The August Journal of Financial Economics reports that large traders tend to compensate for the fact that "security analysts tend to bias stock recommendations upward, particularly if [the analyst is] affiliated with the underwriter." But "small traders, instead, follow recommendations literally.
* When the analyst says "strong buy", you should make regular investments in an index fund.* When the analyst says "buy", you should make regular investments in an index fund.* When the analyst says "hold", you should make regular investments in an index fund.
I endorse what Shakes Fool said. A Random Walk is well worth reading.
Down grades deserve your attention. Upgrades mean little.
Truly bad investments can often be identified and losses avoided or stopped promptly. But the truly superior buys are nearly impossible to find in an orderly market.
Those generating market advice don't have to be right. They have to be convincing.
Because I’ve read “A Random Walk Down Wall Street”by Burton Malkiel and similar books, I am skepticalof any market forecasts, and of stock pickers.
The research those writers refer to shows stockpicking to be a nearly impossible task. (Andshows that many of us are seduced into acceptingadvice by brief records of success which Malkiel andothers believe are mostly strings of luck.They believe successful stock pickers are likecoin flippers – for every thousand people whoflip a coin ten times you would expect 1 to get10 heads – and the people who follow therecommendations of stock pickers are followingpeople who no more skillful than the lucky peoplewho flipped 7 or 8 or 9 or 10 heads in a row.
But perhaps I believe this because, when it comesto stock picking, I have rarely gotten even onehead in a row.
Maybe the world of stock pickers and theirfollowers are right and I am defective.
I am skeptical that contrarianism is, by itself, a viable strategy. It works sometimes because the recommendations of analysts are frequently (but not always) lagging indicators. Successful contrarian investing requires some ability to distinguish between "everyone should sell this now" and "I should have sold this months ago".
Are you ruling out the contratian strategy? If they say buy, you sell. If they say sell, you buy.I guess if they say hold, well, I don't know about that one.
Remember Lord Rothschild. When blood is flowing in the streets, it is the time to buy.
With transactions costs as low as they are nowadays, it seems there should only be "hold" and "don't hold" recommendations...for what important distinction is there between "buy" and "hold"? A $5 commission?
* When the analyst says "**", you should make regular investments in an index fund.
But which analysts do you depend on when you choose which index fund?
I have better advice:
* When the analyst says "strong buy", you should make regular investments in an index fund.* When the analyst says "buy", you should make regular investments in an index fund.* When the analyst says "hold", you should make regular investments in an index fund.
I endorse what Shakes Fool said. A Random Walk is well worth reading.
Down grades deserve your attention. Upgrades mean little.
Truly bad investments can often be identified and losses avoided or stopped promptly. But the truly superior buys are nearly impossible to find in an orderly market.
Those generating market advice don't have to be right. They have to be convincing.
Because I’ve read “A Random Walk Down Wall Street”by Burton Malkiel and similar books, I am skepticalof any market forecasts, and of stock pickers.
The research those writers refer to shows stockpicking to be a nearly impossible task. (Andshows that many of us are seduced into acceptingadvice by brief records of success which Malkiel andothers believe are mostly strings of luck.They believe successful stock pickers are likecoin flippers – for every thousand people whoflip a coin ten times you would expect 1 to get10 heads – and the people who follow therecommendations of stock pickers are followingpeople who no more skillful than the lucky peoplewho flipped 7 or 8 or 9 or 10 heads in a row.
But perhaps I believe this because, when it comesto stock picking, I have rarely gotten even onehead in a row.
Maybe the world of stock pickers and theirfollowers are right and I am defective.
John
http://books.google.com/boo...
I am skeptical that contrarianism is, by itself, a viable strategy. It works sometimes because the recommendations of analysts are frequently (but not always) lagging indicators. Successful contrarian investing requires some ability to distinguish between "everyone should sell this now" and "I should have sold this months ago".
Robin,
Are you ruling out the contratian strategy? If they say buy, you sell. If they say sell, you buy.I guess if they say hold, well, I don't know about that one.
Remember Lord Rothschild. When blood is flowing in the streets, it is the time to buy.
Shouldn't the actual recommendation be "ignore analysts, you could do better with a dartboard"?
With transactions costs as low as they are nowadays, it seems there should only be "hold" and "don't hold" recommendations...for what important distinction is there between "buy" and "hold"? A $5 commission?
What about when the CEO of a bank runs around saying "no panic, no panic"? Bank run or no bank run?