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Infectious Greed: Restoring Confidence in America's Companies by Kenneth Kim, John Nofsinger

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Chapter 8. Analysts

When Salomon Smith Barney's former star analyst Jack B. Grubman finally downgraded his assessment of WorldCom stocks to “neutral,” the stock had already lost 90 percent of its value and was trading at $4 per share.[1] Merrill Lynch's former star analyst Henry Blodget never recommended selling Internet Capital, even though its stock price fell from $143 a share to 31 cents a share.[2] In fact, less than one month before Enron filed for bankruptcy, 11 out of 16 analysts had “buy” or “strong buy” ratings for Enron stocks.[3] Imagine! Are analysts terrible at analyzing? If so, why did Grubman make about $20 million a year?

Basically, analysts are paid to generate revenue for their firms. This, in and of itself, should not be surprising. ...

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