SmartStops comments: Our highly respected cohorts at RealInvestmentAdvice recently published an article which one of the key excerpts from is below. We couldn’t agree more as we’ve documented to on this page the biasness of analytsts. also points out their “biasness”. There basically is little “Sell-Side” coverage and the analysts are always late to the game when moving from a Buy to a Hold or Sell as well. Read on and learn the truth:
“When it comes to earnings season, the media will be complicit in pushing Wall Street’s recommendations. However, those “buy, sell and hold” recommendations aren’t for you. Those recommendations are the “bait” to camouflage the “hook.”
I will let you in on a “dirty little secret.”
Wall Street doesn’t care about you or your money. Such is because their profits don’t come from servicing “Mom and Pop” retail clients trying to save their way into retirement. Wall Street is not “invested” along with you, but “uses you” to generate income for their “real” clients.
Such is why “buy and hold” investment strategies are so widely promoted. As long as your dollars are invested, the mutual funds, stocks, ETF’s, etc, the Wall Street firms collect their fees. These strategies are certainly in their best interest – just not necessarily yours.
However, those retail management fees are a “rounding error” compared to the really big money.
Wall Street’s real clients are multi-million and billion-dollar investment banking transactions. These deals include public offerings, mergers, acquisitions, and debt offerings, which generate hundreds of millions to billions of dollars in fees for Wall Street each year.
You know, companies like Uber, Lyft, Snapchat, Tesla, and Shopify.
Buy, Sell or Hold
For Wall Street firms to “win” that very lucrative business, they must cater to their prospective clients. Not surprisingly, it is difficult for a firm to gain investment banking business from a company with a “sell” rating.
Such is why “buy” ratings are so prevalent versus “hold” or “sell,” as it keeps the client happy. I have compiled a chart of 4644 rated stocks ranked by the number of “Buy”, “Hold” or “Sell” recommendations.
There are just 2.97% of all stocks with a “sell” rating.
Do you believe that out of 4644 rated companies, only 138 should be “sold?”
But for Wall Street, a “sell” rating is not good for business.
The conflict doesn’t end just at Wall Street’s pocketbook. Companies depend on their stock prices rising as it is a huge part of executive compensation packages.
Corporations apply pressure on Wall Street firms, and analysts, to ensure positive research reports with the threat they will take their business to a “friendlier” firm. The goal of boosting share prices for compensation is also why roughly 40% of corporate earnings reports are “fudged” to produce better outcomes.
As the Associated Press exposed in “Experts Worry That Phony Numbers Are Misleading Investors:”
“Those record profits that companies are reporting may not be all they’re cracked up to be.
As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they’re doing better than they really are.
What’s worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they’re largely passing along the rosy numbers in reports recommending stocks to investors.“
Full article at: https://realinvestmentadvice.com/the-death-of-fundamentals-the-future-of-low-returns/