I can well remember during the dot.com bubble the glowing prognostications about some of the dumbest ideas that have ever graced our planet. At the time, most analysts considered the internet the next real distribution channel in our economy. Well, the internet turned out to be less than the best distribution channel on the web, it was miserable…and you know the rest of the story.
This example highlights the problems with analysts, and some of the good points, too. The good news lies in the data analysts disseminate to the public and allows investors a look at some sales figures, revenue…etc. Most analysts actually visit the company under analysis and interview executives about the future prospects for the firm. Of course, this is problematic, because very few executives are going to admit any problems with their firms. Can you imagine the president of GM, last year, saying something like, ‘Yea, I think after of couple of months we are going to sink like a rock?”
No, and therein lies the problem with analysts, especially ones who work for investment banks promoting various stocks. They have a difficult time being impartial, and most recommendations come out as “buy” or “hold”. You don’t see many analysts predicting the imminent doom of a firm, even though they know the company is in terrible straights.
So the good news is the information, of course the bad news is the actual recommendation the analysts spew out ad nauseum. I have found little correlation in an analysts views and reality: there are simply too many conflicts of interest. I won’t even start on economists, who make the television weatherman look like a prophet relative to the ambiguous forecasts the average economists turn out on a daily basis.
No, that why I like to look at data myself, and apply the skill set I possess to make independent decisions. As a scalper, I very seldom have to do any analysis as I am basically looking at a chart all day and interpreting what I see relative to what I have learned over the years. I do buy some third party information from companies like INO-TV who provide generic type information that can be very useful in approaching the trading process.
By in large, though, investment house analyst scare me to death because the pressure to put a “buy” on a stock can be influenced by too many external factors, most of which have nothing to do with the fundamental or technical analysis of the equity at hand.
