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Overconfident Analysts Who Exhibit too Much Flair Are All Show

Arrogance, showbiz, flair—analysts are noted for these characteristics. They need to demonstrate excessive confidence to the sales force and important institutional clients to display the strength of their convictions. Any hesitation is interpreted as doubt and impacts credibility, just as it affects a politician. We learn quickly to be accomplished actors, even bluffers. We talk fast, connoting a (false) air of assurance. The amplitude of our belief in stock recommendations, forecasts, and assessments varies widely, is sometimes even lacking, but our audience would never know it. And we have such extensive knowledge of the companies we cover that we are supreme at faking answers to questions, if necessary, to preserve our omniscient image. This is a pernicious practice, as investors can be readily swayed, and analysts might be spectacularly wrong. That was the hallmark of the ‘90s Bubble Era.

It should be clear upon realizing Wall Street’s well-kept research secrets that the Street is not a reliable source for objective stock recommendations. That’s really not its job. Sure, the Street postures that it can provide investment advice and financial counsel. But it is structured to trade securities, perform securities transactions, distribute and sell securities as a dealer, and do corporate finance deals. Wall Street is not suited to be an investment manager, financial advisor, or stock selector. In fact, these services that it purports to offer are a conflict of interest with the bedrock brokerage and banking functions stated previously. The Street does not intentionally mislead—there is no deceit—it’s just the way the business operates. Therefore, don’t take the Street’s directives literally, be aware of its shortfalls, and invest with the awareness of a Wall Street insider.

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