Tuesday, April 22, 2008

What is an Analyst worth? Nothing!

It has become clear to most knowledgeable investors that analysts are nothing more than cheerleaders for the stocks touted from their firms. This was made obvious in the lawsuits after the NASDAQ implosion which found that leading analysts publicly touted tech stocks while privately calling the companies garbage (and worse terms).

Most of the stock portfolios pushed by analysts under-perform the market, while at the same time the Wall Street firms have cozy relationships with the promoted companies that drive millions in fee revenue.

A recent Bloomberg article, What's Analyst Worth? Not a Penny as Estimates Miss, touches on the failure of analysts to properly analyze the prospects of firms rather than simply relying on guidance. The article discusses the “management” of quarterly earnings and other dubious practices, while questioning if “buy” ratings have any value whatsoever.

Another good read about the manipulations of Wall Street is the book - Full of Bull: Do What Wall Street Does, Not What It Says, To Make Money in the Market by Stephen McClellan. The author highlights the shady practices of research analysts and how individual investors should look at their recommendations.