Consider the Source: How to Evaluate a Stock Analyst
By: Miriam Metzinger
When seeking investment advice, the sky is the limit. Financial media has grown exponentially, from traditional cable channels with round-the-clock investment advice, to financial websites and stock tips on social media.
As in any other area, listening to the experts–in this case, stock analysts, is recommended. Although many investors are familiar with the process of analyzing stocks, it’s useful and often profitable to see what the analysts have to say about specific stocks and what can lead them to change their ratings.
Just as it’s important to take a look at a company’s quarterly earnings report and financials, it’s also essential to analyze the analysts and evaluate their performance before taking their advice.
Know Your Stock Analyst:
Consider the following:
What Are Their Credentials?
Has the analyst worked in the field or is their background mainly in finance? Do they specialize in analyzing specific sectors are they concerned with the movement of the market in general?
There are pros and cons to any of these scenarios, but the main thing is understanding an analyst’s background and credentials to determine whether they are focused on the future of a specific industry or general market trends.
Are They Buy-Side or Sell-Side?
Any visitor to a financial site runs across the terms buy-side or sell-side. A buy side analyst usually works for a mutual, hedge, or pension fund and is performing research so they can make recommendations to the firm they are working for. Sell-side analysts release research often to encourage institutional investors to use the trading desks of their own firms.
Sell-Side analysts have gotten a bad rap in the recent past, and it’s often believed that what they do is a form of marketing. In response to criticism, investment firms have cordoned off their research from their business departments to ensure they are separate.
However, since analysts are required by the SEC to disclose whether their firm holds a position in a stock, and there is transparency inherent in stock analysis, none of these apparent biases are a secret. It’s important to consider how the analysts’ firm is invested before taking investment advice.
Large or Small Firms?
It may be tempting to trust analysts from large, well-known investment firms. However, in spite of reputation, the performance of individual analysts can vary. Sometimes large firms that hire many analysts may be less selective, and it isn’t advisable to become loyal to analysts from specific firms, but instead, to look at individual performance.
Track Their Performance
The real indicator of whether an analyst is reliable or not is to look at their performance. This means analyzing their ratings, and whether or not their calls were accurate or not.
This may mean keeping tabs on financial news, whether it’s CNBC, Seeking Alpha, or other media that reports analyst calls. The real way of telling whether a stock analyst’s call is successful or not is to look at how the stock performed following the prediction.
However, what’s the best way of getting a full picture of an analyst’s general performance? Looking up individual calls and results can certainly be time-consuming. Fortunately, there is an easier way of tracking analyst performance.
Why AnaChart Will Give You an Edge
Anachart takes the time and guesswork out of researching stock analysis. On the site, you can look up a specific stock and see the major calls from thousands of analysts. Alternatively, you can examine the calls of individual analysts or compare the performance of one analyst with many others.
In one image, you can observe the actual path of the stock and compare it to the predictions of individual or multiple analysts. Anachart isn’t merely a database of information, but a single image can provide a full picture of analyst performance.
Anachart will help you filter out the noise and focus on the analysts who have a track record of success rating stocks and sectors you care about most. Start your 30-Day Trial today.