Why do analysts publicly post their upgrades /downgrades ?

Discussion in 'Trading' started by Peter_Nellise, Jul 23, 2006.

  1. no, of course not. it makes perfect sense that brilliant market sages educated in america's finest institutions would toil and slave away for hours, analyzing bona fide and truthful accountants' reports and making insightful predictions that will bring riches - then go on tv to tell joe sixpack all about it for free.

    altruism, you see. lots of altruism on wall street.
    #21     Jul 24, 2006
  2. Ultimately, their job is to make money for clients because that's what makes money for the firm. If you make money for clients with good calls or consistently useful opinion then you get to the top of the Institutional Investor polls - these rankings are voted for by clients, not the firms the analyst works for. If you're a highly ranked analyst, you get more money because clients will give more business (commissions) to the firm because you work there. If you're not highly ranked, you're fired or you move to an employer with lower expectations.

    I do agree that there is always pressure to produce more research to encourage clients to buy and sell more stocks. Obviously, brokers want more product to sell to investors and that's the truth. However, it's up to clients to decide whether to buy and sell.

    #22     Jul 24, 2006
  3. What is the cost to the analyst or the firm that employs him of talking about a recommendation? Zero cost, or even a small benefit, because the marketing is useful for the firm. The work has already been done, why not talk about it?

    If the analyst were to appear on TV and say something different to what he was telling his clients, or different to what he actually believed - as certain analysts did during the bubble - then he deserves whatever he gets. If an analyst said something contrary to his published rating on TV, the firm he worked for would be hit with a class action suit before he'd got back from the studio to his desk.

    I don't doubt that a small number of analysts abuse their position. What I'm saying is that it would have to be subtle and because of that it would be difficult, and for that reason in turn I don't think it's widespread.

    But if people want to believe that it's all smoke and mirrors I suppose that's what they will believe.

    #23     Jul 24, 2006
  4. Why am I posting in this thread?? :confused: There's no way people are going to change their minds. Back to observer role... :cool:

    #24     Jul 24, 2006
  5. the point is that it's all crap. if their "calls" had any value they wouldn't broadcast them for free, to their clients or to anyone else.
    #25     Jul 24, 2006
  6. bsmeter


    If any one of them were any good they'd be trading their own money instead of toiling away for 15 hours a day 6 days a week giving useless price targets and analysis they themselves don't belive in.

    As someone mentioned before, the only people these analysts influence are the same fools who pay $5000.00 for a trading system based on moving averages.

    The market feeds on fools like these. Fools who quickly forget recent events such as:

    Wall Street settles analyst scandal

    The banks hope it will be back to business as usual

    Wall Street's biggest names have reached a $1.4bn deal with regulators over charges that they bamboozled investors during the boom years of the 1990s.


    Here's an excerpt from a little skit I'm working on.



    #26     Jul 24, 2006
  7. nice. in the last act, they can visit their class-action lawyer for a free consultation to discuss how they were misled and why they deserve to get paw's 401k money back.
    #27     Jul 24, 2006

  8. OK, just one last response.

    To return to earlier comments:

    1) Having met many, many analysts I haven't found any who don't believe in what they're doing (I'm sure there are some, but I have not met them). And if they don't believe what they're saying, clients catch them pretty quickly. Lying is a talent and like all talent it's pretty thinly spread.

    2) A small minority of analysts abuse their position, unsuccessfully in many cases. For example, Blodgett and Grubman were exposed, lost all credibility and so even if they were not barred from the industry, nobody would want them. As I said, there is doubtless corruption in this industry, just as there is in any other. I have simply argued that it's not endemic.

    3) Most analysts do not frame their lives in terms of wanting to be a trader or wanting to be an analyst; that choice simply doesn't occur to them. What they do is very different to trading and picking stocks is only a part of that. Most of them are only vaguely aware that day traders of the kind who hang out here exist. They do their job and (mostly) enjoy it and get well paid for it. Why would they want to be traders, especially if they like the faux respectability of employment at a Wall St firm?

    4) Every single major asset management firm and most (all?) hedge funds with a discretionary strategy use sell-side analysts and research from sell-side analysts. Certainly many clients don't buy and sell based on analysts' calls, but instead use the analysts as an information resource about the companies they cover. Analysts provide a decision support service, not a trading service. Clients often use analysts as contra-indicators as regards timing. :D So, are these clients - who do pay for the service - all gullible and/or stupid if they talk to analysts?

    None of this can be proven either way, but there are many points to ponder. Anyway, it's good night from me...

    #28     Jul 24, 2006
  9. Does anyone remember this timely downgrade of AAPL on 28 Sept 2005

    Merrill Lynch decides to downgrade at 1356 ET for reasons not related to the scratched nano screens, although this was not apparent on the first headline on Fly on the wall.

    Why do they allow these bastards to release these recommendations during market hours. All this was timed to perfection to cause a mini panic.

    The public get fleeced and the pros make the money who is going to champion the reasons for change.

    September 28, 2005
    14:33 EDT AAPL Apple Computer-AAPL Options active on MLCO's Downgrade to Neutral
    AAPL is down 2.54 to 50.98. AAPL was downgraded to Neutral from Buy at MLCO on "earnings scenario analysis", "revenue growth deceleration", "MSFT's Vista" and "sentiment is hard to improve". AAPL October option implied volatility of 44 is above its 26-week average of 41. AAPL intra-day call option volume of 45,822 contracts compares to intra-day put volume of 43,730 contracts. Active option volume indicates position adjustments being made on MLCO's downgrade.

    14:14 EDT AAPL Follow-up:AAPL downgrade was an assumption of coverage w/a Neutral from a Buy@MLCO
    The analyst assumed coverage with a Neutral rating from a previous Buy rating.

    14:04 EDT AAPL Afternoon Report
    AAPL (-1.31) is down -2.5% on concerns of defective screens on their iPod Nano music players.

    14:03 EDT AAPL Follow-up: AAPL cut to Neutral from Buy@MLCO
    Downgrade based on limited upside given: revenue growth deceleration, lack of upside to 35%-40% iPod penetration into the installed PC base by 2007, impact from Intel transition, Microsfot Vista could hold back 2007 share gains, and positive sentiment already built into shares.

    13:56 EDT AAPL Apple Computer-AAPL downgraded to Neutral from Buy@MLCO

    09:30 EDT AAPL Apple Computer Inc-AAPL to replace damaged iPod Nano screens-WSJ
    AAPL, responding to a score of customer complaints which were reported by CNet.com on Sept. 26th, has said it will replace defective screens on its new iPod Nano portable music player. AAPL senior VP Philip Schiller said "vendor quality problem" caused the cracking on a small number of the screens, affecting "less than one-tenth of 1%" of the devices. He said that the warranty for the iPod Nano will cover the cracked screens.
    #29     Jul 24, 2006

  10. there's no evidence about it in the mechanics of the stocks covered...on the contrary upgrades tend to be bought by institutions [and traders alike] and downgrades tend to be sold.
    #30     Jul 24, 2006