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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 111  
Subject: Re: buy below price updated Date: 10/11/2007 4:26 PM
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I think that buy below prices are rather arbitary.

What matter is whether a company is undervalued at current prices or not strictly based on future prospects. Future prospects are a function of market conditions, company's approach and its current financial health.

The definition of undervalued is itself quite fuzzy. For example, one might consider a company to be undervalued based on expected growth of x% in share price. x could be anywhere > 10% depending upon the risk tolerance of an individual. It seems to me for many MF newsletters like SA, HG or GG the x values is 15%. Maybe someone from GG team can add what their target value x is.

I think there is easily an error margin of 50% in predicting future growth. So a 15% growth could be anywhere between 7.5% to 22.5%. Sometime when this error bar is exceeded, a sell recommendation is issued. Based on this logic, one can pick an "undervalued" pick within (1.5)x% (or 22.5% if x = 15%)of the price at which the undervaluedness is seen and not do bad most of the times. The higher the value of x and the error margin, the higher the range in which one can purchase the stock.

In the above context, a 30% movement in the target simply indicates a x value of 20% from the $34 price levels. And don't forget the error margin of 50% over the actual performance of x, which is one can get annual gains betwen 10% - 30%.

Anurag
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