How do "they" figure a strong buy , buy, hold, sell or strong buy recommendation?

Question

I am trying to learn. Answers like leave it to the experts should not apply. I want to know how to pick stocks like the big boys do.

Answer 1

"They"... often referred to as analysts or elves, are about as right as they are wrong. Some do better than others, but all make mistakes... and you will, too. But as long as you can pick more winners, you'll be ahead of the game. I know several stock analysts... all are different in their approach. One is a fundamentalist, the other two are technical analysts; another is a blend of the two. The fellow who uses both company fundamentals and technical analysis tends to be the most successful... perhaps that will give you a start. Earnings, of course are key... but so is management. If you call Investor Relations of some companies you're researching, be advised they often give rosy pictures... and sometimes flat-out lies. I personally know a broker who sold plenty of shares of a company to many of his clients based on what he was told by Investor Relations only to learn it was a lie. Ouch.

Answer 2

It's all subjective opinion. I see another poster mentioned fundamental analysis and technical analysis. There has been considerable research on both of these strategies and they have been dismissed as total bunk. The only real question, to me, is this: If you went back and researched, year after year, how did stocks perform based on what the collective recommendations were? In other words, if a particular stock had mostly strong buy ratings, did it perform better, and how much better, than a stock that had mostly sell ratings? Either these recommendations mean something or they don't, and the history of their recommendations should tell the tale. Fortunately, this research has been done. Guess which group performs the best? The "recommend sell" group, with the "strong buy" doing the worst. Why would this be? Well, there's lots of theories, but mostly it comes down to this: If everyone loves a stock, if good things happen, the stock tends not to move up. because the good things were expected by everyone already. However, if bad things happen, the stock tends to fall, because no one was expecting anything bad to happen. So you have a lot of downside with limited upside. On the recommend sell, just the opposite. If everyone is recommending sell, and some good things happen, it's totally unexpected and tends to help the stock (maybe they get rid of a bad CEO or fix their product), if something bad happens, well everyone was expecting bad things, so it doesn't hurt the stock that much.

So, to me, the crucial question is, however they determine their ratings, do the ratings mean anything to you as an invester? The research and regression analysis, the math, says the recommendations are meaningless, except as a slight contrarian play, to buy the stock everyone is recommending be sold, and wait for the turnaround.

Answer 3

There are two ways to do it.

One way is technicals. Technicals is a fancy word for tea leaf reading. They are math formulas in the form of charts or equations based on past results. These equations are based on the belief that history repeats itself. You can see how different equations can come up with different results at barchart.com.

The other way is news. This is where insider trading has come into play. The analyst looks at the history of the CEO, the history of the company and then examine the latest and greatest products and services that have come into play. The analyst also looks at the overall sector, mergers and buyouts that are related to the company. This style is forward thinking, but it could turn out later to be, "What were the analysts thinking?"

Answer 4

The figures "strong buy, buy, hold, or sell" are all subjective to personal opinion. Your best bet is when it comes to dealing with stocks and bonds, leave it to the experts. Otherwise, work with the mutual or the portfolio funds. They're less risky with the same amount of R.O.I.

Answer 5

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Answer 6

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