FWIW, I'm of the school that says analysts are tied to the trading desks at their firms. The problem, for us, is that they're trading against us: they want us to sell the lows and buy the highs -- hence the downgrades at bottoms and upgrades at tops.
I don't think analysts are morons; in fact their game seems to work fairly well because stocks generally go down further on their downgrades and up further on their upgrades. The problem is that the whole analyst industry is characterized in a fundamentally deceitful way. Analysts are said to give sincere fundamental analyses of companies, markets, and economic sectors. In fact, I think all of their ratings, valuation metrics, price targets, etc., etc., are better understood as rhetorical devices that are used to influence traders -- get them to buy when their trading desks have inventory to unload, get them to sell when their trading desks want to accumulate. In short, I believe their job is not to provide solid fundamental analysis, but rather is to move markets.
Now, having shown myself to be so cynical about analysts, I must add that it really is helpful to identify analysts who seem in fact to be providing fundamental insights: Lehman's Dan Niles, for one. These folks aren't always right, and they're not always the most timely, but it's nice to know these folks are at least trying to give you a serious look at real businesses and economic fundamentals. I was highly skeptical of Jonathan Joseph when he came out with his semi call last summer, and I was among those who hammered away at him on SI. But he was right -- he proved his mettle and his integrity -- and so he's another one I'll listen to in the future. |
