I have come across many equity research reports which have a target price for a company which is some single digit % downside. But whats shocking is the recommendation of 'hold' next to it. Why should any investor hold on to investments that are not going to grow, but shrink by any number. If the investor sold it and kept the money in the bank, he could earn a single digit positive % return on the amount. The difference between the two scenarios can be a double digit % return.
It is interesting to note that many have instituionalised this kind of stupid thinking by defining the 'hold' range as "+5% to -5% over a year". Why should anyone hold on for an investment for over a year for a maximum of 5%? Isn't a fixed deposit better with higher returns and no equity risks?
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