do these stock analysts get it really wrong many times, but you also on your part, may want to think twice before following recommendations blindly.
I got many queries from frantic Investors and Traders who had put in a lot of capital for short term into Glenmark Pharma after listening to advisories or stock analyst recommendation of a good Quarterly result and stock likely to give very good returns.
The fears of missing out made them take irrational decisions and enter the trade without any risk management or capital allocation.
Now they are seeking advice about how to get out of it with minimum loss.
Well, there is no such formula to get you out when you are already stuck in these sticky situations.
The only thing you can do here is take the loss and get out of it before your capital depreciates more in the next couple of days.
Also, just because Nifty is making new highs does not mean that every share will also move in parallel to it.
Now the question is what should you be doing not to be stuck in these situations?
It is no rocket science. Just keep in mind these simple but important points:
- Stop following stock analyst or advisory recommendations blindly.
- Do your due diligence. Study the company, technically or fundamentally before you decide to invest or trade.
- As a short term Investor or a trader if you are trying to take advantage of such events like earning results, do so only with a small percentage of your capital.
- Keep Targets, Risk management and Capital allocation strategy with strict discipline.
Also, stop reading and following too much of comments made in moneycontrol.com board.
As you can see from today’s Glenmark’s performance, majority of the commentators are on the wrong side of the trade.
I am not discouraging anyone to stop advisory services or your stock analyst recommendations. Infact there are many analyst and advisory who are solid with their ideas and recommendations.
Just make sure that these recommendations go through your own due diligence and align with your trading or investing strategies.
Please share your views in the comments below!