Profit In The Markets With Investing Ideas And Stock Outlook
Monday, August 25th, 2008 Subscribe To Our Feed
Stock analysis comes in two basic varieties: buy-side and sell-side. As an individual, you really never see the buy-side, which is created by and for institutional investors. However, you may be able to benefit if your mutual fund managers, pension fund managers or other professionals make profitable decisions based on the information.
Sell-side analysis, the kind that is openly available, is designed more for individuals. It comes in two varieties: in-house and independent. In-house research is provided by brokerage firm analysts as a sort of bonus to give to their customers for added research, basically a way to stimulate activity and to encourage people to open and maintain accounts with them. Independent research comes from companies that are devoted entirely to creating, collating, and selling research such as Standard & Poor’s, Thomson Financial and Morningstar. There are, however, a few free providers of rich investing research such as Bullish Bankers and TheStreet.
Ever since the stock market crashed in 2001, regulators investigated research analysts at major firms with investment banking arms. The resolution called for a $875 million global settlement that would require the firms to provide independent as well as in-house research through 2009. In addition, the provision ensures that all analysys are working completely independent, so a manager’s suggestion to buy won’t be tainted by personal interest.
When reading through investing ideas and stock research, never forget to focus on areas that you are knowledgable about already. Not all investors hunt long and hard to find good companies, and those that prefer to buy stocks of companies they know may perform better in the long term. One of the most perplexing decisions that you will face as an investor or trader is whether to buy stock in the company that you work for. Arguments in favor emphasize that you know a great deal about the company, from its strong points to its vulnerabilities and competitiors. Recognizing that your hard work will put you in a position to share in the companies successes may make the daily drive in to work all the more pleasurable. On the other hand, if you decide to focus your investments too heavily in any one company is making yourself more vulnerable to losses than if you diversified across market capitalization, sector and style. This is exactly what happened to the employees at Enron, and could happen to anyone.
The bottom line in an analyst’s report, either literally or figuratively, is whether or not you should make a bid for shares of the company if you don’t already own it (or buy more shares if you do), sell the stock if you own it, or hold the stock if you own it. When that recommendation is stated in the clearest possible terms, you are advised to buy sell or hold. If the analyst is very enthusiastic, a “strong buy” may be issued. There may also be a “strong sell” at the other end of the spectrum… although that ranking is quite rare in modern times.
Not to be confusing, some research reports use different language for the various actions that they suggest taking on a company’s stock. It’s easy enough to understand that “accumulate” would mean buy, but does “underweight” mean hold or does it mean sell? Research firms that provide consensus information or a synthesis of what sell-side analysts are saying, try to consolidate these disparities by grouping terms together into a list of what would be considered “buy” and what would be considered “sell”. Even then, a recommendation of buy/hold can leave you uncertain about what analysts really think.
One major issue is that it is normal to see more “buy” recommendations in firm ratings of stocks than sell calls, even in periods of market weakness when this should not be the case. That’s something to bear in mind if you are trying to evaluate the supporting details of an analyst’s report in relation to its conclusion. There are many different ways to get the research reports that you desire, but always remember just how analysts are going about preparing research, with some hidden intentions occasionally present in the investing ideas that go reported.
Technorati Tags:
Related Tags:
Possible Related Posts
