Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes with Your Money
by David E. Adler
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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