Stop Looking at the Analyst Reports When Picking Your Stocks!
★ SUMMARY ★
What I am talking about is the buy, hold, or sell evaluations. You may hear them referred to as over-perform, in line, or out-perform.
A lot of these reports are skewed in terms of their recommendations of the buy, hold, or sell recommendations. But before we get into why these reports are skewed and why you shouldn’t pay attention to them, you need to understand a little bit about how the process works and what an analyst does.
What an analyst does
An analyst gets paid to evaluate the earnings or the projected move of a stock or a company. So let’s say that I am an analyst and I am evaluating Facebook stock. I project that Facebook will make two dollars or share or on its earnings (EPS) when it comes out on the quarter. And a lot of other analysts are projecting four or five on the EPS, than I am not really in line with what everybody else is doing. Now if I am correct, I’ll get to keep my job and probably get a nice raise because Facebook may not do as well as it has done in the past.
On the other hand, if everyone else was right, and I was wrong than I am going to get fired. This is where the problem lies. It is kind of like the herd mentality. If every other analyst out there is projecting a four dollar move in Facebook or a four dollar on its earnings per share, I am only projecting two and everyone else is right, then I am going to get burned.
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