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Strategies & Market Trends : Due Diligence - How to Investigate a Stock -- Ignore unavailable to you. Want to Upgrade?

To: ubrx who wrote (39)	3/28/1999 10:10:00 PM
From: Don Pueblo	Read Replies (4) \| Respond to of 752

You have asked a question that could be answered differently by just about every single person of whom it is asked. I can only speak for myself. I look at analyst's evaluations of companies for the fundamentals only, and never for entry and exit points. I look to see if the analysis makes sense to me. I don't mean this to be glib; you'll have to just get the information and read it and try and make sense of it yourself. I read these reports for the purpose of getting a better understanding of what the company does, where it has been, where it might be going, etc. These guys are paid serious money to do this kind of work, and they earn their money. Most of them are really good at what they do as far as research is concerned. They look in every crack and crevice for information, and I find their information quite valuable. If the analyst is respected, I pay attention. I guess another way to say it is: I look, but I look for what makes sense to me, not necessarily what makes sense to the analyst. A couple of years ago, I happened to call a Harley Davidson dealership to see if I could get a new bike. I found out there was a waiting list. A long waiting list. It sounded like they couldn't make enough bikes to go around. I didn't need a Wall Street analyst to tell me this might be worth watching, all I needed was a phone call to 5 different Harley dealers in 5 different states. Took me about an hour. I did like seeing a couple of reports on HDI that gave me detailed information about the company, and included in particular, things that I didn't think of. And there are always things I didn't think of. But, I never never buy or sell due to one of these opinions. An analyst can love a stock. He can still love it 6 months later when he changes his earnings estimate on some stock in the same sector and all the stocks go down 35%. I pick entry and exit points using TA. I would love to see a dozen other people (not TA people) answer your question. I hope they do, I would learn a lot. As an aside, Bill Wexler, whom I respect a great deal as a fundamentalist, challenged me to a "FA vs. TA" contest some time back. I declined. Bill is successful at what he does. So am I. I figure we are on the same team.

To: ubrx who wrote (39)	3/30/1999 3:50:00 AM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 752

James, How important are the analysts opinions? Very important, short term (up to 1 or 2 quarters). Usually irrelevant, long term (5 or more years holding). Historically, analysts (collectively) are "off" by an average of 10% (up or down) in their price predictions (a good figure to remember when trying to project a company's future price). When an analyst downgrades a stock, that stock will almost always suffer a short term price drop. When an analyst upgrades a stock, the price almost always goes up short term. The effects of the analyst's report can last anywhere from a few hours (witness some of the amazing intra-day turnarounds in the internuts recently) to a few days (very normal) to perhaps a few quarters. Analysts affect how investors perceive the company, and that perception is reflected in the price of the stock. But taken collectively, investors have very short term memories, and the next "event" in the stock or the market will move the price up or down depending upon the new perception. There is an old saying that "earnings move the market". But the real truth is that earnings influences investors' perceptions, and perceptions moves the market. When an analyst (or several analysts) upgrade/downgrade a stock is this a time to buy or sell? If so, which way? Against the recommendation because short term the move is often overdone? or with the recommendation because their followers will move the stock as the analyst predicted? The correct answer will vary with your individual investment style. For a long term buy-and-hold guy like me, the answer is to buy on the downgrade if the company is an otherwise good long term holding. If you're a short term investor or a daytrader, then you're looking for immediate price movement from the upgrade/downgrade and you'll likely follow the analysts' recommendations. Caveat: Don't play this game with extremely volatile stocks (for example, the internuts). KJC