Who are the best stock pickers?

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Author	Topic: Who are the best stock pickers?
trentr	posted 04-25-2000 06:08 PM Here's another author preaching the dangers of analysts. This is an interesting example "Even scarier yet are some of the shenanigans that have gone on behind some of the smaller wireless stocks such as Research in Motion (Nasdaq: RIMM) and Puma Technology (Nasdaq: PUMA). Yesterday we had a prime example: a flurry of analyst activity on Research in Motion, a stock that just months ago was charming the analysts out of their shoes. On Wednesday, the stock received two downgrades, from Legg Mason (NYSE: LM) and Credit Suisse First Boston (CSFB). Ray Sharma of CSFB cut revenue and earnings estimates, citing weakness ahead of new product release. Research in Motion posted fourth quarter earnings of 5 cents a share, in line with the First Call estimates. Neither Mr. Sharma nor Bradley Williams, the analyst at Legg Mason, returned phone calls in time for this column's deadline. According to Reuters, Mr. Sharma cited a slowdown in sales for Research in Motion's Blackberry pagers, noting that customers may delay purchase until the release of the RIM 957 in May. This makes no sense. There's a blip on the revenue screen as the company switches to a new product, and it's time to revise a price target that you confidently tied to a long-term valuation model? Research in Motion did not make it to $150 a share on the basis of short-term earnings forecasts -- it made it there because analysts such as Mr. Sharma and Mr. Williams were hyping sky-high valuations tied to imaginary future market gains. These analysts are now downgrading the stock because they drove it up too far, too fast, and the market is collapsing around them. In the case of Research in Motion, Credit Suisse First Boston and Legg Mason waited until the stock had fallen more than 50 percent from $150 to $75 from before they actually pulled the rip cord. Thanks guys, nice doing business with you! Now that the analysts have issued downgrades, the Internet investor set bails out, the stock plummets even further, and Research in Motion takes the heat" Boy, if that's not cynicism what is? But you can't blame the guy, cause its also true. The rest of the story is here: http://www.redherring.com/investor/2000/0413/inv-pc041300.html
KeithG	posted 04-25-2000 02:19 PM I saw this posted elsewhere on Investorville and thought it might have some interesting applications to the conversations in here. It is an article about how easy it is for individual investors to manipulate whisper numbers. The article discusses how, with analyst estimates consistently low, and company's consistently topping them, these whisper numbers are gaining in credibility. Yet, these seem to be the easiest to manipulate. The whole game is getting out of conrol--you can't trust the analyst estimates, because they're corrupt. Can't trust the whisper numbers, because the average websurfer can change the number drastically. I think the empowerment of the individual investor is great, but there is so much you need to know and be aware of to keep from getting shafted. An interesting read: posted by hecubus: Speak of the devil: here's a CNNfn article about manipulation of whisper numbers. http://cnnfn.com/2000/04/24/companies/wires/whisper_wg/
johnsr unregistered	posted 04-25-2000 01:07 PM I agree with Machiavelli, "Also, if all analysts gave public reasons for their bold statements, it will take away much of the bias from the equation. Right now, they may state a huge price target to maintain a good relationship with the company. But if analysts also have to give a reason, it forces them to logically back up their price target...there has to be some meat to it; it forces them to basically hold themselves accountable." Until they are forced to offer logical concrete reasoning for their picks they'll never be unbiased. If you were in college and you wrote a paper about what you thought a stock was worth but didn't give any reasons, what kind of grade do you think you'd get? You'd fail! Still, people listen to these analysts price targets every day and they often act on them.
anonymoose unregistered	posted 04-24-2000 01:14 PM Here's another on-topic article. It talks briefly about how whisper numbers tend to be more accurate than analyst numbers, and why. This quote from it echoes what Tom was saying: "Many of the analysts don't have the standalone independence to say what they feel," said Fred Dickson, a 30-year analyst and director of research at Branch, Cabell & Co. in Richmond, Va. "It's become a very, very sophisticated game between the companies and the analysts."
wassup?	posted 04-21-2000 01:36 PM I found an article that deals with some of the issues associated with analyst information that is available online. A couple of the best points: * there was a study done on how well an investor would do buying the highest rated stocks and selling the worst: The strategy outperformed slightly, but the costs associated with the constant trading the strategy required would eliminate the gains. Ratings changes are now "breaking news" and the info comes fast and furious; if you followed the strategy, your portfolio might turn over 4 times or more in the year. * Analysts reports that are available on the web at sites like Multex are not worth the money. It is too hard to know what research is good and what is bad--and the range in quality is great. * The news you find on the web, no matter how fast we would like to believe the news travels, is old news. Almost all of it has already been given to big-time clients and the best info doesn't always reach the report at all. The best line: "When individual investors become as cynical about analyst research as the pros have always been, that's when we'll know that true democracy has come to Wall Street at last." You've got to thank Tom for helping to spread that word. here's the link to the full story: http://www.money.com/money/depts/investing/virtual/archive/0001.html
infooverload	posted 04-20-2000 02:05 PM Like machiavelli, I crave the "why". To me, a price target is useless unless the analyst gives a reason for it. And I mean a forward-looking reason, not just because a company "had a blowout quarter." Then it's easier to judge an analyst's expertise. He/she may have been right about the price in the future, but if it gets to that level for different reasons than the ones projected by the analyst, he/she still didn't get it right - they were just lucky. Also, if all analysts gave public reasons for their bold statements, it will take away much of the bias from the equation. Right now, they may state a huge price target to maintain a good relationship with the company. But if analysts also have to give a reason, it forces them to logically back up their price target...there has to be some meat to it; it forces them to basically hold themselves accountable.
hecubus	posted 04-20-2000 01:05 PM mojo, the day-after tracking would certainly help the cause, but there would be investors that look at the analysts recommendations weeks or months later and decide to act on them then--the initial pop will probably be far and away the biggest part of the move, but I wouldn't discount the long term impact. Moreover, with the greater accountability Tom is envisioning in the future, the reputations will be more powerful than ever before--this stuff will be broadcast over the internet to millions of investors. Look what Abby Joseph Cohen can do now, but what if there was all sorts of published evidence to back up her rep. With the evidence behind people, they could have an even greater long term impact on stocks. Personally, I get the feeling that in the longer term, markets are becoming more like voting machines than weighing machines all the time--and analysts can therefore hold greater power. Hopefully I'm wrong.
KeithG	posted 04-20-2000 12:57 PM I think bob makes a good point, obviously analysts should be making their best guesses about what they think will happen, and "going out on a limb" simply for the sake of standing out doesn't have much benefit for anyone. It is when someone bucks the trend, AND is correct, that reputations are made. But, as far as time sensitive predictions, I don't think it is at all unusual to set 12-month price targets--now how well people keep track of the end results is a different question. Also, as we can see, these estimates are constantly evolving, so if analysts are able to consistently revise their estimates, how do we hold them accountable? KG
bobcobb	posted 04-20-2000 12:30 PM quote: Originally posted by newsman: Admittedly, this analyst set a time frame of 12 months, so he deserves some credit for that, but it's still not a very aggressive call. Is there something in the analysts handbook that says all price targets and statements have to be agressive? An analyst might not gain as much notoriety from a high price target that is met but shouldn't they be truthful rather than be agressive? As an investor that's what i'd want... bob
newsman	posted 04-20-2000 12:13 PM Apple is now at about 120. To me, this seems like just another example of what Tom was describing: "In an extended bull market such as they one we've been experiencing (at least until last week), it's very easy to set a price target 15-20% above the current price and just wait for the stock to creep up to meet the target." Admittedly, this analyst set a time frame of 12 months, so he deserves some credit for that, but it's still not a very aggressive call. quote: Originally posted by bobcobb: "Still, the company's second-quarter performance prompted Bear Sterns analyst William Bean to raise his firm's pre-split 12-month target price range for Apple to $155-$160 from $125-$130." Just letting everyone know that some analysts are putting themsleves on the line with time-sensitive stock picks. bob
bobcobb	posted 04-20-2000 11:31 AM here's a quote i read in a CBS Marketwatch article. "Still, the company's second-quarter performance prompted Bear Sterns analyst William Bean to raise his firm's pre-split 12-month target price range for Apple to $155-$160 from $125-$130." Just letting everyone know that some analysts are putting themsleves on the line with time-sensitive stock picks. I'm not sure if this is a Bear Stearns policy, a William Bean policy, or just what he decided to do in this case. Maybe the trend is to move in that direction due to some of the issues that Tom Murcko brought up. I'm looking forward to reading the next installment. bob
JHirsch	posted 04-20-2000 09:40 AM joe62 wrote: "Analysts do provide valuable advice. It's just how you use it." I think this is something really important to take from the article. The problem is, too many investors recently haven't been doing this. Many investors take what analysts say as gospel and the analysts know that.
joe62	posted 04-20-2000 09:33 AM I found Tom's article an interesting but slightly biased view of what service Wall Street analysts provide. While I agree that analysts are often too optimistic, and suffer from too much "me-too-ism," I think that you can overemphasize an analysts' quantitative work - his or her stock ratings and earnings forecasts. Analysts do provide valuable advice. It's just how you use it. Most Wall Street analysts do really have a sound understanding of the firms that they follow and their competitive strengths and weaknesses. But, analysts stumble badly in trying to take this understanding of how a company operates and translate that into a buy/hold/sell decision and into an EPS forecast. Many years ago, Burton Malkiel, in "A Random Walk on Wall Street" tells several anecdotal tales of analysts who understand an industry completely but have no undertanding of how to chose a stock. That still holds true today. But those weaknesses are magnified today by TV commentators and newspaper columnists, who seeking an easy number to communicate, grab these quantitative factors and give them far too much emphasis. Lost to the viewer is the reasoning behind the ratings. This distorts what I believe analysts' real value is. Analysts' research should help investors narrow the investment field to those few ideas which the investor wants to investigate further - the "I hadn't thought of that before." No one should buy or sell a stock just based on an analyst's opinion. Their research should, however, help you seperate firms you want to research more from those to avoid. Analysts' research can be very valuable. But, if all that you look at is their EPS forecasts and their purchase ratings, you've missed most of their value.
mojo	posted 04-20-2000 09:20 AM quote: Originally posted by hecubus: My other concern is about self-fulfilling prophecies. At some point, when an analyst's reputation has been built up, isn't it possible that they will end up being "right" almost all of the time? People will take for granted that what they say is pretty on the money, and the price will move in accordance. Pretty soon, everyone will make the same predictions as those analysts, and everyone will be "right" most of the time. Good point. One partial solution is to track performance starting one day after the analyst makes the recommendation, so the analyst's performance doesn't benefit from his/her own reputation. However, this might unfairly penalize analysts who have good reputations that they deserve... maybe the analyst's rationale was so good that a lot of investors immediately bought because they saw that the analyst was right. A second option is to track performance over a sufficiently long period to reduce the effects of the initial pop. As we all know, the stock market is a voting machine in the short term and a weighing machine in the long term. The problem is that there's no clear line between the two. Perhaps there are studies investigating what effect analysts have on stock prices and how long those effects persist?
Machiavelli	posted 04-20-2000 08:58 AM This is the exact reason why I don't think I ever listen to analysts, and instead I have a small selection of commentators that I read religiously. Sure it's nice to see your stocks rise on a favorable rating increase, but that isn't a long term movement. At least with commentators, they don't own the stocks they are talking about, so they can be completely objective. Sure, some of them go over the top to get readership, but one thing commentators do well is EXPLAIN why they say things, unlike analysts. It's much easier to judge the overall performance, not just from a price movement, but from the reasons for a price movement. Most analyst's don't even give a reason - it's becoming easier to make a price target, but it's difficult to project WHY. Commentators, the ones I read at least, never hide behind the WHY - they come right out and say it. Right or wrong, they still get read. So Tom, this first part is interesting, but do expect that you will tackle the issue of accountability as it relates to commentators as well, eh?

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