No emotion involved

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Advisers have signalled a need for better investor tools. BT Financial Group head of platforms Kelly Power says that feedback from their network is for better investor websites and better reports that they can provide to their investors.

StocksInValue head, Toby Norton-Smith says the problem is that wherever you look, you will be bombarded with biased opinion.

“There’s so much information out there that it becomes white noise,” says Norton-Smith. “Look up any stock and there’ll be a broker saying ‘buy this stock’.”

Stock valuations and recommendations are fundamental to an adviser’s role, he says, with an obligation – either legally, or self-imposed by customer feedback – to show that they have independent research.

One of the problems however, is that a lot of investor tools don’t show the assumptions made to achieve a valuation. People are also too frequently driven by emotion and sentiment.

“There is clearly a degree of emotion that drives short term price fluctuations in the stock market,” says Norton-Smith.

“There are instances where there are popular companies that we just don’t see the value in at the time…For instance, Cochlear, the ear implant specialists. We think it’s a fantastic company, really healthy business, but its share price, we historically said, was overpriced compared to what we valued it at.”

StocksInValue forms a transparent report, which shows the assumptions made by the analysts. This means that if an adviser or client doesn’t agree with a particular assumption, they can change it to change the valuation.

Norton-Smith says this is “particularly useful for people who know a little bit more about equities, like financial planners or accountants who may be giving advice to their clients.”

He says that it is important to look at the fundamentals, void of sentiment. “If it doesn’t appear in the numbers it’s likely that over time that sentiment will dwindle and go the other way.”

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  • GAB on 17/07/2013 8:01:17 AM

    I gree with you Pat re using ETFs, they can be pretty sector specific these day also. But if you do want to be overweight certain stocks then adding some direct equities can do the job. A combination works well.

    There is the issue with direct equities that the more transparent the portfolio is, the more the client can pick on the non performing stocks. I guess brokers deal with that constantly.

  • Pat on 17/07/2013 7:20:21 AM

    " If an adviser doesn't have the confidence to recommend a few bank shares and other blue chip stocks"

    Or more easily, with a lot less risk, buy an ETF that covers the market - top 20 for your "blue chip"; high yield for more income and franking if that is the objective; and avoid the risk of taking a punt by being overweight a stock or sector.

  • GAB on 16/07/2013 5:29:28 PM

    It doesn't matter what a certain analyst rates a stock, the market will determine its value. Why did the buy target of $53 on BHP rather quickly fall to $39? Was that you StocksinValue? Pity if one took the initial value and paid say $45....oh well. Analysts aren't held responsible and they don't take into account a clients objectives, an adviser must.

    If an objective is to derive a reliable tax effective income, why not include some direct equities that help achieve that objective? If an adviser doesn't have the confidence to recommend a few bank shares and other blue chip stocks....then maybe they they're not smart enough to be managing peoples wealth. Am I'm not being ego driven......

  • Pat on 16/07/2013 10:15:59 AM

    I think the whole concept of planners who purport to provide comprehensive advice to clients, playing stock market games is scary.

    This comment: "people who know a little bit more about equities, like financial planners" is pertinent - they may know a little but they are gambling with client portfolios to achieve an ego driven outcome.

    If a client wants a direct stock portfolio, they should deal with someone who participates in the stock market full-time, not a planner who needs to keep abreast of investment/strategy/client relationships.

  • Jonathan M on 16/07/2013 7:25:00 AM

    Agree with the comment around 'buy' recommendations! Some clients come with advice they've seen in the paper or a share trading platform, but with no real thesis on the company. Nice to have a platform that cuts through the clutter (I'm not a subscriber, but will take a look)

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