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Analysts

Discussion in 'Shares' started by Tropo, 6th Jul, 2012.

  1. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
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    3,396
    Location:
    NSW
    wdongli is not welcome to read, comment nor reply!


    Wall Street relies on “stock analysts.”
    These are people who do research on companies and then, no matter what they find, even if the company has burned to the ground, enthusiastically recommend that investors buy the stock.
    They are just a bunch of cockeyed optimists, those stock analysts.
    When the Titanic was in its death throes, with the propellers sticking straight up into the air, there was a stock analyst clinging to the railing asking people around him where he could buy a ticket for the return trip.


    Dave Barry
    February 3, 2002


    When I was a broker many many moons ago a large number of things used to fascinate me about the industry.
    Everything from how come the guy sitting next to me was selling shoes last week and who thinks a trend is the move from sandals to sneakers.
    To why do analysts get paid so much when they used to suffer from what we used to refer to at uni as the elbow–posterior error chain. (translation couldn’t tell their arses from their elbows)

    Interestingly enough I was not the only person fascinated by the behaviour of analysts and fortunately for everyone else the task of looking at analyst’s behaviour has became a topic of study for people smarter than me.

    The most intriguing part of analyst behaviour has been their consistent bias toward the long side of trading.
    Traditionally analysts have ranked their recommendations along the lines of strong buy, buy, hold, sell or strong sell.
    Occasionally in the mix you would get the recommendation switch, this was a favourite among brokers because it meant that you could pick up two lots of commission for reading a single piece of the script provided by the analyst.

    Brian Bruce in his editorial comment in The Journal of Psychology and Financial Markets (2002, Vol 3, No 4, 198-201) has collated much of the material relating to the structure of analysts recommendations. In reviewing the data he found two interesting pieces of research.
    Thompson Financial/First Call found that 50% of all recommendations were buys whereas only 1% were sell recommendations.
    Zacks Investment Research reviewed over 8,000 recommendations for stocks that make up the S&P 500 and found that only 29 were sells. That’s about 0.33% of all recommendations.

    The question that naturally arises from such data is why is there such a bias in the recommendations even in the face of overwhelming market evidence to the contrary.
    The answer as you would expect from the finance industry is greed. Issuing positive recommendations for companies has two effects.
    Firstly it allows the analyst easy access to the company, this access has a positive impact on an analysts career.
    Secondly positive recommendations generate corporate business for the broking firm. The fees that arise from this style of business are vast.

    So where does this conflict of interest place the retail client, unfortunately the retail client doesn’t enter into the equation.

    As Bruce so accurately puts it “An investor might expect advice that is free of both psychological bias and self interest.
    Instead they discover belatedly that the advice is a mixture of wishful thinking and self- serving hype.


    Chris T.
     
  2. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Why not? Feel hurt? That is the problem for your own money. I like to read your posts since they are the mirrors to see how ugly we could be.

    Don't read and write anything for our feeling only. We just need to find the chances and avoid the unaffordable risks.

    Of course if we don't care about the money we could read any words personally. I would not do so anymore if my brain doesn't deteriorate in ages since I do care about my money.

    Thank you for your kind reminder!
     
  3. wdongli

    wdongli Well-Known Member

    Joined:
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    Posts:
    1,292
    Location:
    Perth
    Personally I don't want to involve since they are really words of a mixture of wishful thinking and self-serving hype.

    1. Why don't you welcome my words? Are you biases or self-service type?
    2. You need to destroy your wishful thinking and self-serving hype, right? Do you know I am your type?
    3. You wish I would follow you. I want to let you know your wishes could not be true, which if you could stop self-serving, could give you a good lesson.
    4. Post a article is different matter from what you know about the article. Do you know what the article talks about?

    Don't give any chances to act for your self-serving in the stock market. If you post in a social forum, I would leave your alone! You need to shock your head to know the logic.

    I know you read for your feeling but it is wrong. Stop to act personally and then you could behave in the stock market.
     
    Last edited by a moderator: 7th Jul, 2012