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Anyone else think that the "Hold" analyst recommendation is non-sensical?

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Not that I'm a big follower of analyst consensus but I just started wondering about it and looked up the definition.

"A "hold recommendation" is an analyst's opinion that can loosely be interpreted to mean that a stock should be kept by individuals who already own it, but should not be purchased by those who do not already own it. A hold recommendation is generally better than a sell recommendation but worse than a buy recommendation, and it usually means that the analyst believes the stock will remain fairly stable and keep pace with, but not surpass, the market. Holds are also referred to as "neutral" or "market perform" recommendations."

So for those not owning the stock, they're saying "don't bother buying it, we envisage mediocre returns so look elsewhere"

To those that do own it " well you're invested now, you might as well stick with it".

The only difference between someone who holds the stock and someone who doesnt is the transaction cost. So the only way this makes sense is if the analyst thinks that the returns will only be sufficient enough to cover the cost of your sell order if you hold.

That's hardly a margin of safety...

Have I missed something??

Edit: I guess there's also the 12month tax hurdle too but most recommendations are not to know the tax situation of the individual. Hence the disclaimer fine print at the end of any advice.
 
Re: Does anyone else think that the "Hold" analyst recommendation is non-sensical?

Yep it's a total cop out. Fence sitting. An each way bet.

Your logic seems right to me... If it's not good enough to buy, it's not good enough to hold.
 
Re: Does anyone else think that the "Hold" analyst recommendation is non-sensical?

Or they are saying,

"To those that own it, please hold your shares in hope while we sell our shares at these prices" or

"To those that don't own it, please don't buy it, we need to accumulate our holdings before upgrading our stance to buy"
 
Re: Does anyone else think that the "Hold" analyst recommendation is non-sensical?

Or they are saying,

"To those that own it, please hold your shares in hope while we sell our shares at these prices" or

"To those that don't own it, please don't buy it, we need to accumulate our holdings before upgrading our stance to buy"


Haha. I like the way you think.
 
Not that I'm a big follower of analyst consensus but I just started wondering about it and looked up the definition.

"A "hold recommendation" is an analyst's opinion that can loosely be interpreted to mean that a stock should be kept by individuals who already own it, but should not be purchased by those who do not already own it. A hold recommendation is generally better than a sell recommendation but worse than a buy recommendation, and it usually means that the analyst believes the stock will remain fairly stable and keep pace with, but not surpass, the market. Holds are also referred to as "neutral" or "market perform" recommendations."

So for those not owning the stock, they're saying "don't bother buying it, we envisage mediocre returns so look elsewhere"

To those that do own it " well you're invested now, you might as well stick with it".

The only difference between someone who holds the stock and someone who doesnt is the transaction cost. So the only way this makes sense is if the analyst thinks that the returns will only be sufficient enough to cover the cost of your sell order if you hold.

That's hardly a margin of safety...

Have I missed something??

Edit: I guess there's also the 12month tax hurdle too but most recommendations are not to know the tax situation of the individual. Hence the disclaimer fine print at the end of any advice.

I never thought of it that way, good thinking :cool:
 
For those sitting on large captial gains hold is a decent recommendation.

Say you bought $5K of shares and are now worth $10K, you need to pay CGT ~$2K (if no 12-month discount) or $1K (with discount).

Let's say your share is yielding 6% on the $10K so $600 a year.

If you do sell the share you will only pocket $8K or $9K. To get same $600 income from that you will need to find something that's got a dividend yield of 6.7 to 7.5%.

So in the absence of such opportunity, hold is a sensible action (non-action).

Take a longer term view...

$10K at 15% compounded over 10 year before tax you get $40K in the end. Sell at the end of 10 years you will pay ~$6K CGT and pocket ~$34K.

If you pay CGT every year and want to turn $10K into $34K in 10 years, you need to earn ~19% total return p.a.

"Hold" allows you to take advantage of compounding before tax. Provided all else being equal of course...
 
I see it as the following,

Buy - Share is under valued and it's yield and high chance of upward correction means it should be bought

Sell - Share is over valued and it's low yield and high chance of down ward correction mean it should be sold.

Hold - Share is trading at about fair value at a reasonable yield, and has equal chances of being pushed higher or lower due to external market forces.
 
A respected business commentator offered these translations of brokerese many years ago:

¦Strong buy (yes, that is a winner).
¦Buy (we are hoping it will become a corporate client).
¦Speculative buy (broker had dinner with a director).
¦Buy on weakness (don't buy).
¦Add/accumulate (the stock has no liquidity).
¦Long-term hold (we are brokers to the company).
¦Hold (we want to get another client out first).
¦Avoid (sell immediately).
¦Reduce/Sell (it is probably too late to get out).
 
Analysts recommendations are useless. They say sell when the price is going down and buy when it is going up.

Two Warren Buffett quotes spring to mind...

"the dumbest reason to buy a stock is because you think the price is going to go up"

"if it's not worth owning for 10 years, you shouldn't own it for even 10 minutes"
 
Have any of you considered that analyst recommendations may not actually be entirely pure in intent? e.g. is it, do you think, just remotely possible that they will issue a Buy recommendation if a major client wants to get rid of a chunk of stock?
 
Two Warren Buffett quotes spring to mind...

"the dumbest reason to buy a stock is because you think the price is going to go up"

I know the dude is well-respected and has a successful history...but surely a vast majority of people buy because they think the price will go up? What is the point in buying a company which I think has the right fundamentals but the SP won't go up?

The market is based on sentiment.
 
For those sitting on large captial gains hold is a decent recommendation.

Agree. And SKC's explanation is pretty solid too.

All in all, I don't place much weight on analysts' recommendations, but I do think "hold" in a legitimate call.

Have any of you considered that analyst recommendations may not actually be entirely pure in intent? e.g. is it, do you think, just remotely possible that they will issue a Buy recommendation if a major client wants to get rid of a chunk of stock?

Don't agree with that, Julia. Analysts are in a competitive business. They survive by getting more calls right than the other guy. Wrong calls will be remembered and they can't afford to intentionally do that.
 
I know the dude is well-respected and has a successful history...but surely a vast majority of people buy because they think the price will go up? What is the point in buying a company which I think has the right fundamentals but the SP won't go up?

The market is based on sentiment.

If a company owns strong expanding businesses that are generating ever increasing earnings and for what ever reason the stock market under values it for a short time, you should buy it, Over time you can be assured that it's true value will eventually be recognised and share price growth will come.

This is different to Buying a company inwhich you have no idea of the related values simply because you believe the price will go up.

It's all about your mind set, Some people buy stocks, others buy businesses.

Think about all the crashes in history, the one common factor is large amounts of people massively over paying and bidding up prices in a speculative frenzy just because they think "prices" will contiune to go up and they don't want to miss out.

So they end up buying $1 coins for $4 or $5 dollars. The same people after the crash are so shattered and fearful that when the $1 coins are on sale for 40c they refuse to buy.
 
Have any of you considered that analyst recommendations may not actually be entirely pure in intent? e.g. is it, do you think, just remotely possible that they will issue a Buy recommendation if a major client wants to get rid of a chunk of stock?

I personally don't look at recommendations at all.
 
Don't agree with that, Julia. Analysts are in a competitive business. They survive by getting more calls right than the other guy. Wrong calls will be remembered and they can't afford to intentionally do that.
Spoke with a bloke a couple of years ago who had worked as an analyst with one of the larger firms and he admitted this happens. Says even just the recommendation when published will move stock in the suggested direction. One would hope it's not that common.

I personally don't look at recommendations at all.
Me neither.
 
I personally don't look at recommendations at all.

I pay a lot of attention to recommendations. I don't necessarily follow them, but one needs to acknowledge the fact that recommendations do move markets.

E.g. I am looking to short XXX, but a major analyst just but a buy on them - you can see the market depth changes to favour the buy side and a shorter like me would get a better entry by waiting a few days.

The major analysts are the likes of DB, RBS, Citi, GS etc...
 
Spoke with a bloke a couple of years ago who had worked as an analyst with one of the larger firms and he admitted this happens. Says even just the recommendation when published will move stock in the suggested direction. One would hope it's not that common..

Not surprised that it happens. The supposed Chinese Walls inside a large investment bank is at best paper thin....

However I am surprised that they'd tell you!
 
I pay a lot of attention to recommendations. I don't necessarily follow them, but one needs to acknowledge the fact that recommendations do move markets.
...

It is not a factor in my Analysis at all.

My analysis is niether right or wrong because some body else aggrees or disaggrees.

As you mentioned it might play a part in some short term speculative play, but that is not the game I am in.

It would be silly of me to ignore my own analysis which is done knowing my time frames risk profile and expectations and use some one else's whom my be operating using different expectations timeframes and risk profile.
 
I know the dude is well-respected and has a successful history...but surely a vast majority of people buy because they think the price will go up? What is the point in buying a company which I think has the right fundamentals but the SP won't go up?

The market is based on sentiment.

The quote was, 'don't buy stocks you think will go up.' Maybe Buffet is hinting to only buy stocks you know will rise. And Buffet being a value investor obviously meant long term. The market is based on sentiment in the short term.
 
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