<OT> The state of "analysis" by analysts is an absolute scandal. We all remember Merril Lynch having a 12 month target of $86 for MSFT, and Pru $88, just a few weeks ago. At the time, I and many other posters came on here and expressed our disbelief that these folks are serious. I mean, are they telling us that in May/June of 2K MSFT will hover about the mid $80s? I grant that most likely MSFT will see a good correction with the market this fall, but $86 in May of 2K??? In any case, here is an article from NY Times on analysts and the state of analysis... one excerpt which blew my mind:
<<The fact is, analysts are the stars of the moment in the Wall Street
firmament. They are to the 1990's what investment bankers were to the
80's. Gone are the days when analysts toiled in obscurity, crunching
financial figures onto eye-glazing spreadsheets. Now they are front and
center. And rich.
"Top analysts are truly neck and neck with top investment bankers,
because the two now go hand in hand," said Joan Zimmerman, principal
of G. Z. Stephens, an executive search firm in New York. "The number
of research analysts that had the capacity to bring in significant numbers
of deals was very limited in the 1980's."
A result, she said, is that compensation among top analysts has hit $10
million a year, while junior analysts are receiving, on average, $350,000 a
year. >>
I mean WHY ON EARTH DOES ANYONE PAY THESE BOZOS A RED PENNY????? WHY DOES ANYONE PAY THE LEAST ATTENTION TO THESE KNUCKLEHEADS??? AND NOW THEY ARE OVERPAID ****STARS****????
Is there no one doing any statistics which track individual performance of these guys? Is there no penalty for egregious and consistent blunders which affect the market - the upgrades at the top and downgrades at the bottom (I loved the upgrades when PFE hit $150, and the downgrades at $95 soon after) - these jokers are the best contrary indicator ever; it is a well-known fact that mass upgrades by analysts signal a top in the market, and mass downgrades and bearishess signals a bottom. Good analysts are few and far between. Why are they not held up to evaluation just like any performer? At least investment bankers can be rated and rewarded on performance, but to see analysts feted and treated and rewarded like stars, is just insanity.
Here's the article:
nytimes.com
<<So Many Analysts, So Little Analysis
By GRETCHEN MORGENSON
The sorry state of Wall Street research is the subject of much buzz
today among longtime investors. With more analysts than ever
following companies -- a 1999 study says there are 2,427, up 32 percent
from 1997 -- why are so many of their reports unoriginal, unenlightening
and unquestioning?
Maybe these folks are too busy signing autographs from adoring fans to
bother with dull financial statements.
The fact is, analysts are the stars of the moment in the Wall Street
firmament. They are to the 1990's what investment bankers were to the
80's. Gone are the days when analysts toiled in obscurity, crunching
financial figures onto eye-glazing spreadsheets. Now they are front and
center. And rich.
"Top analysts are truly neck and neck with top investment bankers,
because the two now go hand in hand," said Joan Zimmerman, principal
of G. Z. Stephens, an executive search firm in New York. "The number
of research analysts that had the capacity to bring in significant numbers
of deals was very limited in the 1980's."
A result, she said, is that compensation among top analysts has hit $10
million a year, while junior analysts are receiving, on average, $350,000 a
year.
Propelling many of these paychecks is a flood of stock issuance. Analysts
play an increasingly important role in creating demand for a company's
shares. Issuers ask potential underwriters not only how their stock will be
priced but also who will support it after the deal is done.
And so, Ms. Zimmerman said, the difference between a top analyst and
an also-ran has become the ability to bring the top 100 investors to the
table for a corporation issuing stock.
Selling has always been part of an analyst's job. Now it is a major part.
Consider the findings of a study of major investment research firms
conducted by Tempest Consultants for Reuters Group. For the study, in
its third year, analysts were asked how they allocated their time.
Since 1997, time spent on fundamental research has fallen from 47.58
percent to 39.89 percent. Next year, analysts expect to devote less time
yet -- less than 37 percent -- to research.
Time spent on company visits and contact has also dropped, from 17.21
percent to 15.21 percent. But time spent selling to institutional clients has
risen to 23.22 percent from 22.11 percent.
David Eidelman, a money manager at Eidelman, Finger & Harris in St.
Louis, was head of research for a regional brokerage firm from 1968 to
1975. He said he spent three-quarters of his time as an analyst on
fundamental research and company visits and 10 percent with institutional
clients. Now, when a salesman calls, Eidelman said, "He says, 'Let me
get the analyst on the phone with you.' "
What analysts are selling increasingly today is not the ability to plumb a
company's business and uncover investment gems or scams but rather the
ability to make investors buy the stocks they follow.
Sure helps explain why so many analysts have been caught napping
recently when earnings shortfalls or accounting gaffes come to light. It's
another bull market phenomenon: Analysts are paid more and more
money to do research that is less and less substantive. Maybe it should
be called Research Lite: More spin, less filling.>> |
