My Dislike for Stock Analysts

Well SCUR got the dreaded downgrade this morning and as can be expected the stock is down 10%. So this analyst qualifies the downgrade by saying that he remains optimistic on the company’s long term opportunity but in the short term challenges could limit the appreciation of the stock. How uncommitted can you get. Essentially what this guy is saying is the stock could go down but in the end it will go up. I’ve never seen a statement from an analyst that doesn’t cover both cheeks. That’s why I have such a dislike for them. Analysts are right up there with politicians among my favourite people. In fact I think we should encourage a lot of analysts to go into politics. They can speak for hours on a topic and when you look at what they really said, you discover that they said nothing meaningful at all. Perfect for the campaign trail. Think of the speeches. Taxes will go down before the election but once the government is back in office, let’s hike them up.

I like statements like over the short term we see weakness in the stock or overvaluation etc. but over the long term we remain bullish on the stock. What kind of a useless statement is that? That’s just covering your ass. Basically your saying that you think the price will go down, but since you’re not sure you’ll be long term bullish. By using this kind of phrasing, your saying if I’m wrong and the price doesn’t drop, I can comment about how the company resolved the short term challenges and are moving ahead with growth. These guys know that fundamentally sound companies with good management in growing industries will all appreciate over time. There’s no rocket science there.

But my favourite rant; and the reason that I think analysts issue statements like that is to get the price down in the short term so their institutional clients and/or the firm can load up on the stock shortly after the down grade. They anticipate, correctly, that the small retail investors will panic that their stock got downgraded and then head for the exits. As the stampede causes the stock to drop, the institutional folks sit on the sideline and wait for the opportunity to buy the stock at a discount price. After which more positive stuff can slowly start to come out about the stock and next thing you know the analysts prediction comes true and the stock price is up long term. Meanwhile he/she looks like a genius while a lot of people have made a lot of money.

Well that’s my jaded take on things as SCUR sits down almost 10%. I’ll be here waiting for the institutional guys to get back in and campaigning for my local analyst in the next election.