AnalLusts "Which Stock Pickers Are Golden"
By DAVID RUNK WSJ.COM
Deciding whether to heed or ignore stock recommendations from experts on Wall Street is a daunting task for investors. They are bombarded every day with an endless stream of ideas from droves of stock pickers, but one bad choice can sometimes be enough to sink a portfolio.
For many, the decision about what to do is often based on gut instinct and the stock picker's general popularity. But could there be a better way? A few upstart Web sites think so. They are helping investors assess the credibility of stock pickers and separate the wheat from the chaff.
Validea (www.validea.com), BigTipper.com (www.bigtipper.com) and BulldogResearch.com (www.bulldogresearch.com) track stock recommendations made by Wall Street professionals and then rank the analysts based on how their selections have performed.
The sites bring a new kind of accountability for analysts, who have been criticized for potential conflicts of interest in recommending stocks. Critics have argued, for example, that some stock-pickers often avoid sounding too negative about companies that provide their firms with investment-banking business. Some also are afraid of being frozen out of a company's information loop in retaliation for issuing less-than-optimistic reports.
Assessing the credibility of analysts and deciding whether to follow their stock recommendations is no longer a dilemma solely for clients of full-service brokerage firms, which used to reserve such tips for their paying customers. The Internet and the investing revolution have made such information widely available. Now, it's an issue for the masses of investors.
While the sites won't help anyone determine a golden nugget from a rotten egg, they can help investors identify analysts whose stock-picking prowess has been very successful. Ranking analysts isn't new. Magazines and newspapers already do it -- but only occasionally. And some media rankings are influenced by an analyst's reputation and popularity. (The Wall Street Journal publishes and annual ranking of analysts based on the performance of their stock picks and accuracy of their earnings estimates.)
The rankings provided by the Web sites are continuous and are based largely on the performance of stock picks. Unlike services that allow investors to follow who said what about a stock each day, these sites collect the information and see how it pans out, building a scorecard for the various stock pickers. The analysts are then ranked by the accuracy and performance of their recommendations.
While all three sites rank analysts at Wall Street firms, Validea also grades financial columns, publications and journalists. The site tracks more than 4,500 stock pickers, relying on recommendations they make in newspapers, magazines and in online publications. Validea also plans to add recommendations from television sources.
Validea ranks the stock pickers based on the average performance of their picks over a given period, from a week to a year, going as far back as 1995. Investors can look up data on a specific analyst, view overall rankings or rankings by industry.
"The premise behind it is that we wanted to provide consumers with information on who to listen to," said Validea co-founder Keith M. Ferry, senior vice president of business development and content. Validea was launched more than a year ago under different name, Reesegroup.com.
BigTipper.com also bases its rankings on recommendations stock pickers make in the media, including television. The site has evolved since its basic beginnings in 1998. It uses a comprehensive database to track stock picks, and to compile performance scorecards and rankings. It also provides other information.
For example, BigTipper offers links to the day's stock picks from CNBC, CNNfn and Bloomberg, with summaries of each stock picker's main points, as well as to tips from print publications. The site allows investors to look at stocks by sector and see what are the most talked-about stocks, and calculates returns based on $1,000 invested in each stock on the day of the recommendation.
Though BigTipper also includes a ranking of the top stock pickers by percentage -- positive and negative -- the site is designed more for investors to see how well an individual's picks have performed rather than who is the best picker on an annualized basis, said BigTipper President Bryan Berg, a former California elementary school teacher who founded the site.
Mr. Berg said the rankings also can give investors the sense of whether fund managers, for example, who are lauded for the performance of their investments, are letting the public know about their best picks or saving those for themselves. "I wanted to help the individual investors out there so they can make informed decisions about who to listen to and who to heed," said Mr. Berg.
While Validea and BigTipper base their scorecards on recommendations culled from the media, the newest site, BulldogResearch.com, uses data collected from Wall Street firms by I/B/E/S International, a financial information company. BulldogResearch ranks analysts by the accuracy of their earnings estimates and their stock-picking performance.
BulldogResearch was launched in February by Brent Johnstone and Michael Thompson, two former brokers with Lehman Brothers. The site tracks more than 3,000 analysts from Wall Street firms.
"We basically wanted to cut through the clutter and connect investors with top research," Mr. Johnstone said.
BulldogResearch maintains a virtual portfolio for each analyst based on their recommendations, and sees how each analyst's recommendations stack up against stock prices and earnings reports. The site only publishes rankings for analysts whose firms agree to participate.
While seen as a boon for investors, the sites have received mixed reactions from analysts. Some have argued that the rankings are based on incomplete data and sometimes wrongly include stocks about which they have made casual comments.
Arnold Berman, technology strategist at Wit SoundView, has his stock picks listed on both Validea and BigTipper's sites. "As a concept, I think there is a very interesting side idea," Mr. Berman said. "I can definitely see why people are intrigued by it. The real issue is that you want to see data mining."
Though Validea includes Mr. Berman's stock picks from an article on Microsoft Investor and BigTipper includes some appearances on Bloomberg TV and CNN, he said that is far from a well-rounded view of his picks. He makes stock picks in a weekly appearance on CNNfn's "Digital Jam" and in his reports for Wit SoundView, neither of which is included in his profile by the sites. |
