Are Analyst Consensus Ratings Helpful?

December 30, 2022

While I use analyst ratings in making decisions — at least to a small degree — I have serious doubts at every year-end. This year, in particular, has been a downer with substantial losses in the stock prices of many high-quality companies.

Timing is always an issue. A long-term buy-and-hold strategy does not work under the volatile conditions of recent years. Yet analysts fail to tell the investor the extent to which they base their recommendations on corporate fundamentals and market price factors.

If you look at a list of most of the biggest market cap, most famous names, you will see the current consensus ratings invariably are “Moderate Buy,” which is the case for Apple, Amazon, Meta, and Microsoft (the first four I checked). And yet, YTD, the losses for AAPL, AMZN, META, and MSFT are -27.0%, -49.5%, -64.9%, and -29,5%. At no point during 2022 did any of these four stocks have a consensus SELL rating from Wall Street analysts or Financial Entertainment TV personalities.

But, if your portfolio is down -42.7%, like the average of these four high-quality, mega-cap stocks, would you still feel well-served by the Buy ratings of Wall Street’s analysts? Or do you think that Wall Street is unhelpful?

As an independent investor, do you feel that Wall Street is giving you the best advice or merely serving their own needs — one that, as a fiduciary of your money, is using their money to trade against you? Have you seen the profits from trading that these Wall Street firms earn from the market every quarter, every year? How does that compare to yours?

Do you have a problem with this, or would you call it for what it is — fraud?

Isn’t it time for independent investors to protest to Congress that enough is enough, that we need a new Securities Act, one where fiduciaries cannot trade against their clients?

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