Well, it would all be a joke if it did not have an impact on large amounts of money.
We frequently read, "analyst so and so initiates coverage with a buy /sell / hold and a 12 month price target of..."
Then, depending on a variety of factors like guru status, prestige of the company, size of portfolio under management, timing of release and competing news events, a stock price will make a corresponding move up or down. In other words, for no good reason!
Call me cynical. Worse, call me angry. The entire process and response of the market is maddening.
On occasion I have been challenged by readers questioning the extent of my knowledge in relation to their perception of my influence. Some have even wished I would slip from my giant soap box into a land of a thousand bubbles and be carried away by the same fear and greed influencing the masses. Whoa.
So what has me so upset? It is that the analysts so infrequently adjust their recommendations as to make them worthless. WHY, NO CONSTANT MISSION IMPROVEMENT? What good is it if Piper Jaffray issues a price target of $600 per share by the end of the year for Google (GOOG) and just lets it sit out there in investor land (never-never land maybe), until they feel they have sufficient egg on their face to change the call?
There are less than four months left to hit this number -- a 50% gain from today's close, and that is after a significant run-up the past few days. Yes I have been ranting and raving about this for as long as I have been writing for Blogging Stocks and I will continue to do so.
Although unlikely, it is not impossible for Google to be $600 by the end of the year. I freely admit that I have no idea exactly where the price will be. I just think it is much more reasonable to discuss the subject in terms of a range. Once again, I must paraphrase Warren Buffett's commentaries on the subject by asking -- How can you multiply a variable (think wild guess) by another variable, by a third variable, and so on, until you have speculated about so many variables that it becomes a feat of heroics to draw a precise and conclusive answer and yet, keep a straight face?
This is what analysts do, each using whatever variables they choose to put into their very own magic formula. You would think that regardless of their criteria for determining their price targets, once that criteria changed, they would adjust their projections, but they don't. It's all a joke right?
The reason: They don't want to be wrong twice!
Well it's not a joke to them (well, actually, sometimes it is -- especially in their private emails to one another). Remember those scandalous emails of six years ago? I'm sure it is now against company policy throughout Wall Street to send embarrassing emails, in particular about clients, customers and superiors (the last admittedly hard to find) and definitely nothing about federal prosecutors. If nothing else the stock price calls bring them plenty of attention.
Remember Henry Blodget? Or maybe he should have been Henry "Blogit", but that would be getting ahead of himself. Check out his emails, as presented by Bill Moyers on a PBS special. Think that this is unique to Mr. Blodget? Think again!
So in the past few days, Citigroup cut eBay price target to $38 from $40, Prudential maintains "overweight" and a $40 price target. However we must also consider that in the last two weeks, Piper Jaffray cut eBay's price target to $25. It matters not. It's all a ridiculous game. It's all a joke right?
I think I'll stop here before I slip off my soap box.
Disclosure: I have no position in any company mentioned here, long or short.
Sheldon Liber is the CEO of a small private investment company and the vice president for Design and Research of an Architecture & Planning firm.
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Reader Comments (Page 1 of 1)
9-14-2006 @ 10:59AM
Tracy Riggs said...
It is all a stupid game between analysts on wall-street. Up-grades-down-grades make no sense at all and are totally unreliable. It always says, released to their clients. Who are the clients they are releasing this information too? The whole world should know for free what their clients pay for? It's all BULL ...There are no CLIENTS...The information is released by analysts to sucker the small investor into buying or selling, so they can either short or buy a stock. Analysts are bottom feeders.
9-15-2006 @ 1:03PM
Ann Lambert said...
$25, $38, $60, lets look and GUESS which one is correct or how about$10,their insights just blows away all the norms. At $40 its a buy $30 it's a sell
that why traders LOVE their BS. Meg said is best "we no not listen to the analyst our mission is to deliver on OUR GUIDANCE".
Jim Cramer is the worst of all, how about it Mr Cramer.I do the opposite, another chance to pick up on the oct $30 contract.
Thanks Sheldon.
9-15-2006 @ 8:59PM
Gary E. Sattler said...
As long as we're venting Sheldon, I'll tell you what irritates me:
Stock bloggers that editorialize to suit their own portfolios,
and bloggers that have obviously been drinking too much.
I leave room for the uneducated bloggers. They often make good sense anyways.
I'll be around.
Gary
9-15-2006 @ 9:54PM
Ann Lambert said...
Nice to see Gary is around, miss you political grand standing on your boycott petition of seller unite,
What a hoo-ha.
Proven fact: EMPTY DRUMS MAKES THE LOUDEST NOISE!!!!!
9-18-2006 @ 5:26PM
shlomo said...
I'm with you on the analyst positions. I figure if Buffett, Greenblatt and the Gardner Boys say "It's Bunk!" that's good enough for me. I mean--how can Netflix (full disclosure: I own no stock nor derivatives) know if a million people are going to sign up in December or if it's 872,000 ? If Netflix (fill in your bugbear stock) can't know that (and they can't) how can an analyst ? Easy: they can't. These are the cats that underperform the S&P 500 and measure themselves by indices in the first place because they can't bear the thought of being tagged on absolute returns.
A small biotech company that I love was smashed by over 50% of it's value on an analyst report. Then it was up 30% on an analyst report: but nothing in the fundamentals changed in that six month period. Heck, nothing changed.
Ugh.