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The Inside Scoop!,
This review is from: Full of Bull: Do What Wall Street Does, Not What It Says, To Make Money in the Market (Hardcover)
Brokerages did not even track the accuracy of their analysts' opinions until recently. A 2007 survey found stock-picking 10th (out of 12) in priority of analyst attributes - ranked by their employers. Not surprisingly, their track-record for accuracy is often atrocious.
Problems begin with the fact that rating definitions differ between firms, and are usually overstated (in code) to pacify affected executives (eg. "Hold" = negative). Upgrades are usually late, rarely value-oriented, and usually momentum-driven. Unclear, but suspected issues (eg. lack of confidence in management's estimates, concern about untrustworthy management) are not put into writing, and may only show up in an analyst's body language or tone of voice.
Analyst coverage overemphasizes large firms (obviously greater interest in them), is biased towards the short-term (6 months, or less), misses Titan shifts (eg. moving from film to digital), reaches individual investors late (vs. media, and institutions).
Analysts generally ignore economists' projections - they're changed too often (and wrong). Analysts are reticent to downgrade a stock, fearing institutional holder retaliation via commission allocations.
Since 2000, the number of analysts has declined about 40%, and is en route to falling another 30% by 2008.
Best investments are those that are safe (low multiples, healthy balance sheet, not falling), small-cap, innovators, viewed for the long-term, and in a rising industry. Avoid IPOs (only dogs are offered to the little people), limit the number of holdings, firms with executives that blame external factors for their firm's problems, and those with flashy personal style.
"Full of Bull" does not address the question of the relative importance of timing vs. stock selection. In today's obvious down market (and prior boom markets), timing seems much more important.