Commsec trading - ''Health checks'' on my portfolio

[qprjames]

Hi there,

I've started trading on Commsec. More for a bit of fun more than anything. Play money (rather than giving it to crown casino!). I'll be the first to admit i really have no idea what i am doing, so tend to go for the large cap stocks. Plus i expect to keep the stocks for 10+ years so really more relying on dividends rather than it sitting in the bank etc.

But so i don't make any large capital losses, how useful do people think the Consensus Recommendation's from the participating brokers are on commsec?

I know people keep on saying 'dont listen to a broker if they are saying to sell or buy' but if multiple brokers are all saying the same thing, is there some truth to it?

For example, i have 1 particular stock on a 'moderate sell' which might go onto a 'strong sell' while all my other stocks are on a 'strong buy'. I feel the strong buy stocks that i am currently holding will soon rise in value (as people will no doubt listen to these brokers recommendations), so i assume i should act on my 'moderate sell' before it is too late and becomes a 'strong sell' and people start to panic?

Unfortunately the option to sit down and investigate/learn about the stock is not possible. I will only go by recommendations from brokers etc (which some people on here i'm sure will say is crazy attitude to take, but hey, thats the way it is for me).

p.s. but just so you all know i'm not too crazy, a large part of my portfolio are made up on ETF's and other half spread into my own commercial property. So i am all diversified up nicely.

Also, when do smaller stocks (for example Sky and space global SAS - which is tiny i know) become worthy of being included in this health check report (i.e. buy/sell advice from brokers).

 

[brty]

"I'll be the first to admit i really have no idea what i am doing"

"But so i don't make any large capital losses"

"Unfortunately the option to sit down and investigate/learn about the stock is not possible."

"I know people keep on saying 'don't listen to a broker if they are saying to sell or buy'"

I have no idea where to go with statements like that. Let me put it into one simple sentence...............

I have no idea what I'm doing, I don't want to lose my capital, but couldn't be bothered in trying to learn, so should I trust broker recommendations when everyone states that is a quick way to the poorhouse.

You have basically answered your own question/questions about what you should do with your money, given the above..........

"a large part of my portfolio are made up on ETF's"

Mind you.... "Play money (rather than giving it to crown casino!)"

Perhaps give it to a good charity, that can be fun to.

 

[tech/a]

Just to add to brty comments.

I find it strange that you'd value pure strangers opinion!

These opinions (recommendations) are largely made by people who with some research --- form
their own opinion.
Put more that 5 of them in a room with exactly the same information given
to them and you'll likely find no 2 match.


If you like the idea of other peoples opinions determining where you should place your
hard earned then sounds like a plan.
Id rather take responsibility for my own stuff ups. I can control me.

But then this is just my opinion.

 

[galumay]

I have nothing to add, brty & the duck have covered it.

 

[qprjames]

[/QUOTE]
If you like the idea of other peoples opinions determining where you should place your
hard earned then sounds like a plan.
Id rather take responsibility for my own stuff ups. I can control me.

But then this is just my opinion.[/QUOTE]
We at least these 'other peoples opinions' do have some reasoning behind them. I have no problem in them getting it wrong. I would just assume they get more right than wrong over a long period of time!!

 

[brty]

qprjames,

I would just assume they get more right than wrong over a long period of time!!

Never assume anything in markets, test your assumptions.

Why are they working in research for brokers instead of making money for themselves as traders/investors/hedge fund managers etc??

 

[tech/a]

So of the 100s of analysts who do you follow?

Group them together and pick the best recommendations
I hear you say.

You’ll find by the time you see a BUY recommendation the stock in question will
Already be well on it’s way.

What do you do in a downgrade? From 1 analyst?
When do you sell
What do you do if the stock under performs?

These are important questions


Do you think analysts are 100% right
75%? Even 50%?

How long until their recommendations are right
How long do they stay right
When do you sell and take profit?

 

[qprjames]

qprjames,

Why are they working in research for brokers instead of making money for themselves as traders/investors/hedge fund managers etc??

Perhaps they don't have enough capital to just simply start trading themsves from the offset. maybe they have to work for a company (fund manager etc) to be able to produce enough income before being able to start trading on a personal basis later on in life. Not disagreeing with you and I totally get your point but some smart cookies out there don't come from privileged backgrounds and would have to grind out an income in the first place, particularly if they are up to their eyeballs in unversity / credit card debt like most people under 25 these days.

 

[qprjames]

So of the 100s of analysts who do you follow?

Group them together and pick the best recommendations
I hear you say.

You’ll find by the time you see a BUY recommendation the stock in question will
Already be well on it’s way.

What do you do in a downgrade? From 1 analyst?
When do you sell
What do you do if the stock under performs?

These are important questions


Do you think analysts are 100% right
75%? Even 50%?

How long until their recommendations are right
How long do they stay right
When do you sell and take profit?

I would consider recommendations from Morningstar, credit Suisse, bell porter (these 3 normally offer a buy or sell recommendation on commsec) as well as motley fool and intelligent investor. I would expect them to be 75% right. I would only go on a recommendation if several are saying the same thing. Knowing when to Sell the stock is much harder I feel, than finding a stock to buy.

 

[tech/a]

I would consider recommendations from Morningstar, credit Suisse, bell porter (these 3 normally offer a buy or sell recommendation on commsec) as well as motley fool and intelligent investor. I would expect them to be 75% right. I would only go on a recommendation if several are saying the same thing. Knowing when to Sell the stock is much harder I feel, than finding a stock to buy.

It would be interesting to see if your idea has legs
Would you like to post up some of your postings for a few months
From a curiosity view point.

 

[qprjames]

It would be interesting to see if your idea has legs
Would you like to post up some of your postings for a few months
From a curiosity view point.

Funny you should. As I'm just playing about and learning, I have been recording these recommendations. If over the time they start predicting 75% correctly, then I will probably adopt this. I don't have time to spend hours researching a stock so need some kind of 3rd party help. The majority of my money is in a asx200 ETF which I add to every month (sit and forget for 10 years). Sure I can probably improve on its ability to produce income with a different product or strategy, but I'm happy to do this. No stress, no hassles, no decision making.

 

[tech/a]

How have they done so far?
Could you run a thread on those you find fit your criteria
Would be interesting.
I personally think 75% is way over the mark

You’d need to do it for a good 6 mths
To get an idea

 

[galumay]

I personally think 75% is way over the mark

Yup, i suspect 20% would be nearer the mark.

You’d need to do it for a good 6 mths

I think you would need a much longer time than 6 months to get meaningful data, the broker recommendations are investing not trading recommendations so I think at least 3 years would be needed to draw any conclusions - and ideally much longer.

 

[Country Lad]

Play money (rather than giving it to crown casino!)

qprjames, I have enjoyed many good hours at the blackjack table, so that is where I would go instead of taking brokers’ advice.

I have posted this before, but it is probably worthwhile to again post Marcus Padley’s comments here for you. In case you are not aware, Padley was/is one of those brokers whose advice you are taking.

Broker Research
Do I really have to explain this one. Most broker research is a cross between a marketing document and sucking up to the companies the research is written about, in the hope of a corporate relationship if one doesn't exist, or to service the existing relationship if it already does. The analysts aren’t stupid, the research is worth reading, they've done more work than you, they have better access, they know more, but understand that it is not independent advice. Also understand that by the time you read it, if it actually does have some insight, all the important clients have had it for the last week. You are there to ice the price not take advantage of it.
Broker research is tainted with corporate purpose and is rarely written with the singular motive to make the end reader money. Here is an extract from the Marcus Today Shorter Melbourne Dictionary of stockbroker recommendations, which just about sums it up.
BUY – It’s listed.
HOLD – It’s a SELL and we’re not about to ruin years of relationship building between the analyst and the company and the corporate department and the company.
SELL – We pitched for a role in the capital raising and another broker beat us.
We are moving from BUY to HOLD – SELL
We are moving from HOLD to UNDERPERFORM - SELL
UNDERWEIGHT - SELL
Oversold – It's a terrible company but we’re the broker.
BUY (on a small company from a big broker) – We are about to do a capital raising.
Conviction BUY – Same as a BUY but we’re a small broker craving attention.
The bottom line is that the majority of broker research is tainted by some Machiavellian purpose and on that basis, it as a waste of time.

 

[brty]

qprjames,

Perhaps they don't have enough capital to just simply start trading themsves from the offset. maybe they have to work for a company (fund manager etc) to be able to produce enough income before being able to start trading on a personal basis later on in life.

Maybe they have to work in a company, does not mean they have insight into what is happening in an industry, despite the M Padley comment that Country Lad provided.

I have had conversations with analysts in the past that worked for both brokers and some in investment funds/banks. In one vivid encounter with a couple of them from different organisations, I was questioning their analysis of a 'sell' recommendation in a particular industries. (I was bullish and the prices were rising on a range of stocks). Prices in many stocks in the sectors multi-bagged in the following years.

On both occasions the analysts were using past history, not how the industry was changing for the future. I have a daughter that has gone back to uni as an adult and is doing business analytics. The crap they teach is unbelievable. It is all based on the past, despite a rapidly changing present into the future, but all the analysis looks good on paper and can be backed up by past results. A classic example would be the retail industry, with the analysis from the last 4-5 years, where a lot of analysts were predicting a pick-up, until the last year or so when prices have fallen a lot, and now the analysts are recognizing the internet's effect plus other aspects.

Perhaps you could quicken your study/analysis of analysts performance by grabbing some older reports from a broker and follow performance forward. If you find difficulty in gaining old reports, that should tell you a lot!!

 

[So_Cynical]

I believe that some small company's pay for broker reports and coverage, they pay for exposure to clients.

 

[DaleBR]

I think Marcus Padley's assessment is the most accurate - not surprising, since he is a broker. I think many brokers cater to those with a short-term mentality and speculative bent. None of them really look at the companies financials or financial ratios, except maybe to enhance their sales pitch. They will compile a list of "hot stocks", that other brokers are recommending. The stock might very well be undervalued prior to their issuing the buy recommendation, however the stock quickly reaches fair value as everybody piles on. What's important, is that just as the buy recommendation is not based on fundamentals, neither is the sell recommendation necessarily.

The point is do look at the fundamentals, ratios, balance sheet strength, etc. Use equally weighted quantitative strategies of 12-15 stocks - alternatively, look at a few stocks which appear cheap based on their Return on Tangible Assets and Enterprise Value to Free Cash Flow and see whether they meet certain benchmarks. Then go to The Motley Fool and other sites offering good, free research and do a qualitative assessment, read the annual report, etc.

Brokers tend to have a list of catchphrases that they read out to clients, such as, "I like the stock right now", "I don't like the stock right now", "the US is overpriced" or something equally general, etc. Upon examination, their assertions will appear so vague and silly that it will leave you in complete wonderment as to how it could ever be classified as professional advice.