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How can stock mrkt analysts be so varied in predictions?

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  1. #11

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    Quote Originally Posted by bodoschafer:
    Because they are paid to write. You gotta find something to write / write as per your boss.

    They don't make a living by guessing the right trend.
    I really and honestly don't think this is the case "paid to write". Perhaps at lower level brokerages and financial news outlets, but certainly not at top tier institutions.

    Have read research reports and over the last couple of years noted TPs in a spreadsheet - very very few hit the spot.

    I think some stocks have a good breed of analysts following them, who know and understand the businesses involved. Vast majority are churned out reports by analysts who are inexperienced.

    Another analogy I have involves blind men and an elephant.

    It is a story of a group of blind men, who have never come across an elephant before and who learn and conceptualize what the elephant is like by touching it. Each blind man feels a different part of the elephant's body, but only one part, such as the side or the tusk.

    They then describe the elephant based on their limited experience and their descriptions of the elephant are different from each other. In some versions, they come to suspect that the other person is dishonest and they come to blows.
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  2. #12

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    Analysts are an interest 'industry' to look at and analyse..
    Below are my views and opinion, which i am sure some regular person is going to say its bollocks without adding substantial argument other than what he think is right.. but just for sharing ...

    There are different types of analysts.. then there are also guys in the food chain that some people perceived as analysts but are technically not, and compliance wise they definitely pitch themselves not as analyst ...

    who are all these people ? I will just rattle off a few in no sequence of importance

    - The Strategist: usually these are the macro people.. they look at trends in the market, the economies, flows of funds, policies, etc.etc. There are FX and interest rate strategist, mainly projecting the movement of rates and FX. Some would go into looking at countries and sectors.. But they don't pick stocks, and the projection done by these guys are 'predictive'.. i.e. their task is to predict something and hope that works out right. Generally strategists don't deal with retails, and those reports flowed into our hands (if we are not large financial or corporate clients) are leaked via some of those corporate recipients thru frens and etc.etc..

    - The specialist sales: these are the interesting people. They take what their company's analysts/strategists writes, add their own two cents worth, and relate these ideas to clients. A really good spec sales is worth their weight in gold literally, and you will know why when you analyse the chain of equities market. The spec sales talk to the hedge funds, the mutual funds, the private banks, the retail networks etc.etc.etc.. They receive feedback from some of these large hands, and the feedback can be passed on to their own analysts.

    - The equity analysts, guys that cover individual stocks. Been one of the saddest part of the industry in the market over the last few years, due to changes in many regulations at both buy and sell side. Sell side, the UK MIFID regulation pushes equities sales to split their cost of research and make clients pay for research directly (which, most clients are against). Buy side, regulators made most FI like the private banks/brokers to only base their stock churning on the backing of 'independent' analyst reports. So many sell side analysts are trying to get out, and unfortunately has to go to the miserable role of a buy side analyst.

    Why miserable ? Well, to the brokers and the private bank of this region, their main bread and butter is churning stocks. And if a normal broker/sales/private banker is only allowed to pitch a stock to the client on the basis of their analyst research, then the whole thing become a huge masquerade of CYA processes. Brokers/bankers scolding their analyst if the research report issued is not in their favor.. and research analysts are pressured by management to issue researches against what they believe...

    That said, I would call a good equity analyst, someone that does 'projection' research... and not predictive. More of that...

    So what's this about analysing the chain of the industry and market..
    Take for example, if your forte is in penny stock in hong kong market... if one day David Webb published a report on selling the 50 companies and several of them you do have positions in, would you believe him first and just dump those positions, ask questions later ? That is a prime example of what a real good powerful analyst do versus what the run of the mill.

    David webb is an unique one.
    Otherwise, the rest of the market relies on the specialist sales to fulfill this role. The specialist sale takes an analyst (which they like) report and speak to the biggies (HF/MF/SWF). He/she convinces the biggies that the analyst is right, that they have hear from other similarly large HF/MF/SWF and all likes that stock. And saw flows. And met management. etc.etc.etc... All the biggest convinced by the sales, then starts buying the stock in the report. The flows of these money will generally push the stock price up towards the projected price.. Sometimes under, sometimes over. What drives the price of an equity ? Its by the market.. so i.e. if a sales/analyst is that good, whatever he/she is writing is no longer a research that is predictive, is a 'call for action' to the reader that you have to act and get the share to the price i am calling as a target.

    So that's why in this market, the more savvy player in the industry, they pick and follow only selective analysts. Not necessarily that this analyst is the best, but more because this analyst has been right the last few times and chances are, the flow of money will follow the analyst and make his/her projection appear good.

    At times, you have the fight of the houses... e.g. maybe MS would downgrade Tesla and GS would upgrade them. Obviously you will see a fight of two sets of followers.. some are inhouse clients, some are external bystander getting convinced by the reports..

    Which is right ? nobody knows, but the old time traders will tell you, the market is always right.

    shri, Morrison and bodoschafer like this.

  3. #13

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    Quote Originally Posted by traineeinvestor:
    Share prices are largely dependent on a combination of a very large number of future variables which, by definition, can never be known with a sufficiently high degree of certainty to produce unanimity in valuation. To use just one example, a 0.5% difference in predicted future interest rates can result in very large differences in analysts' valuations. To use another, how an analyst values an oil company will depend on future oil prices – but nobody knows what those are going to be.

    And of course, the variables affecting valuation change constantly ... as does investor sentiment.
    you can try a Monte Carlo Simulation of the inputs you think are important, their probabilities in terms of skew and time along with their variable weightings over time etc.




  4. #14

    wow massive inputs

    thanks for letting an outsider to have a glance on the role of analysts

    As an small player, I usually think the reports are a noise.


  5. #15
    Quote Originally Posted by East_coast:
    you can try a Monte Carlo Simulation of the inputs you think are important, their probabilities in terms of skew and time along with their variable weightings over time etc.



    That kind of analysis is, sadly, outside the skill set of this old guy.

  6. #16

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    Quote Originally Posted by traineeinvestor:
    That kind of analysis is, sadly, outside the skill set of this old guy.
    Some amounts of testing can be done here. You can use the iShares HK ETF as a substitute for 2800, they track fairly closely, but dividends might not factor in properly.

    https://www.portfoliovisualizer.com/
    traineeinvestor likes this.