- Jun 23, 2009
- What Is a Wall Street Securities Analyst?
- Wall Street Analysts Are Bad at Stock Picking
- Opinion Rating Systems Are Misleading
- Research Never Contains an Analyst's Complete Viewpoint
- Wall Street Has a Congenitally Favorable Bias
- Downgrades Are Anguishing, Arduous, and Rare
- Most Downgrades Are Late; the Stock Price Has Already Fallen
- Buy and Sell Opinions Are Usually Overstated
- Wall Street Has a Big Company Bias
- Brokerage Emphasis Lists Are Not Credible
- Stock Price Targets Are Specious
- The Street Orientation Is Extremely Short-Term
- Analysts Miss Titanic Secular Shifts
- Street Research Is Unoriginal; Opinions Conform
- Analyst Research Is Valuable for Background Understanding
- A Lone Wolf Analyst with a Unique Opinion Is Enlightening
- The Best Research Is Done by Individuals or Small Teams
- Overconfident Analysts Exhibiting Too Much Flair Are All Show
Overconfident Analysts Exhibiting Too Much Flair Are All Show
Arrogance, showbiz, flair—analysts are noted for these characteristics. They display excessive confidence to the sales force and important institutional clients to demonstrate the strength of their convictions. Any hesitation is interpreted as doubt and impacts credibility. We learn quickly to be accomplished actors, even bluffers. We talk fast, connoting a (false) air of assurance.
The amplitude of our conviction in stock recommendations, forecasts, and assessments varies widely, but our audience would never know it. We have such extensive knowledge of the companies we cover and are expert at faking answers to questions, if necessary, to preserve our omniscient image. This is a pernicious practice. Investors can be readily swayed, even when analysts are spectacularly wrong. This is how analysts led investors astray during the 1990s Bubble Era.
It should now be clear that the Street is not a reliable source for objective stock recommendations. Sure, the Street acts as though it can provide investment advice and financial counsel. But that is not really its job. 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. These services are a conflict of interest with the bedrock brokerage and banking functions. The Street does not intentionally mislead—there is no deceit—it is just the way the business operates. Do not take the Street’s directives literally; be familiar with its shortfalls, and invest with the awareness of a Wall Street insider.