I’m Selling Whatever (Story) You’re Buying
OK I have to sound off on this one: Wall Street analysts. Give...me...a...break. These guys might as well be throwing (you guessed it) darts!
Wait, that’s not entirely deserved, some of them are extremely talented and provide insightful commentary. But can they predict stock movements? I’m not so sure.
I am watching the “Squawkbox” program on CNBC this morning, hosted by the oh-so-smug Becky Quick. Some equity analyst from a brokerage firm comes on to speak about a company that is releasing earnings pre-open today. The commentator asks the analyst flat out, “So what’s going to happen with the stock today?”. The analyst replies, “Well, it all depends on how their new investments have performed relative to their current equity and how their current equity has performed relative to the market. Right now we have them at equal weight”.
What the hell? How can this idiot get away with this empty, non-committal comment? Actually, he is not the idiot. We are, because we listen to him! Argh. He’s smart enough to know that if he takes sides and is wrong, the downside is a lot more than the benefit of being right. Pain is more powerful than pleasure on Wall Street.
That’s why I like to see websites like this:
These guys rank analysts against the stocks that they are covering by showing a graph of the stock price against the timeline of analyst announcements. I highly recommend taking a peek, it will quickly highlight two things:
1. Most analysts follow a herd mentality when it comes to earnings. On one hand, this makes sense because they all should arrive at the same results given the same information. But it’s the insight in addition to the publicly available information that should cause analysts estimates to differ. Unfortunately, they don’t differ by much, especially among the larger houses.
2. Almost none of them are any good at picking stocks. When they do rate a stock a “BUY” and then give it a price target, the time horizon is usually so far out that they can always revise their estimate long before anyone can point out that they are wrong. Wow, that’s like being able to change the answers on your math test while it’s being graded.
And for those of us (yes I admit it) who listen to Jim Cramer, here’s something interesting to check out:
http://www.cramerwatch.org/
This rates him against a random stock-picking process (“Leonard the Wonder Monkey”). Let’s just say that the monkey is holding his own, I’ll let you decide.
My Blog
Monday, October 23, 2006
