Opinion: Stock Analysts
Hi Friends,
If you do any investing, you are probably familiar with what a stock analyst is (also known as a research analyst, securities analyst, equity analyst, etc).
These analysts put out a formal “buy”, “sell”, “hold”, “neutral”, etc rating on securities and people can then see how the analysts view a certain stock as part of their due diligence to gauge if they should buy/sell a particular security.
To me, these people’s opinions should be taken very lightly, if not immediately dismissed. The reason is that they are biased. Too often, the analyst does not have an objective opinion as they (or their firm) have a position in the security.
Part of the perceived benefit of a stock analyst, is that they can occasionally have access to the company executives from meetings. But even these meetings can have little benefit, because, of course, the company will be touting their success and future to the analyst in hopes of generating more demand for their stock.
No one truly knows where a stock is going, but the reality is that the markets generally appreciate, so being long biased makes it hard for you to be wrong about a stock. The analysts also help the company out by putting out earnings targets and expectations that the company can beat, thus pushing the stock higher even when the a higher valuation is not warranted – it’s all about the expectations.
In a 2016 survey of the companies in the S&P 500, analysts had 49% of the companies as “buy”, 45% as “hold”, and only 6% as “sell”. This long bias, as well as their conflicts of interest, make getting the analyst's take on a particular stock almost worthless.
Of course, these are my opinions and people need to conduct their own due diligence on a company as they see fit.
Thanks for stopping by,
Brian
Note: Free image courtesy of pixabay.com
Excellent analysis. I appreciate your great opinion. I learn something new about investing. Thanks for the valuable article.
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welcome your opinion and analyst.
If I had the chance I would also analyze.
Also often they are obliged to put out a recommendation, because the firm is not happy with no recommendation at all. eg. Ed Seykota in market wizard explains that he left the analyst business because there was pressure to come up with an idea even if you dont see anything worth it.
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As per my experience most of the ratings given by stock analysts or even companies like crisil cannot be taken as the prime source of investing as their rating could be based on factors suitable to them. A retail investor has to very careful while investing into stocks as investing on the basis of the ratings given by analysts could make one lose their principal invested.