What’s wrong with depending on the collective wisdom of the analysts who follow stocks day in and day out? If the majority of analysts say buy, shouldn’t you buy? And when most say sell, shouldn’t you sell (if you already hold the stock)… or at least not buy? If anybody knows whether a stock is good or not, they should, right?
All this makes so much sense. And it would be so easy to do. Which is why I hate to throw the idea to the dogs. But that’s what it fully deserves. And I’ll tell you why.
Analysts are incredibly biased. When they see a cup half-empty, they’re known to shout "buy." Okay, that’s forgivable. But not when they see a cup two-thirds empty. The frightful fact is this. About 40 percent of stocks go down in any given year. And the percentage of stocks that have "sells"? Only five percent. As recently as the 90s, it was two percent.
That means a lot of stocks go down with either a "hold" or "buy" rating.
There’s a way for you to get around all the smoke and mirrors. Look at the trend, not at the tally. Are analysts liking a company more or less? If it’s more, the company is worth a second look. Because as analysts improve their ratings from sell to hold or from hold to buy, they bring more buyers into the fold. And as investors do more buying, the share price goes up. As an investor, that’s what you want to see.
The Reuters financial site shows how analysts have changed their opinion on specific stocks during the past year. You can find this information under "recommendations."
[Ed. Note: Yes, ETR's Investment Director, Andrew Gordon, gives you advice about what to invest in and what to avoid. But he also shows you how to make investment decisions for yourself. Check out Andy's monthly financial advisory service, which uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]
Similar Articles:
- Another Recession-Resistant Stock – If I told you there is a stock that more than doubled during the last recession, would you be intere…
- Your Reason for Buying Determines Your Ultimate Investment Success – Why do you buy a particular stock? Check the choice you most agree with… ___ The stock has bottomed….
- A Green Christmas? – Retailers aren’t looking forward to the holidays. Analysts predict sales will be flat, about the sam…
- What Is an Eeyore Stock? (and How Can You Make Money on One?) – Believe it or not, stocks have personalities. They can be happy, sad/depressed, manic, or plodding. …
- Using Your Emotions the Right Way for Investing – Figuring out when to sell a stock is never easy. And most experts wisely recommend keeping your emot…
- The Worst Is Over? Don’t Believe It! – A rising market makes even your mother-in-law look like a stock market genius. But a falling market …
- The Other Measure of a Company’s Worth – Price-to-earnings ratio (P/E) is a popular measurement of a company’s true worth. I’ve always liked …