Why you can’t trust Wall Street analysts

Oct 2012
Good article. I've long since noticed that the stocks I buy tend to have a rating of "buy" from these analysts. I didn't know that they all have that rating! :mad:

Why you can’t trust Wall Street analysts

<H6>The folly of ‘guidance’
Many companies provide earnings “guidance,” which analysts incorporate in their estimates. For companies, guidance — in other words, the outlook — is designed to “under-promise and over-deliver,” in order to set up earnings beats, which propel the stock higher.
Analysts are much more likely to rate stocks buy than sell, and if the beats help push stock prices higher, their track records as stock pickers look better.

The conclusion: If you invest in stocks, you had better take analysts’ ratings and earnings estimates with a grain of salt.
Analysts’ biases

Analysts’ research can be help investors learn about companies, but you have to do your own research to understand if a company can make it in the long run. A broad look at sell-side analysts’ ratings shows a strong positive bias, along with outlooks that are far too short.
For generations, stock brokers have made investment recommendations to clients, often backed by their firms’ equity-research departments. Regulations are supposed to keep sell-side analyst operations separate from firms’ investment-banking operations to assure objectivity. But that doesn’t seem to be happening

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