Should We Listen to Analysts?
At JP Morgan, analysts just upgraded Michaels Companies stock and single-handedly sent it on a crazy run (+58%). This has gotten investors asking, “what the hell is going on?” So, let’s take a closer look at what analysts are all about on the ‘buy-side’ and ‘sell-side.’
If you’ve got money to put to work, i.e., some real investing to do, then you’re on the buy-side. You’re an analyst giving stock pitches to portfolio managers and recommending good long bets versus good short bets. Pick the winners. It’s what the Invstr community does best!
The sell-side is something else. Imagine the countless entrepreneurs wanting hot initial public offerings, to relist on a grander exchange, or to get taken private at huge valuations. Your job as a sell-side investment banker is to make these things happen. The bigger, the better!
The good sell-side analyst offers phone calls to management, access to one-on-ones, and deep sector-specific know-how. It’s an amber-red flag when one talks trading ideas and whether a stock is a ‘buy’ or a ‘sell.’ Beware conflicts of interest on the sell-side!
If an analyst upgrades a stock that’s really been in the wars or a small-cap stock that’s never had professional coverage before, it can rocket. It’s the same when a particularly revered analyst offers a fresh take on a company.
Adam Jonas is big for Tesla. Eric Sheridan knows tech. Doug Harned talks Aerospace. Their arbitrary short-term price targets and ratings miss the point. It’s their musings that turn heads, just like how we tune into the Invstr Feed for the latest scuttlebutt.
We can all be buy-side analysts. If a given analyst publishes something, it’ll be the same stuff; what customers like, what’s the competition like, what’s coming after coronavirus etc., so take a look at a few analysts’ track records and see how many you’re beating!
