The last calendar year and the financial year must have eroded the wealth of many Investors irrespective of their category, portfolio size and staying power. Many analyst day-in and day-out vent out their views about the stock market. I have no issues with that. I am uncomfortable with the analyst who air out their opinions about individual securities.
An analyst who has been bullish or bearish about a sector or a company from the very beginning will look like a hero when the sector or company actually starts moving in the direction of his prediction.
The so called analysts should only be giving their views to their clients and should not make anything public. Few Analyst can bring down or take up any ticker. With Media glamorizing things, the analyst only need to have contacts in media to propagate.
When more than one analyst have the same view, investors are bound to get influenced and it becomes a self-fulfilling prophecy, thereby making the suggestion of the analyst a valid one.
Actually, the clients of the Brokerage Houses/Investment Banks, where such analyst work, should complain. The clients pay commissions and other fees to the Brokerage House/Investment Banks so that they can get information and research that are privy only to the clients. If such downgrade/upgrades are going to be publicized into media by the Analyst of such Brokerage Houses/Investment Banks then the Client loses the edge. What is supposed to be for the clients would become open and public news. This surely will have the self-fulfilling prophecy effect.
In a way, we the Investors make the Analysts view correct because of this prophecy. We all want to be the first to get out before the bad news actually hits the market and want to be the first to get in before the things start moving north. It is this greed, (includes me as well) that hooks us to a certain analyst and we tend to follow them blindly.
Think for a while...how do we know if they were fair in calculating the projected earnings? How do we know if they have lowered the earnings, enough, taking into consideration the unprecedented events that unfolded through out a wide spectrum of industries and economies across the world? By not lowering enough they might make a security or industry look like an underperformer. By lowering too much they might make a security or industry look like a outperformer. How do we authenticate their valuations and projections?
These analyst are not answerable or accountable for their views because in all their reports they have this well drafted disclaimers. If you want to be a hero and want to just air your coverage, upgrades and downgrades of a security, you should also be accountable for it. But there is no way we can have them accountable. We can only stop reacting to their views. There is one solution though, the media can expose all those who have been way off target in predicting the earnings.
We can surely voice our concerns and hope that some regulation creeps in the form of a MORAL CODE OF CONDUCT where in analyst working for any Brokerage House/Investment Banks/Financial Institutions should not publicize their views of any of the stocks/assets that they are covering.
If you are good in valuation and foresee a stock going up or down, why would you want to spread this news across, wouldn't it be logical that you use your findings to multiply your money? If at all you want to spread this, why would you spread this news free when you know the people who believe you might multiply the money in thousands and millions. Wouldn't it be logical in this case to charge for your findings?
Already the market is gripped with Bigger Fool Syndrome. Many retail investors do not have a proper rationale behind their positions. They think they are taking positions based on the trend that they see. This makes the Market Place a more of a Gambling center. These retail investors only try to find another Bigger Fool than them who can buy it from them at a price higher than what they have paid for or a Bigger Fool than them who can sell it to them at a cheaper price, depending on the Long or Short Position they are into.
It is a Free Market and everyone has a right to view their opinion, but I think time has come for Brokerage Houses/Investment Banks/Financial Institutions to have a Moral Code of Conduct whereby they do not permit their analyst airing their views on a security in any form of media.
The governing investment authority should bring in such regulations to protect the Retail Investors who blindly follow the opinions of one Analyst or other. Under any scam or Bubble Burst, it is only the Retail Investor who has lost the more.
When the markets are having a sweet little rally, of late, many investors tend to take higher risks for higher returns in order to wipe out some of their previous 12 months’ losses. Any allied view by few brokers can influence the movement of the securities, not necessarily backed by merits.
Though I do not advocate more regulation to strengthen the Financial System, I do believe there is scope for a structured and disciplined environment under which the Brokerage Houses/Investment Banks and Investors can operate.
An analyst who has been bullish or bearish about a sector or a company from the very beginning will look like a hero when the sector or company actually starts moving in the direction of his prediction.
The so called analysts should only be giving their views to their clients and should not make anything public. Few Analyst can bring down or take up any ticker. With Media glamorizing things, the analyst only need to have contacts in media to propagate.
When more than one analyst have the same view, investors are bound to get influenced and it becomes a self-fulfilling prophecy, thereby making the suggestion of the analyst a valid one.
Actually, the clients of the Brokerage Houses/Investment Banks, where such analyst work, should complain. The clients pay commissions and other fees to the Brokerage House/Investment Banks so that they can get information and research that are privy only to the clients. If such downgrade/upgrades are going to be publicized into media by the Analyst of such Brokerage Houses/Investment Banks then the Client loses the edge. What is supposed to be for the clients would become open and public news. This surely will have the self-fulfilling prophecy effect.
In a way, we the Investors make the Analysts view correct because of this prophecy. We all want to be the first to get out before the bad news actually hits the market and want to be the first to get in before the things start moving north. It is this greed, (includes me as well) that hooks us to a certain analyst and we tend to follow them blindly.
Think for a while...how do we know if they were fair in calculating the projected earnings? How do we know if they have lowered the earnings, enough, taking into consideration the unprecedented events that unfolded through out a wide spectrum of industries and economies across the world? By not lowering enough they might make a security or industry look like an underperformer. By lowering too much they might make a security or industry look like a outperformer. How do we authenticate their valuations and projections?
These analyst are not answerable or accountable for their views because in all their reports they have this well drafted disclaimers. If you want to be a hero and want to just air your coverage, upgrades and downgrades of a security, you should also be accountable for it. But there is no way we can have them accountable. We can only stop reacting to their views. There is one solution though, the media can expose all those who have been way off target in predicting the earnings.
We can surely voice our concerns and hope that some regulation creeps in the form of a MORAL CODE OF CONDUCT where in analyst working for any Brokerage House/Investment Banks/Financial Institutions should not publicize their views of any of the stocks/assets that they are covering.
If you are good in valuation and foresee a stock going up or down, why would you want to spread this news across, wouldn't it be logical that you use your findings to multiply your money? If at all you want to spread this, why would you spread this news free when you know the people who believe you might multiply the money in thousands and millions. Wouldn't it be logical in this case to charge for your findings?
Already the market is gripped with Bigger Fool Syndrome. Many retail investors do not have a proper rationale behind their positions. They think they are taking positions based on the trend that they see. This makes the Market Place a more of a Gambling center. These retail investors only try to find another Bigger Fool than them who can buy it from them at a price higher than what they have paid for or a Bigger Fool than them who can sell it to them at a cheaper price, depending on the Long or Short Position they are into.
It is a Free Market and everyone has a right to view their opinion, but I think time has come for Brokerage Houses/Investment Banks/Financial Institutions to have a Moral Code of Conduct whereby they do not permit their analyst airing their views on a security in any form of media.
The governing investment authority should bring in such regulations to protect the Retail Investors who blindly follow the opinions of one Analyst or other. Under any scam or Bubble Burst, it is only the Retail Investor who has lost the more.
When the markets are having a sweet little rally, of late, many investors tend to take higher risks for higher returns in order to wipe out some of their previous 12 months’ losses. Any allied view by few brokers can influence the movement of the securities, not necessarily backed by merits.
Though I do not advocate more regulation to strengthen the Financial System, I do believe there is scope for a structured and disciplined environment under which the Brokerage Houses/Investment Banks and Investors can operate.
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Since you are one amongst 'us', please help us, the lesser equals decipher the stock market maze.
ReplyDeleteAs for your comment on analysts' views, it is good for them if they air their views for the simple reason that more people will buy the shares and the value for their clients too will go up. Another aspect is that they simply wouldn't have large funds to buy the entire lot.