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Why Stock Analysts Are Clueless - Funny Read


Myth465
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http://blogs.forbes.com/ericjackson/2011/03/28/why-stock-analysts-are-clueless/

I love his detail on the conference calls. I always laugh when they ask some retarded question that doesnt matter at all.

 

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I thought this little exchange was funny.

 

Jon Ehrlichman says: “Please correct me if I’m wrong but I was looking back over the Bloomberg and it says you’ve had an outperform rating on the stock since September 2008. That’s during period in which RIM has lost half its value while the S&P has fought its way back to even. Can you clarify that?”

 

Tavis’ response: “… No, that’s accurate… um… some stocks go up, some stocks go down.  They’ve done much better internationally than what I would have expected and much worse in the US.”

 

Betty Liu: “Right, but I think Jon makes a good point that you’ve had this outperform rating for a long time on RIM. What would it take to make you change that?”

 

Tavis: [now angry and somewhat dismissive of the direct criticism] “yeah yeah, look… this would be an easy job if we all just looked backwards…. But, we don’t… and, uh, and, uh, so… you know, I think what it would take would be if there was any meaningful slowing in RIM’s international growth.”

 

This would be an easy job if we all just looked backwards.”  

 

There are so many funny replies to that one.

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Not to be difficult Myth but I watched the whole piece and the Forbes blogger took it all out of context.  The analyst Travis Mccourt has a well developed and well researched thesis, he has just been wrong so far. 

 

Generally though anyone trying to predict a stock's behaviour is more often wrong than right.  Too many variables in the human world.  That is the beauty of what we do.  We (Grahamites) make no attempt to predict where a company may end up.  We look at existing information and identify what is undervalued at the present time. 

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;D

I don't watch CNBC, but I do watch Bloomberg.  They do a much better job, and are significantly more diligent about what they report.  I still can't understand why Buffett shows up on CNBC.  Cheers!

Becky Quick ;)

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Generally though anyone trying to predict a stock's behaviour is more often wrong than right.  Too many variables in the human world.  That is the beauty of what we do.  We (Grahamites) make no attempt to predict where a company may end up.  We look at existing information and identify what is undervalued at the present time.

 

And we're still wrong ~40% of the time ...

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Analysts are generally given a bar too high to jump.

 

Analyst positions are very competitive, so you are probably getting intelligent and hard working people in those positions.  Yes, they often ask insignificant questions during conference calls but they probably feel compelled to do so because their boss will question them if they don't, they feel they have to "do something" or their clients will question if they are doing a good enough job.  Equity research is also very competitive so having additional information, even if marginal, can help make a research reports marketable since minute details can convey a sense of completeness in analysis. Price targets are also a structural problem for analysts, since they are asked to predict the market price for a company but not the company's overall valuation, which will undoubtedly cause a history of miss marks. Things become even more difficult for analysts in the tech sector, like Tavis McCourt, since these industries are hyper-competitive with innovation commonly disrupting the predictive capabilities of analysts. 

 

I think it's best for investors to have a healthy respect for analysts but understand the profession inherently has shortcomings.

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Generally though anyone trying to predict a stock's behaviour is more often wrong than right.  Too many variables in the human world.  That is the beauty of what we do.  We (Grahamites) make no attempt to predict where a company may end up.  We look at existing information and identify what is undervalued at the present time.

 

And we're still wrong ~40% of the time ...

 

Yes

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I still can't understand why Buffett shows up on CNBC.  Cheers!

 

 

Warren wants to reach more people.  CNBC has a larger viewership than Bloomberg.  Specifically, CNBC has a larger viewership in lay people than Bloomberg, for sure.

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Research analysts aren't dumb. The majority of them are very sharp people actually, and many realize the futility of their 6-12 price targets and ratings, yet they are forced to please the masses that want to know where they think a stock will be a few months away, hence the price targets and rating...the whole fast money culture. It's amazing how many large institutional buy side clients will call you and ask you where they stock will be next month. As if....The ONLY value they provide, and with many analysts they do provide good value, is their research on how they come to their conclusions, and their knowledge of specific products, strategies, or industries. Many don't know how to properly value a company for a long term shareholder, but the majority of them do.. Of course, there are the outlier analysts as well who begin to believe their own price targets/ratings, after they publish a report and see that they have the shocking power to move a stock up or down 7% on a simple change to a buy rating and believe their own hype.

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I don't watch CNBC, but I do watch Bloomberg.  They do a much better job, and are significantly more diligent about what they report.  I still can't understand why Buffett shows up on CNBC.  Cheers!

 

 

It is really sad the direction CNBC has gone over the last 5-7 years.

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Claphands and ValueCFA both have exceptional points.

 

I will only add this:

 

If any of us were forced to analyze as many stocks as they have to, we could end up making some pretty bad calls... If we analyze a really small basket, and only invest in a smaller basket (for me, generally my favorite 5 of so ideas), we potentially have much less to worry about. PLUS, we get the advantage of selecting what we do best, rather than being forced to do it as a job- speaking for those of us that invest on our own, or are managers without a higher up to answer to. :)

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It's too easy to lump all analysts into a preconceived stereotype if you zoom in on the more public procedures of their job: frequent yet not-always-accurate forecasts (perfect forecasting would require a magic 8-ball, although analysts' incredibly thorough Excel models, if you have seen them, might be closest thing, constant if sometimes unnecessary presence on company calls, other attention (CNBC, Bloomberg appearances) behaviors etc etc

 

As claphands22 allude to, most analyst recommendations are backed by a well-developed and well-researched thesis. Sell-side analysts also do the lion's share in getting clients up to speed with industry fundamentals and the drivers of a company's share price; not to mention the weekly updates that include down to the the minutia of ongoing operations. It's probably fair to say that analyst research not only make their clients' job a lot easier but also enhance informational transparency of the marketplace. Unfortunately, granular detail is typically not available to individual investors, the opinionated public.

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Warren wants to reach more people.  CNBC has a larger viewership than Bloomberg.  Specifically, CNBC has a larger viewership in lay people than Bloomberg, for sure.

 

Well then why doesn't he just show up on "American Idol"!  ;D  Or perhaps, he could take over Charlie Sheen's role on "Two and a Half Men"...he could play Jake's business savvy grandfather.  Cheers! 

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Warren wants to reach more people.  CNBC has a larger viewership than Bloomberg.  Specifically, CNBC has a larger viewership in lay people than Bloomberg, for sure.

 

Well then why doesn't he just show up on "American Idol"!   ;D  Or perhaps, he could take over Charlie Sheen's role on "Two and a Half Men"...he could play Jake's business savvy grandfather.  Cheers! 

 

 

Ohhhh snap!  ;D

 

http://www.usatoday.com/money/media/2008-03-19-buffett-all-my-chil-dre_N.htm

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