Why do analysts publicly post their upgrades /downgrades ?

Quote from Susukino:

Not sure I understand you. Are you saying that the clients of all IBs are dumb?
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no, of course not. it makes perfect sense that brilliant market sages educated in america's finest institutions would toil and slave away for hours, analyzing bona fide and truthful accountants' reports and making insightful predictions that will bring riches - then go on tv to tell joe sixpack all about it for free.

altruism, you see. lots of altruism on wall street.
 
Quote from eagle:
Those guys work for Wall Street firms and their job is to promote the trading.
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Ultimately, their job is to make money for clients because that's what makes money for the firm. If you make money for clients with good calls or consistently useful opinion then you get to the top of the Institutional Investor polls - these rankings are voted for by clients, not the firms the analyst works for. If you're a highly ranked analyst, you get more money because clients will give more business (commissions) to the firm because you work there. If you're not highly ranked, you're fired or you move to an employer with lower expectations.

I do agree that there is always pressure to produce more research to encourage clients to buy and sell more stocks. Obviously, brokers want more product to sell to investors and that's the truth. However, it's up to clients to decide whether to buy and sell.

Suss
 
Quote from Madison:
then go on tv to tell joe sixpack all about it for free.
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What is the cost to the analyst or the firm that employs him of talking about a recommendation? Zero cost, or even a small benefit, because the marketing is useful for the firm. The work has already been done, why not talk about it?

If the analyst were to appear on TV and say something different to what he was telling his clients, or different to what he actually believed - as certain analysts did during the bubble - then he deserves whatever he gets. If an analyst said something contrary to his published rating on TV, the firm he worked for would be hit with a class action suit before he'd got back from the studio to his desk.

I don't doubt that a small number of analysts abuse their position. What I'm saying is that it would have to be subtle and because of that it would be difficult, and for that reason in turn I don't think it's widespread.

But if people want to believe that it's all smoke and mirrors I suppose that's what they will believe.

Suss
 
Quote from Susukino:

What is the cost to the analyst or the firm that employs him of talking about a recommendation? Zero cost, or even a small benefit, because the marketing is useful for the firm. The work has already been done, why not talk about it?

If an analyst said something contrary to his published rating on TV, the firm he worked for would be hit with a class action suit before he'd got back from the studio to his desk.
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the point is that it's all crap. if their "calls" had any value they wouldn't broadcast them for free, to their clients or to anyone else.
 
Quote from Susukino:

1) An analyst can only influence the market if he has credibility i.e. people watch him and follow his research.
2) If he makes changes to ratings that are arbitrary and/or unexplained he will lose that credibility.
3) As a result the analyst will no longer be followed by clients and will no longer be able to move the market.
4) Without a following, he is of no use to the company, so he ends up losing his job.

So, please tell me again, how does trying to manipulate ratings for clients (even if he could please all clients at once, which is not possible) make economic sense?

Suss
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If any one of them were any good they'd be trading their own money instead of toiling away for 15 hours a day 6 days a week giving useless price targets and analysis they themselves don't belive in.

As someone mentioned before, the only people these analysts influence are the same fools who pay $5000.00 for a trading system based on moving averages.

The market feeds on fools like these. Fools who quickly forget recent events such as:

Wall Street settles analyst scandal

The banks hope it will be back to business as usual

Wall Street's biggest names have reached a $1.4bn deal with regulators over charges that they bamboozled investors during the boom years of the 1990s.

http://news.bbc.co.uk/1/hi/business/2981865.stm



Here's an excerpt from a little skit I'm working on.

Son to Maw: LOOK MAW! THE SHINY RED LIGHT TURNED ON!! BUY BUY BUY!

Maw to son: SON, THE RED LIGHT MEANS SELL SELL SELL!

Son to Maw: AW SHUCKS MAW, MAYBE THE SYSTEM GONE BAD, LETS CONSULT THE ANALYSTS!
 
Quote from bsmeter:


Here's an excerpt from a little skit I'm working on.

Son to Maw: LOOK MAW! THE SHINY RED LIGHT TURNED ON!! BUY BUY BUY!

Maw to son: SON, THE RED LIGHT MEANS SELL SELL SELL!

Son to Maw: AW SHUCKS MAW, MAYBE THE SYSTEM GONE BAD, LETS CONSULT THE ANALYSTS!
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nice. in the last act, they can visit their class-action lawyer for a free consultation to discuss how they were misled and why they deserve to get paw's 401k money back.
 
Quote from bsmeter:
If any one of them were any good they'd be trading their own money instead of toiling away for 15 hours a day 6 days a week giving useless price targets and analysis they themselves don't belive in.
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OK, just one last response.

To return to earlier comments:

1) Having met many, many analysts I haven't found any who don't believe in what they're doing (I'm sure there are some, but I have not met them). And if they don't believe what they're saying, clients catch them pretty quickly. Lying is a talent and like all talent it's pretty thinly spread.

2) A small minority of analysts abuse their position, unsuccessfully in many cases. For example, Blodgett and Grubman were exposed, lost all credibility and so even if they were not barred from the industry, nobody would want them. As I said, there is doubtless corruption in this industry, just as there is in any other. I have simply argued that it's not endemic.

3) Most analysts do not frame their lives in terms of wanting to be a trader or wanting to be an analyst; that choice simply doesn't occur to them. What they do is very different to trading and picking stocks is only a part of that. Most of them are only vaguely aware that day traders of the kind who hang out here exist. They do their job and (mostly) enjoy it and get well paid for it. Why would they want to be traders, especially if they like the faux respectability of employment at a Wall St firm?

4) Every single major asset management firm and most (all?) hedge funds with a discretionary strategy use sell-side analysts and research from sell-side analysts. Certainly many clients don't buy and sell based on analysts' calls, but instead use the analysts as an information resource about the companies they cover. Analysts provide a decision support service, not a trading service. Clients often use analysts as contra-indicators as regards timing. :D So, are these clients - who do pay for the service - all gullible and/or stupid if they talk to analysts?

None of this can be proven either way, but there are many points to ponder. Anyway, it's good night from me...

Suss
 
Does anyone remember this timely downgrade of AAPL on 28 Sept 2005

Merrill Lynch decides to downgrade at 1356 ET for reasons not related to the scratched nano screens, although this was not apparent on the first headline on Fly on the wall.

Why do they allow these bastards to release these recommendations during market hours. All this was timed to perfection to cause a mini panic.

The public get fleeced and the pros make the money who is going to champion the reasons for change.

September 28, 2005
14:33 EDT AAPL Apple Computer-AAPL Options active on MLCO's Downgrade to Neutral
AAPL is down 2.54 to 50.98. AAPL was downgraded to Neutral from Buy at MLCO on "earnings scenario analysis", "revenue growth deceleration", "MSFT's Vista" and "sentiment is hard to improve". AAPL October option implied volatility of 44 is above its 26-week average of 41. AAPL intra-day call option volume of 45,822 contracts compares to intra-day put volume of 43,730 contracts. Active option volume indicates position adjustments being made on MLCO's downgrade.

14:14 EDT AAPL Follow-up:AAPL downgrade was an assumption of coverage w/a Neutral from a Buy@MLCO
The analyst assumed coverage with a Neutral rating from a previous Buy rating.

14:04 EDT AAPL Afternoon Report
AAPL (-1.31) is down -2.5% on concerns of defective screens on their iPod Nano music players.

14:03 EDT AAPL Follow-up: AAPL cut to Neutral from Buy@MLCO
Downgrade based on limited upside given: revenue growth deceleration, lack of upside to 35%-40% iPod penetration into the installed PC base by 2007, impact from Intel transition, Microsfot Vista could hold back 2007 share gains, and positive sentiment already built into shares.

13:56 EDT AAPL Apple Computer-AAPL downgraded to Neutral from Buy@MLCO

09:30 EDT AAPL Apple Computer Inc-AAPL to replace damaged iPod Nano screens-WSJ
AAPL, responding to a score of customer complaints which were reported by CNet.com on Sept. 26th, has said it will replace defective screens on its new iPod Nano portable music player. AAPL senior VP Philip Schiller said "vendor quality problem" caused the cracking on a small number of the screens, affecting "less than one-tenth of 1%" of the devices. He said that the warranty for the iPod Nano will cover the cracked screens.
 
Quote from bsmeter:

I think his comments were spot on. Analyst upgrades and downgrades are all B.S. to enable un loading their own and large clients books on fools like you.
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there's no evidence about it in the mechanics of the stocks covered...on the contrary upgrades tend to be bought by institutions [and traders alike] and downgrades tend to be sold.
 
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