Hello dear fellow traders, I want to start this thread to get myself an opinion about the usefulness of stock analysts (GS, MER, SG Cowen etc). The point is, although I am in this "business" for 7 years now, I never held a stock, option etc for longer than 2 weeks. Thus, I never took care of what stock analysts say. So I invite everyone who has some knowledge or experience with analysts to participate in this thread, in order to share these experiences. What I would want to know, if I e.g. go into yahoo finance research to check analyst recommendations for a stock and 7 of 10 analysts say strong buy, is it really likely for this given stock to outperform or do these people only want to push their prop trading accounts ? What experiences did YOU gather ?
Analysts can be a great resource if one wants to learn about an industry or company, and can get the analyst on the phone and be put on his/her contact list. Those of us who trade volatility can also develop strategies that trade following upgrades / downgrades. To use "yahoo finance research to check analyst recommendations for a stock" ... I just don't have the polite language or the time to address the 37 different reasons why such an activity would be worse than a waste of time.
Has the analyst made any money on their ideas...with their own money...straight up with no front running the news..etc..? This is a black or white...yes/no question...
Having been an equity analyst in a previous professional incarnation, and having been an active "consumer" of sell-side research for the past several years, I can tell you that such research can have its usefulness if one is fully cognizant of the limitations. As Blue mentioned, good Street research that is based on a thorough analysis of the entire industry value chain can help one gain a better understanding of a company, its industry and the relevant growth drivers. But keep in mind that the quality of Street research can vary widely. However, price targets or buy/hold/sell recommendations typically can be and should be ignored. Recall that during the Blodget/Grubman era (when I was on the sell-side), had one simply followed such recommendations, which as everyone now knows was based on banking and other conflicts, without reading the cautionary analysis contained within the reports, large investment losses and bitterness would have ensued. Unfortunately, despite all the fines and opprobrium, not much has changed in that regard. But in any event, I doubt whether there'd be any usefulness in reading analyst reports for anyone with the type of constricted trading timeframe you mentioned. It's been my experience that for relatively short-term trading fundamental analysis of any kind will usually impede rather than enhance one's ability to make money. Also, since analyst rating changes typically follow changes in a stock's technical picture, it seems to me that it would be difficult to construct a short-term trading strategy along the lines you mentioned. Good luck in the effort, though.
Excellent posts! I myself have been following the defense and oil drilling sector for years and have been able to gain a pretty good understanding of both industries and the issues that are fundamentally key to them. True, the price targets are useless. And, one has to read all of the analysts and listen to the various company conference calls on a quarterly basis in order to learn the nuances of each analyst. Many of them see their sector differently and as a result have reasons as to how or why a particular stock in the sector will or will not ever get to a certain valuation. Again, excellent posts! And as to the comment by "Drprotrader" who implies that analysts hold significant positions in the stocks that they cover, not too mention "front-run" the very same stocks that they cover, you must be new to this business, eh?
it depends more on the particular analyst not the firm they are with. the star ones always move the particular stocks
Analysts can be useful for getting ideas, keeping up to date with fundamentals in a given sector, and learning about the areas they cover. They can also be useful as a guide to sentiment towards a sector. However I would not use their recommendations for trading decisions.
The brokerage business has transformed radically over the years...there was a difference in treatment of its best institutional clients and its retail base...and some may argue that this the case today..and even with the latest legislation directed at a more even playing field....it's hard to enforce... It can be argued that an analyst's place in a firm aids its litigation efforts when its clients lose money and sue them...either retail or institutional...Stock valuation is a very slippery subject in court... And what is very odd about an analyst is that their views are used to influence opinions of investors...good meaning up...bad meaning down...but when it comes to actually dealing with making money...their role becomes uncorrelated...???? Very interesting legal approach by the brokerage community...which mostly snuffs out small..and sometimes warranted attacks by the losers....mostly small...and sometimes big....tough business...but plays an essential role in the capitalist process...and is therefore allowed...
how many times have you seen in the past, some firm puts a buy recommendation and on level II's you see them on the sell side... or vice versa... interms of research, some are consistant and outperform the markets the rest are there to hype up their firms stock IMO...