9. Deconstructing Stock Analysts

Stock analysts’ recommendations move markets. During the tech bubble their pronouncements on the direction of a stock’s price and buy recommendations were front-page news. After the tech bubble, analysts’ recommendations became front-page news again, this time following investigations into their conflicts of interest, biases, and outright corruption. The Enron bankruptcy is a good example of the intellectual bankruptcy of some stock analysts: Only six weeks before the company went under, 15 of the 17 analysts covering the company rated the stock a “buy” or “strong buy.”

Analysts are not completely useless, as you might conclude from this history (and Wall Street’s multimillion-dollar settlements for false research ...

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