Broker research, is it worth it?

[Pager]

I often read the research the broker I use puts out but have to say in my opinion its absolute B@llocks .

As far as I can see a stock is either worth buying or selling, yet most brokers seem to have a whole range of terms, the buy one is straight forward and easy to understand but I very rarely see the sell word used?????, is it taboo for the broking firms or something?, instead they use terms like accumulate, hold, underweight etc

About 6 months ago many brokers had Allco as a buy with profit targets ranging from $10 to $12, then only 2 months ago the broker I use put out so called research with a $6 target, no mention of the previous report only 4 months earlier, at first I thought fair enough, things have changed quite rapidly with the Credit problems around the globe but still it was not called a “Sell”.

Now Allco is around 50 cents and thankfully im out way higher but still licking my wounds but just out of curiosity I ask what the research from the brokers says about this stock, well they don’t cover it , rather convenient I thought

 

[agro]

Re: Broker research, is it worth it ?

I often find broker research to be particularly bias and not worth buying into..

for example when a broker places a 'buy recommendation' its usually because they want to sell it themselves..

also brokers who are holders of the stock will only feed you the positives..

 

[MRC & Co]

I have learnt broker research is absolute BS!

I saw brokers trumping up one stock because it had a GREAT cash position. However, they failed to look even at the balance sheet and see the company also had a STACK of payables, and absolutely NO receivables!

Needless to say, cash didnt cover it and they were hammered!

Thats just one rediculous example.

Barely ever see a sell recommendation because statistically the market moves up 70% of the time and they dont want to be hung out to dry!

Definately DYOR!

 

[jman2007]

I basically agree,

I would tread very carefully where brokers recommendations are concerned, occassionally I find their opinions useful for interpreting market sentiment towards a particular stock, but rarely would I ever trade on their recommendations. Look at VRE, heavily ramped up by particular brokers and now a train wreck. I'm sure there are examples of investors who have made some decent buys on brokers advice too, but I prefer ro do my own groundwork.

jman

 

[kloid]

Hi

Ignore price targets as they're never correct. I have found broker reports to be useful when confirming my own research and also adding additional information that may not be available in published information e.g. broker analyst meetings with the company in question may glean additional information, for example, progress on penetration into a new business segment or market (although any significant information would have been announced in half or full year reports).

In all cases remember that a broker makes money by you buying and selling and has no interest in whether you make a profit, as long as you continue to transact.

Kloid

 

[cordelia]

I can't remember where I read it but someone said that the best advice they ever had when investing in the stock market was "never listen to your broker"

 

[sardines]

Full of Bull

Here's a good 4.5 min short interview with Stephen McClellan who is a prior wall street analyst expressing his views on analyst research. His book goes into more detail, but the main thrust is to take care and understand what analyst research is really there for.

 

[snabbu]

I'm with Jman and kloid I actually did a spread sheet of broker recommendations and found them to be 70 percent wrong in the current market. Investing a notional amount across around 15 stocks the loss was ten percent in a week. However they are worth reading for the reasons they give as you can pick up information you have missed this can help in making your own choices.

I feel brokers research in a bubble ignoring the real world.

I noted last week a buy on JB Hi FI and a sell on Goodman Fielder. The brokers reasoning on Goodman did not make sense. In one breath he said their profits would suffer from higher input costs from soft commodities, which the broker expected to ease late 09, but Goodman would not benefit from the drop in 09 as they were hedged until the end of 09. If they are hedged for inputs until the end of 09, how can any rise in soft comms effect them other than positively, as opposed to opposition companies who are not hedged. In addition sentiment in retail has taken a dramatic turn the brokers wont realise this for three months when they see the figures. People have to eat they don't have to buy plasma TV's. I can see evidence of that sentiment now, I would not touch discretionary retail at the moment.



Cheers

Gary

 

[snabbu]

Full of Bull

Here's a good 4.5 min short interview with Stephen McClellan who is a prior wall street analyst expressing his views on analyst research. His book goes into more detail, but the main thrust is to take care and understand what analyst research is really there for.

Great post
This takes three minutes to watch and does two things.
(a) Could save you a lot of money.
(b) Give you the confidence to make your own choices even those they are the opposite of what brokers recommend.

The most important thing to take from this is brokers have no interest in conserving your capital. Their interest is getting you to trade.

Enjoyed the watch.

Cheers

Gary

 

[Rainmaker2000]

Most broker 'buy' broker reports could well be 'sell' signals, such is their quality.......but to be fair....Many broker reports are very good, after all, their aim is not usually to lose money.......the problem is that lots of bad quality research is done just to get the financial consumer to make a trade...that's unfortunate but such is the structure of the finance industry

 

[krisbarry]

I always do the opposite of what brokers says, serves me well.

 

[doctorj]

Aside from everything already discussed - it's important to remember the analyst is a person who despite all the education/training/experience, has exactly the same access to a crystal ball as you and I do.

 

[RichKid]

Full of Bull

Here's a good 4.5 min short interview with Stephen McClellan who is a prior wall street analyst expressing his views on analyst research. His book goes into more detail, but the main thrust is to take care and understand what analyst research is really there for.

Nice video- thanks Sardines.

The claims:
1- McClellan is an analyst with over 30yrs experience as an insider on Wall Street.
2- He was top rated as an analyst and worked for three different firms.
3- Wall Street analyst research is very good but their stock picking is very poor- they have a mediocre track record.
4- Analysts are compensated (ie paid/rewarded) by their employers for their research rather than for their stock picking.
5- His book is titled 'Full of Bull' and he advocates protecting your capital by conducting research on a selection of stocks which interest you- you take responsibility for the stock picking.

6- US 'Index' funds don't pay dividends so you only get exposure to capital growth (query this? not sure if all index funds or etf's are like this- our very own STW (xjo tracking etf) does pay partially franked divs).

I find points 3 & 4 to be the most important. I do consider analyst research, but only some analysts and in limited circumstances- mainly as a safety cushion. I prefer TA to fundamentals but like most people who aren't experts I'm still learning how to strike the right balance.

 

[jeffTH]

I note that many company websites feature sections containing broker/analysts reports. I have yet to see one than knocks the particular company. How many people would take a bad reference to a job interview?

As has been stated before, broker research should be used as a tool for finding information not elsewhere available. I always DYOR on these reports....

Cheers

 

[korrupt_1]

Broker research is ok if you are just starting out. They give not only just reconmendations, but the reasoning behind the reconmendations... you may or may not agree, but as a trader on L plates, its good to understand some of the technical or fundamental indicators they use. If their stock reconmendations is not worth it, their education is enough to justify memebership.

Eventually over time, you pick up enough experience to DYOR and forgo paid research.

Personally, I'm still signed up for paid research, but I use it to backup my own research - rarely do i trade blindly on their advice...

 

[Awesomandy]

I've signed up to a couple of paid research, and have access to a few more (plus virtually unlimited access to my beloved bloomberg terminal).

Anyway, I no longer read the research in details, even though I paid for it. And, if for some reason that I want to access research for a stock, I would get a "basket" of it. At least 3 or 4 brokers.

 

[BSD]

And to think that despite all the negativity on sites like this, the guys who run 80% of the volume in the market pay millions of $$$s for the analysts to generate research.

For every Allco there is an Incitec Pivot...

Many investors, myself included, seek multiple sources of broker research.

They do not always agree with each other, or the day traders for that matter - hence their value.

Dont get me wrong though, a lot of it is a pile of sh!te.

As is a lot of astrology, technical analysis, rumour on the other side of the market...

 

[MRC & Co]

And to think that despite all the negativity on sites like this, the guys who run 80% of the volume in the market pay millions of $$$s for the analysts to generate research.

For every Allco there is an Incitec Pivot...

Many investors, myself included, seek multiple sources of broker research.

They do not always agree with each other, or the day traders for that matter - hence their value.

Dont get me wrong though, a lot of it is a pile of sh!te.

As is a lot of astrology, technical analysis, rumour on the other side of the market...

But remember, most brokers look after their favoured clients. Hence, they change their "recommendations" accordingly.

Just ask most of the Managed Fund professionals.

However, I do get research from some bokers, but read it in relation to my own research. Dont trust a thing they say, make sure you double check once you find good opportunities.

 

[korrupt_1]

...unlimited access to my beloved bloomberg

Some days... i see my paid research report just re-interates what Doomsberg writes anyway... for example this morning its the case of "US Slumps due to speculations that banks over-estimates their forecast earnings"... blah.. i could have gotten that for FREE at Gloomberg....