What is the point of stock market analysts?


Originally published at: http://whichinvestmenttrust.com/what-is-the-point-of-stock-market-analysts/
Research from analysts working in investment banks, broking firms and research houses still has a huge influence over the market, but sometimes that quality of that research is dubious and might even be viewed as an extension of the marketing department argues Robert Davies. Stock market analysts have a mixed reputation. The best of them…


I agree with you here @robert_davies, what really annoys me about their research and recommendations is their buys or sells are always for the next six months or a year, they’re too short term.

It’s not about investing it’s about trading. I think they make more money if people trade so they’re trying to encourage trading.


They very rarely issue sell recommendations, that’s something I’ve noted with analysts. Also they often tip companies who employ them, this is especially the case with smaller companies who often only have one broker.

There’s only one thing for it and that is to do your own research.


I am afraid you are right. They exist to encourage trading which is directly contrary to the interests of the long-term investor.
But what worries me more is that they are not very accurate.


The author seems to be making an argument against the investment process for his own fund. From fund documentation, with my higlighs:

The VT Smart Dividend UK Fund seeks to match the total return performance of the Freedom Smart-Beta UK Dividend Index. This index consists of the 350 largest companies by market capitalised companies on the UK stock market, excluding investment trusts, ranked by the consensus forecast dividend payout.

How are forecast dividend payouts derived if not from the output of those very same stock market analysists?

This need to conform to those analysts’ forecasts probably explains the combined 11%+ allocation to Shell and BHP Billiton, being two companies mentioned in the article as being likely to cut their dividends but which hasn’t yet been incorporated into most - if not all - of those forecasts.

Normal rules still apply even when times are not normal

BHP Billiton might cut its divi but I’d be surprised if Shell did, they haven’t cut their divi since WWII. I reckon they’d gear up or sell assets to fund it first.



Spot on. I had hoped analysts would be more pro-active in cutting forecasts despite reassurance from the companies.
Many people have argued that we should generate our own forecasts but that raises fundamental questions about what we know relative to everyone else.
No measure of a company is perfect. We have seen that again today with RBS that book value is subjective. We all know that profits can be restated and turnover is hard to compare between industries. A £1 of revenue at HL is worth much more than a £1 at an insurance company.

No simple answers.