Image by Ergo Martini via Flickr
It’s an interesting thought but I’ve always found stock market analysts to be…. well, a lot of bunk for the market. Think about it. Basically, they’re using statistical trends to judge whether or not a corporation is going to do well or not. But based on their “call”, the stocks of that company can rise or fall even though there is much more to it than that. Don’t forget that the point isn’t if the corporation makes more money than the previous quarters. The point is if the corporation meets or exceeds the statistical projections of these analysts.
But here’s the crux of it. Even if you make money? Your stocks can still fall depending on whatever these people say even though they have no insight into how the corporations run or why the money is flowing more or less. Which is exactly like weather forecasters. People can’t control the weather, but they’d love to predict whether or not it’s going to have a severe storm coming along the way. Yet, most of the time they get the temperature decently (which is much like whether or not a corporation is going to do well or not) but never the actual precipitation rate (like the actual mark that XYZ company’s stock will hit).
The worst of this is, that based on stock market analysts “word”, we as investors buy or sell instead of going on corporate strategy, and how secure that corporation is in their industry. For example, take the current financial bailout for the US financial sector. Large corporations took a hit in their stocks because they needed to be bailed out by the government. But then when you took the money, you took another hit because analysts felt that if you’re not stable enough to work it out yourself, then you’re obviously in some dire straits. So it becomes a “damned if you do, damned if you don’t” scenario regardless of what the problem itself is and how to solve it.
Obviously, there isn’t much love here for stock analysts that throw out subjective opinions based on objective data. Having worked in statistical trends in the last decade or so, I personally feel that the stock market would be better off to let the numbers do the talking without all of the analysts. It’s one thing to hear them on CNBC, but it’s another to read about upgrades and downgrades based on…. well, yeah. I still haven’t figured out what those are based on.