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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (39821)	10/31/2010 4:36:28 PM
From: geoffrey Wren	Read Replies (1) \| Respond to of 78464

I am curious what those on this board think of institutional ratings and to what extent people use them as a tool of investment. Standard and Poors claims that stocks rated 4 and 5 stars outperform those with fewer stars. The whole market has 1,2,3,4 and 5 stars. Therefore, one supposes that it would be possible to put together a portfolio of stocks or a mutual fund that would outperform the broad market and it would simple: just buy the 4 and 5 star rated stocks, and leave out the 1,2 & 3 stars rated stocks. Why buy an S&P 500 ETF when one could do better with a simple alternate approach? I believe that I have seen Motley Fool also claim that their 5 star CAPS rated stocks also do better than lesser starred stocks. Now the skeptic in me thinks of all those parameters, such as presumed buy date, presumed exit date, etc. that make measurement problematic. The skeptic in me considers those touts at the race tracks who sell you a list of horses and promise your money back if you lose (you get the purchase price of the list back, not your losses) and only if you catch the guy and threaten him with bodily harm. The skeptic in me considers that a statistical study of wine testing concluded that there was no correlation between a wine's success or lack of success in prior wine competitions to a current competition. In other words, I doubt that a mathematician doing a valid statistical study would back up the claim of outperformance. Any contrary argument? For myself I put very low weight on another's opinions per se. I do look for opinions backed up by reasoning, where the reasoning seems sound and where I already believe or can confirm the presumed facts of the opinion.