1/12/2012 7:04 PM ET|
Can you trust Wall Street's picks?
You've seen the lists of top picks from the stock analysts on Wall Street, haven't you? Before you buy, take a look at what happened to last year's favorites.
It's the time of year when the geniuses on Wall Street tell you the best stocks to buy for the year ahead.
So-called "analysts' top picks" are a popular topic on the Street of Shame. For some people it's just a parlor game. Others pay close attention. These are, after all, supposed to be the brightest and best-informed experts. Analysts are paid hundreds of thousands, maybe millions, a year. They are recruited from the top business schools. They spend months building complex spreadsheets and analyzing securities. They go to company away-days and sit through interminable presentations. They don't just look under the hood -- they take the stocks apart and put them back together again. They know the balance sheets, income statements and cash flows, the industry trends and competition, inside and out.
So how good are their picks?
To give you some idea, I ran the numbers. I looked at how Wall Street analysts top picks fared last year.
Then I scanned for the top 10 -- the stocks with the most "buy" and "outperform" ratings. These were the cool kids on the block, the best of the best of the best. Supposedly.
They ranged from big names like Apple (AAPL, news)and Google (GOOG, news) to Thermo Fisher Scientific (TMO, news), Agilent Technologies (A, news), Celgene (CELG, news) and R.R. Donnelley & Sons (RRD, news).
How'd they do?
If you had invested $1,000 apiece in each of these stocks a year ago, banked the dividends and cashed out at the end of the year, you'd be down 3.5%, even before trading costs and taxes, meaning you'd have $9,650 left of your stake.
Meanwhile the S&P 500 overall ended the year even. In other words, you'd have been better off just owning an index fund.
So much for Wall Street!
Six of the "top 10" stocks actually lost you double-digits. The median fell 12%.
As I noted a year ago, this is something of a pattern: Over the previous five years -- you can now make that six -- Wall Street analysts' "top 10" stock picks have actually earned you slightly less over time than the S&P index.
Out of whimsy, I also looked at the reverse story: Wall Street's most hated stocks, the ones the analysts told you to avoid. I screened the Thomson Reuters data for the stocks with the most "sell" recommendations and the fewest "buys."
It produced an interesting miscellany, including Brown-Foreman (BF.B, news) (maker of Jack Daniel's), drug giant Eli Lilly (LLY, news), Sears (SHLD, news) and Warren Buffett's Berkshire Hathaway (BRK.A, news).
So how'd they do?
They fell 4.3% on average. In other words, the 10 stocks that analysts loved the most beat the stocks they hated the most by an average of less than 1%.
Wow! Those analysts sure are worth the money!
Most of that loss came from two disasters -- American International Group (AIG, news)and Sears, both of which plunged by more than a half. Five of the "most hated" actually rose, during a flat year for the markets. Eli Lilly made a 25% profit.
Historically, this, too, is something of a pattern. In previous years the "most hated" stocks hadn't been much worse than the index, and in several years had done much better.
Where do we stand today?
At the start of 2012, and with thanks to Thomson Reuters, here's a list of Wall Street's "top picks" and most hated stocks. Make of them what you will.
|Love and hate|
|Wall Street's most loved|
|Flowserve (FLS, news)||Flow controls|
|Agilent Technologies (A, news)||Technical instruments|
|Snap On (SNA, news)||Small tools|
|AES (AES, news)||Utilities|
|American Tower (AMT, news)||Communications infrastructure|
|Coca-Cola (KO, news)||Beverages|
|National Oilwell Varco (NOV, news)||Oil and gas drilling|
|Halliburton (HAL, news)||Oil-field services|
|Google (GOOG, news)||Internet search|
|Mattel (MAT, news)||Toys and games|
|Wall Street's most loathed|
|AutoNation (AN, news)||Auto dealerships|
|Sears (SHLD, news)||Retail|
|Federated Investors (FII, news)||Asset management|
|Hormel Foods (HRL, news)||Meats|
|Lexmark International (LXK, news)||Office equipment|
|Consolidated Edison (ED, news)||Utilities|
|Ameren (AEE, news)||Utilities|
|Waste Management (WM, news)||Trash hauling|
|SAIC (SAI, news)||National security|
|Netflix (NFLX, news)||Streaming media|
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The bottom line is do your own research and most of all do not trust anyone who profits from you. Years ago I attempted to find an advisor who would work on their only fee being a percentage of portfolio increase. If my portfolio of $700,000 was up 10% for the year their fee would be a percentage of the $70,000 and if the portfolio was down they would receive nothing. Of course I didn't and have not found an advisor who was willing to take my offer.
For the past 12 years I have done my own research and investing/trading through Vanguard. The fees and services are outstanding. I currently get 25 free trades per year and only $2 per trade over 25 trades. During this time I have only experienced one negative year. A lot has to do with being a dividend reinvestment investor.
One must realize that Wall Street picks stocks that it will make it the most profit, and makes buy recommendations to you based on that profit. It is not based on the best stocks FOR YOU to buy. WS just looks you in the eye with a straight face and says "buy these stocks", and does not care that some/many of us are sophisticated enough to know what their game is and how rigged it is. WS does not care about us or our negative perceptions of WS and is not affected in the least that many are on to its rigged game. Reputation doesn't matter to WS, only money does. If WS can still make billions laboring under a terrible reputation, what does it care? Exactly like Washington thinks. Follow the money.
Listen to Cramer. Then do the exact opposite of what he says on everything he talks about.
Interesting article but Brookfield Infrastructure Partners does not make Jack Daniel's. Brown-Foreman owns Jack Daniels. Brookfield is a limited partnership from Canada that owns/operates utilities, transport/energy, and timber assets.
So the bottom line is all this reading by top gurus and analyst is for naught....No one knows which way the wind is blowing and to do your own research is the only way to stay the course. I agree the rest have an agenda which may or may not be to our advantage.
There was an article the other day that mentioned that monkey's can do as well at picking stocks as the top analyst. I do believe that.
Tider always pays to do your research,even when it comes to Brokers or FAdvisors.....
Pays to change without explaino and go somewhere else better... OR
Sometimes do the work and trading yourself....with a decent house.
I use Fidelity and they provide as much or more the EJones for a whole lot less.
Edit..They usually move assets and shares for free.
RobR did his research...................
When someone says buy a stock, you're listening to a shortie.
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