I donât know much about Wall Street and how it works, but I know that if I was as wrong in my business as it seems many analysts are, I would be out of business. I must admit I have used analyst recommendations to make investments, and it has never worked out. Ex. 2003 - market starts to rebound and Iâm looking to buy. Analysts make what seemed like sound arguments why bell weather companies like Cisco will lead the tech rebound. I load up on cisco at $27, the tech world takes off and cisco drops to $17 over the bull run where the Qâs double. Analysts in articles in Barronâs put sell recommendations on AAPL, YHOO and AMZN and each proceed to go up well over 100%. Even recently in January analysts at âThe Streetâ put buy recommendations on integrated oil companies such as COP and sell recommendations on the drillers such as RIG. COP is now down $6 and RIG up $40 from then. Do you think these people got the boot or is being completely off base normal for the job?
quick answer: perma-bull = better do lots of other things wrong to get fired. perma-bear = miss a couple bulls, you're fired.
Analysts is plural. Follow the herd. The consensus is..... -------------------------------- One can look at a few companies that the general public opinion or common knowledge that they are going to go bankrupct and analysts will still have a buy or hold rating.
Every year Institutional Investor asks fund managers what they value from sell-side analysts. #1 is always 'Industry Knowledge', closely followed by 'Access to Industry Management' and 'Accessibility' to the analyst himself. Market calls and writing reports are very, very far down on the list. So far down as to be incidental, if not irrelevant. As long as clients are happy to pay for that analysts' insight or service, he/she doesn't have to worry. How his calls work out are often completely irrelevant. Put another way, and contrary to popular opinion, fund managers don't, or shouldn't, follow buy/sell recommendations from anybody. The buy/sell decision is always the fund manager's job. What the fund manager really seeks from sell-side is idea generation, idea development, and better access to industry executives either through company visits, meetings on roadshows, conference calls, or better word of mouth information flow. A case in point was Jack Grubman. Fund managers never gave a shit about his calls. In fact they recognized that being overly bullish positioned him better to provide more of what they really wanted - better access to company managers and superior industry knowledge. Largely because Grubman was so tight with Ebbers, and Ebbers was doing so many deals, Grubman had his pulse on the sector. A Telecom bear could recognize the entire sector was a screaming short, yet still highly value, and pay for, Grubman's services because he can inform and validate their own views. In a nutshell ...
The Analyst's purpose in life is to get you to buy when you should be selling and to get you to sell when you should be buying. The only analysts that you should ever even remotely consider listening to are those entirely independent of Wall Street.