Myth Killer: Why We Don’t Care About Price Targets

One of the most per­sis­tent habits in retail invest­ing is the obses­sion with price tar­gets.

“This stock is worth $X.”
“I’ll sell when it hits $Y.”
“I need to rebal­ance because this one’s run too far.”

We don’t do any of that. Delib­er­ate­ly.

We don’t rebalance because we don’t want to sell our winners

Rebal­anc­ing assumes you know when a stock has “had its run”.

You don’t.

Nobody does.

If a busi­ness con­tin­ues to exe­cute, com­pound cash flows, and improve its eco­nom­ics, the share price can keep sur­pris­ing you for years. Sell­ing just because it’s gone up is how you ampu­tate your best per­form­ers.

Tony always comes back to Buf­fett on this:

Why would you bench Michael Jor­dan?

If a stock hasn’t hit one of our sell trig­gers, we let it run. Price action alone is not a trig­ger.

Our job isn’t trading. It’s ownership.

Our actu­al job as investors is hard enough already.

We’re try­ing to find:
• well-run busi­ness­es
• with strong eco­nom­ics
• led by capa­ble man­age­ment
• tem­porar­i­ly mis­priced for under­stand­able rea­sons

That com­bi­na­tion is rare.

And man­age­ment qual­i­ty is one of the hard­est parts.

Gen­uine­ly good man­age­ment teams are scarce. When you find one that allo­cates cap­i­tal sen­si­bly, com­mu­ni­cates clear­ly, and actu­al­ly behaves like own­ers, the last thing you want to do is casu­al­ly hand them back to the mar­ket because the share price hit an arbi­trary num­ber.

If you find a com­pa­ny with good man­age­ment, you don’t want to sell them unless you have to.

Trad­ing has costs. Hold­ing has advan­tages.

Every unnec­es­sary trade intro­duces fric­tion:
• bro­ker­age
• cap­i­tal gains tax
• rein­vest­ment risk

You’re not just sell­ing a stock. You’re swap­ping it for some­thing else. And there’s no guar­an­tee the replace­ment will be bet­ter than the one you just sold.

In fact, the odds are against you.

Most long-term returns come from a small num­ber of big win­ners held for a long time. Price tar­gets and rou­tine rebal­anc­ing are excel­lent ways to ensure you don’t hold them long enough.

Price targets create false precision

Price tar­gets look sci­en­tif­ic. They feel dis­ci­plined. They give investors a com­fort­ing sense of con­trol.

They’re most­ly the­atre.

Busi­ness­es change. Val­u­a­tions move. New infor­ma­tion arrives. A fixed price tar­get assumes the future stops evolv­ing the moment you buy the stock.

It doesn’t.

We sell on triggers, not feelings

This mat­ters.

We don’t sell because a stock “feels expen­sive”.
We don’t sell because it’s gone up a lot.
We don’t sell because a spread­sheet says it hit a tar­get.

We only sell when pre­de­fined trig­gers — eg three-point trend line sell, Rule #1, com­mod­i­ty sell, gov­er­nance red flag — are breached.

That’s it.

Trig­gers remove emo­tion, reduce sec­ond-guess­ing, and stop us from sab­o­tag­ing our own best ideas.

Rebal­anc­ing is usu­al­ly a con­fi­dence prob­lem

Our view is blunt.

Rebal­anc­ing, like exces­sive diver­si­fi­ca­tion, is often a sign the investor doesn’t ful­ly trust their frame­work.

If you’ve done the work:
• you know why you own the busi­ness
• you know what would make you sell
• and you trust your process

You don’t need price tar­gets to tell you what to do.

You need patience.

And patience, incon­ve­nient­ly, is where most of the mon­ey is made.

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QAV Myth Killers is a week­ly col­umn in the QAV newslet­ter, tak­ing apart a piece of
invest­ing con­ven­tion­al wis­dom. Read the series, or
get it by email every Fri­day.

Gen­er­al advice only. Space­craft Pub­lish­ing Pty Ltd
trad­ing as QAV is a Cor­po­rate Autho­rised Rep­re­sen­ta­tive (CAR 001292718) of MF & Co.
Asset Man­age­ment Pty Ltd (AFSL 520442). This is gen­er­al infor­ma­tion and does not take your
per­son­al cir­cum­stances into account. See our
dis­clo­sure.