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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Sentiment Index

The analysts’ ratings tell you a lot about the market’s expectations for the company. For instance, you’d interpret the information differently if 20 out of the 29 analysts covering Lucent said strong buy, instead of only 3 advising buying Lucent’s shares.

I devised a rule of thumb for using the analysts’ ratings to gauge the market’s enthusiasm, or excitement for a stock, at least from the analysts’ perspective. I call it the Sentiment Index. You calculate the Sentiment Index by adding points for strong buy ratings and subtracting points for holds and sells. Regular buys are ignored.

Sentiment Index

  • Strong buy: Add the number of “strong buy” ratings.

  • Buy: Ignore.

  • Hold, sell, and strong sell: Subtract a point for each of these ...

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