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Industry Analysts

Analysts, who are these people and what do they do.  Some analysts are highly intelligent and with others you sometimes wonder. Some are highly outspoken and others are merely meek bean counters that diligently perform their jobs and go home.  Most of the ďanalystís ratingsĒ referred to in the industry are from a group of many hundreds of analysts that work for the large recognizable brokerage firms.  There are many more analysts and many more brokerage firms but their comments get lost somewhere, probably at some editorís desk where if the firmís name isnít recognized they get tossed aside.  Some analystís experience can be counted in minutes and others in multiple decades.  Some analysts make earnings projection for the companies they follow and others donít.  Analysts may focus on a specific sector of the market such as healthcare, technology, or retail, while others focus on the market as a whole.  An analyst may follow just 5 or 10 stocks, or many hundreds of stocks.  A firm may have a handful of analysts or several hundred.  Analysts may be quick to upgrade or downgrade a stock or they may do as two big-name firms recently did and wait until a $60 stock plummeted to just $4 before shifting from their Strong Buy recommendation.  Whether their comments are accurate or well founded, a few analysts are revered as almost gods.  When they say reduce your equities allocation by 5 or 10 percent youíd better be careful if you want to single handedly disagree with a 600 mph bulldozer.  Some times the question is raised of the news media: do they report the news or do they create the news?  The same question is sometimes asked about analysts: do they comment on stock moves or do their comments move stocks?  Abby Joseph Cohen of Goldman, Sachs & Co. placed the last straw on the camels back this spring when the high priced tech and Internet stocks began their fateful dive.  Investors sometimes need to be concerned about analystís comments.  Just as the Federal Aviation Administration is given the role of policing the aviation industry they are also given the task of promoting it.  Many analysts have the task of cheerleader at their firms.  They have the responsibilities of finding new stocks to cover.  This coverage in turn results in the sales force pushing to customers the stocks with newly initiated coverage or that have been recently upgraded.  This can be good because an analyst or two upgrading a stock can have the effect of having the sales force at two firms pushing the stock to their clientele.  There can be a downside to this also.  It can be difficult for an analyst to change their opinion on a stock when all the firmís clients just added it to their portfolios.  Itís also difficult to make negative comments on a stock your firm holds large quantities of when the firm would like to sell it to customers.  Analystsí ratings may be a simple buy or sell, or they may fit into the traditional strong buy, buy, hold, sell, strong sell framework.  You may have noticed few analysts issue a sell rating on the stocks they follow, so a few fresh hold ratings on a stock are usually analogous to sell ratings.  Some firms have terms like accumulate, speculative, near-term, long-term, neutral, and many more terms that are linked together in a myriad of ways and have an untold number of different meanings.  How they are interpreted depends if your analyst is paid to provide unbiased research or is paid to push stocks.

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