So Many Analysts…So Little Time…How to Take Tips from the Best
By: Miriam Metzinger
If you’ve purchased stock in Apple only to see it drop on a Sell rating from a prominent analyst, you may be experiencing buyer’s remorse…or maybe not.
In a market that is often fickle and volatile, it’s not surprising that many investors–and financial media–hang their hats on calls of individual analysts and firms.
Sorting Through Stock Analyst Calls
There’s no doubt, however, that many of these analysts, along with the stocks they cover, may be overrated. However, there are certainly many analysts whose calls are worth paying attention to and have a history of strong performance. The key is how to find these analysts, determine which stocks they have been consistently right or wrong about, and under what circumstances they have performed best.
There’s no accident that this sounds a bit like the considerations investors make before choosing stocks and sectors. In fact, it takes research and a working knowledge of performance and trends to select which analysts to pay attention to. Fortunately, you don’t need a series of trial and error runs to gain this experience–tools and like Anachart can give you a full picture of analyst performance.
The Problem with Analysts
The proliferation of financial media and analyst calls can be challenging to sort out. Some investors, particularly those who are new to investment research, may decide to dispense with the noise and do their own research. After all, if analysts can look at financial news and quarterly earnings reports, why can’t anyone?
The other problem is the bias that some analysts may have. Some analysts may not want to fall out of the good graces of executives of certain companies. This may cause analysts to tilt bullish rather than bearish to avoid burning professional bridges.
According to a 2022 study in the International Review of Economics and Finance, stock analysts were found to be more bearish in earnings predictions compared to actual outcomes, particularly for stocks that issued a high dividend.
The Value Analysts Provide
So why listen to analysts at all? The primary reason is that, regardless of occasional bias and unsuccessful calls, analysts are still experts in the sectors they cover and the markets.
Most investors can’t devote their entire time to investing and researching stocks and sectors and have day jobs. Analysts spend their days (and often nights) researching the market in real-time, attending conferences, and interviewing companies. This gives an analyst a clear edge over the average investor in predicting the market and direction of stocks.
Also, it can’t be denied that certain analysts and firms have had considerable influence and success in specific sectors, and there are many tales of obscure stocks getting discovered through analysts’ recommendations with huge profits for investors.
The Right Way to Examine Analyst Performance
However, in spite of the undeniable analyst successes, even the top analysts aren’t right all of the time. Taking a detailed look a specific analyst’s calls on individual stocks or examining instances when the analysts have accurately predicted market movements is certainly valuable.
Fortunately, Anachart makes examining analyst calls easier. This valuable tool allows you to visualize and compare calls made by analysts about the same stock and to see the difference between calls and the actual performance of the stock.
Anachart eliminates time-consuming research and collecting information from separate websites or financial news outlets. All of the calls from thousands of analysts are available at your fingertips.