Morning Kathy,
you wrote "I am still new at this as you know, but I am starting to regard analyst downgrades as buy signals... tells me they want to buy more at a lower price... is that your view, too, or am I becoming overly cynical, and too hard on the dear analysts."
In my opinion there are only three reasons for analysts to exist. #1 to give an unbiased assessment of the future of a company based on available data and experience so that investors can make an educated investment decision.
#2 To drive share prices up
#3 to drive share prices down.
I believe #1 is the very very rare exception and that most (almost all) make their recommendations to achieve #2 and #3. Analysts are not paid by the general public but by the firms they work for. So why are they so anxious to get their views presented to the masses (you and me through CNBC, IBD, Business week, ect ect)?
I believe being cynical is the way to go. The trouble is that analysts recommendations very often have a real impact on a share price whether they are correct or not so you just can't ignore them. You are right that many times a downgrade by a firm can be an excellent entry point for a stock, it happens often. By the same token many upgrades have been a perfect time to sell, yet the bottom line is you can't use them as a sole means to invest or sell. You must use your OWN knowledge of a company and your own experience to make those decisions.
In ending I guess I would compare analysts to a tool. For example, I can use a hammer to pound in a nail, to pry out a nail or to just bend the nail over. Brokerage firms can use their analysts as tools also, to increase buying pressure, induce selling pressure or to just slow down either one. And always watch the age of the analyst making the call. I see way to many Big Calls being made by the youngest analysts in a firm. If this is such a terrific call then why isn't one of the firms senior analysts making it? Now that I have totally avoided directly answering your question I will say there is no easy answer. But these are some of the things I think when I see an analyst upgrade or downgrade a stock.jmho, MarkC |
