Avoid Equitymaster - Hidden Treasure and Midcap . Review on Equitymaster

Being a Life time Wealth Alliance member of Equitymaster I knew Hidden Treasure service is among the failures in EQM services. Their success rate in the last 2 years is nothing to talk about. Only 3-4 recos made in year 2009-10 have given good returns. Most of the recos in 2010 and 2011 have performed between+5% to -80%

Over the years, Midcap recos have done only marginally better. However their Largecap Stocks recommendations have done much better relatively.

I have lost close to a lakh in INR(booked losses) by investing in some of their Recos like MIC Electronics, Bartronics, Allied Digital, C and C Constructions, Anant Raj Industries and few more. People who invest in stocks on a regular basis would know how badly these stock prices went down in last one year. I learnt another round of lessons in the Stock market by paying a heavy price.

They send "Cut your losses" mail too late after the Stock is beaten down(read as 60% to 80% fall from reco price). They rely too much on the Co management words, do not seem to do independent research, & risk evaluation. Some of the Buy recos had been with Trailing 12 months PE > 20 and Debt to equity ratio around 1.5 - doesn't go well most of the times. Their reports lack consistency in the risk ratings. A DE ratio of 1.0 will be given a high risk rating of 3 in one report, while the same ratio will be given a risk rating of 6 in another.

It all comes down to the "trust" factor. In my case, with series of disappointments(Ironically most of them were in their Multibagger reports once) - I have lost the trust in their Midcap and Small cap reco reports.

I find few lines being repeated in their Quarterly analysis reports. I get a picture that they most often refer to Company Management's projections and use their words to decide on "buy" / "hold" / "sell" decision. Rather I would expect them to do proper research to identify the potential risks and weigh their impact.

They should STOP giving too much importance to what Co Mgmts(esp. Midcaps and Smallcaps) say about their future business prospects. "Drawing comfort" from the Mgmt's words are more often nothing but sucidal. And "Integrity" and "Excellence" of the management should NOT be judged, just by media facing skills, how outspoken Co Mgmt people are about their business prospects. Its no secret that Co Mgmt prefer to talk only abt the bright side of furture. Very very few discuss the risks involved.

Equitymaster has the reputation of giving "SELL" calls for most of their recommended "Multibaggers" in the past one year. Main reason for the SELL call was the sudden silence of Co Managament - Not attending phone calls, postponing the meetings. Even if the stock goes down by 50-60% in six months, as long as Mgmt keeps talking to them, EQM will maintain Buy or Hold view with long term prospects in mind. Subscribers will tend to accumulate given the "attractive" valuations.

Now the worst case, stock will go down even further to -80%. Say the Co Mgmt stop responding to EQM's calls, EQM will send out a SELL report. Subscribers are taken for a ride.

Sounds quite funny. Isn't it?.

Equitymaster should rather focus on Quality rather than Quantity. Instead of sending 15 Buy reports per year  with a success rate of 30%, they can limit the recos to 5-6 stocks with 80% success rate as target.

You cannot afford to buy stocks based on each of their Buy reports. This is mainly due to lack of consistency. You still need to scrutinize each reco thoroughly before deciding on the buy. Folks, be careful and don't blindly follow recommendation reports on Mid/Small Cap companies even if they are from paid services like Equitymaster. At times, looking at some of the Buy calls at such high prices, I do wonder how effective are their stock research processes.