Well, to maintain some semblance of academic rigor, it's not a negative return unless the analyst initiated coverage at $170 or, for that matter, any price above $62.50 - which some may indeed have done, but I'm betting that in this case the initial recommendation came at a price lower than $62.50, which would net a positive return over the indicated period.
And, as I'm sure you know, the analyst could always qualify his ridiculously bullish buy call at $170 with something to the effect that the stock "may"/"has a likelihood" of correct in the "near term," but growth "should" continue at a "higher than average" pace over the next x years...well, that's the nature of the game they play. Caveat emptor.
It's the research, stupid!
Ah, if but that were the case. It's not, you see.
There was a public company that sold traditionally low margin goods over the internet. Swept up in the dot com frenzy, it rose to multiples of its' long ambivalent share price. A few analysts called it a buy, strong buy, or what have you at consecutively higher and higher prices - even as the fundamentals remained the same and in fact worsened. And, though the downtrend took far longer to come than many expected it to, it did eventually arrive, with the analysts either not changing their bullish recommendations or shifting to some ambivalent convention such as "hold," "long term accumulate" or some other such absurdity.
However, there were other less optimistic analysts, usually working for smaller houses...save for one individual in particular who, working for a large securities firm, attacked the company's prospects from a debt perspective, indicating that they were in fact quite completely bearish. He suggested quite boldly that sometime this year the firm had a high likelihood of rolling over.
The thing is, Bob, he was wrong - if you'd have gone short when he advised doing so, you'd have lost money, just as if you'd bought every time the bullish analysts reiterated their recommendations. So, as Robert Teitelman noted on this topic in an editorial in The Deal yesterday:
"[I]t is evidence that in these matters of perception, being wrong on the upside is far worse - criminally worse in a bear market - than making a boo-boo on the downside...Folks bought on [Analyst 1's] urging and lost; folks sold shares on [Analyst 2's] gloom...and lost...The [stock] case also raises the issue of duration - as in what is the relevant time period to judge right and wrong. For awhile, [Analyst 1] was a genius because [company's] stock kept rising. When it fell, he found himself in litigation...[Analyst 2], on the other hand, was praised in the short run, but looks a little off in the long run."
The author believes that it's an issue of right and wrong, but I think he's entirely off base, there. The fact that they're going after bulls, rather than the bears (as I'm sure that there was more than one, but only the one was a high profile analyst) has to do with the intrinsic nature of those who whine the loudest.
Given the disproportionate division of individuals aware of - let alone employing - long vs. short transactions, it doesn't take a lot of imagination to determine exactly who out there are crying the loudest for someone in power to give them a reprieve from their personal responsibility.
By the way: do you have a link to the affidavit where there is the "suggest[ion]" of a retaliation-inspired downgrade? I'd like to read about it. Thanks -
LP. |
