Tuesday, September 27, 2011

Analyst Recommendations

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As I have said previously, I never use analyst ratings or recommendations to determine if I should buy or sell a stock.  Neither do the guests in this video.  I have also said their function is a marketing function rather than an investing one - Terry Shaunessy agrees.

I enjoyed Victor Adair's comment regarding analysts having a tendency to stay with an idea past it's "best before date".  There are two additional reasons for this not mentioned by Victor.  First, the analyst's universe of stocks is usually too small, so a good idea seems to stay that way relative to a smaller number of stocks.  Second, they rarely suggest selling a stock.

I would have to agree with Terry that analysts probably don't usually have any skin in the game.  Based on their own recommendations I doubt they would be very successful taking their own advice!

I determine what to buy and sell based on Price/Earnings analysis (which does include the consensus analyst's annual earnings numbers), and I determine when to buy and sell using basic technical analysis.

For more, also see:

Do you use analyst ratings and recommendations?

1 comment:

  1. I agree that you shouldn't base your decision to buy/sell a stock completely off an analyst's rating, but it is a good tool if you can spot meaningful trends among high-ranked analysts


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