Friday, October 2, 2009

Analyst Consensus

Almost exactly one year ago, Washington Mutual basically declared bankruptcy, resulting in shareholders losing pretty much their entire investments. A day before the bank went down, here's what analyst recommendations looked like:

Though it makes little sense that there were so many "hold" recommendations, at least a good number of analysts rated it a "sell". This represents an improvement over analyst recommendations for Lehman Brothers as it went down.

There are a couple of interesting notes, however. Goldman Sachs upgraded WaMu about 2 weeks before it went down. "Capital and reserves appear to be stable," wrote analyst Brian Foran.

Fox Pitt, a firm that "provides clients with equity research and capital markets expertise", actually had this rated "Outperform" as it went down, according to Yahoo! Finance.

The bottom line? When you invest, know what you're buying; the "experts" have their own agendas.


Akwon said...

Hey Saj,
do anyone really use analyst's recommendations in that finance industry except for maybe Financial Advisers. So are those target prices, and buy/sell/hold recommendations just sort of a publicity act to "help" the average Joes make a decision?

Saj Karsan said...

Hi Akwon,

Yeah I think people do use those recommendations. Humans have a herd mentality in that we like stocks more when other people like them as well. You can see percentage gains/losses in stocks when analysts change recommendations, for example. Fortunately, if one recognizes this tendency, one can profit off of it.