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The Truth About Wall Street Analysts & Why You Need Independence
Submitted by Lance Roberts of Street Talk Live blog,
Turn on financial television or pick up a financially related magazine or newspaper and you will hear or read about what some stock analyst from some major Wall Street brokerage has to say about the markets or a particular company. For the average person, and for most financial advisors, this information is taken as "fact" and is used as basis for portfolio investment decisions. But why wouldn't you? After all Carl Gugasian of Dewey, Cheatham & Howe just rated Bianchi Corp. a "Strong Buy." That rating is surely something that you can "take to the bank", right?
Maybe not.
For many years I have been counseling individuals to disregard mainstream analyst and Wall Street recommendations due to the inherent conflict of interest between the major brokerage firms and their "retail" clients. For individuals it is important to understand the relationship between your financial advisor, their firm and you. When you hire a realtor to sell your house there is a clear understanding that the realtor will sell your house for a commission. It is spelled out in advance in a contract and compensation is based on performance. However, when it comes to financial advisors at major Wall Street firms the relationship is not quite as clear.
Major brokerage firms are big business. Really big business. As such they are driven by the needs of increasing corporate profitability on an annual basis regardless of market conditions. This is where the conflict of interest arises. For example, look at the annual EPS of JP Morgan from 1999 to present. Despite two major bear markets, which led to investor losses of 50% each time, JP Morgan never had a year with negative earnings per share. How is that possible?
When it comes to Wall Street profitability the most lucrative transactions are not coming from servicing "Mom and Pop" retail clients trying to work their way towards retirement. Wall Street is not "invested" along with you but rather use you to make income. This is why "buy and hold" investment strategies are so widely promoted. As long as your dollars are invested the mutual funds and brokerage firms collect fees regardless of market conditions. While "buy and hold" strategies are certainly in their best interest - it is not necessarily yours. However, these fees are a byline to the really big money.
In reality, Wall Street is focused on the multi-million, and billion, dollar investment banking transactions, such as public offerings, mergers, acquisitions and bond offerings which generate hundreds of millions to billions of dollars in fees for Wall Street each year.
However, in order for a firm to "win" that business from its major clients the Wall Street firms must cater to those clients. In this regard, it is extremely difficult for the firm to gain investment banking business from a company that they have a "sell" rating on. This is why "hold" is so widely used rather than "sell" as it does not disparage the end client. To see how prevalent the use of the "hold" rating is I have compiled a chart of all the stocks that are ranked by major Wall Street firms and broken them down into the percentages that are ranked "Buy", "Hold" or "Sell." See the problem here.
It is not surprising that there is just 7% of all stocks with a "sell" or "strong sell" rating. It's just not good for business.
However, the conflict doesn't end just at Wall Street's pocketbook. Companies depend on their stock prices rising because it is a huge part of executive compensation packages. Corporations apply pressure on Wall Street firms, and their analysts, to ensure positive research reports on their companies with the threat that they will take their business to another "friendlier" firm. This is also why up to 40% of corporate earnings reports are "fudged" to produce better outcomes.
So, what about the retail investor? If Wall Street is more concerned about big business why do they need the retail investor at all? This is where the conflict of interest becomes more clear. Wall Street needs someone to sell their products to. When Wall Street wants to do a stock offering for a new company they have to sell that stock to someone in order to provide their client, a company, with the funds that they need. The Wall Street firm also makes a very nice commission from the transaction.
Generally, these publicly offered shares are sold to the firm's biggest clients such as hedge funds, mutual funds and other institutional clients. But where do those firms get their money? From you. Whether it is the money you invested in your mutual funds, 401k plan, pension fund or insurance annuity - at the bottom of the money grabbing frenzy is you. Much like a pyramid scheme - all the players above you are making their money...from you.
In a recently released study by Lawrence Brown, Andrew Call, Michael Clement and Nathan Sharp it is clear that Wall Street analysts are clearly not that interested in you. The study surveyed analysts from the major Wall Street firms to try and understand what went on behind closed doors when research reports were being put together. In an interview with the researchers John Reeves and Llan Moscovitz wrote:
"Countless studies have shown that the forecasts and stock recommendations of sell-side analysts are of questionable value to investors. As it turns out, Wall Street sell-side analysts aren't primarily interested in making accurate stock picks and earnings forecasts. Despite the attention lavished on their forecasts and recommendations, predictive accuracy just isn't their main job."
The chart below is from the survey conducted by the researchers which shows the main factors that play into analysts compensation. It is quite clear that what analysts are "paid" to do is quite different than what retail investors "think" they do.
"Sharp and Call told us that ordinary investors, who may be relying on analysts' stock recommendations to make decisions, need to know that accuracy in these areas is 'not a priority.' One analyst told the researchers:
'The part to me that's shocking about the industry is that I came into the industry thinking [success] would be based on how well my stock picks do. But a lot of it ends up being "What are your broker votes?"'
A 'broker vote' is an internal process whereby clients of the sell-side analysts' firms assess the value of their research and decide which firms' services they wish to buy. This process is crucial to analysts because good broker votes results in revenue for their firm. One analyst noted that broker votes 'directly impact my compensation and directly impact the compensation of my firm.'"
The question really becomes then "If the retail client is not the focus of the firm then who is?" The survey table below clearly answers that question.
Not surprisingly you are at the bottom of the list. The incestuous relationship between companies, institutional clients and Wall Street is the root cause of the ongoing problems within the financial system. It is a closed loop that is portrayed to be a fair and functional system; however, in reality it has become a "money grab" that has corrupted not only the system but the regulatory agencies that are supposed to oversee it.
The Rise Of Independence
In the past few years there is a change that is occurring which is the rise of independence. Independent, fee only, financial advisors, private investment analysts, research and ratings firms have begun to infiltrate the system. Over the last several years the independent RIA (registered investment advisor) channel is growing faster than overall industry as retail investors are "catching on" to Wall Street's game. The "Occupy Wall Street" movement, while very misguided in its approach, was the first to ring the bell of the wealth gap between "Wall Street" and Main Street.
As more and more "baby boomers" head into retirement the need for high quality, independent, registered investment advisors will continue to grow. The need for firms that do organic research, analysis and make investment decisions free from "conflict," and in the client's best interest, will continue to be in high demand in the years to come as more "boomers" leave the workforce. While the "Wall Street" game is not likely to change anytime soon; the trust of Wall Street is fading and fading fast. The rise of algorithmic, program and high frequency trading, scandals, insider trading and "crony capitalism" with Washington is causing "retail investors" to turn away to seek other alternatives.
Of course, two nasty bear markets certainly have not helped Wall Street. Over the last several years the number of investment advisors has been steadily falling as individuals have taken back control of their own money. While individuals believed that Wall Street was out to take care of them the real truth was markedly different. Wall Street got rich while they got poorer. Now, those same individuals are hiding in bonds to find some return along with safety. The chart below shows the cumulative increase in bond funds versus stock funds as individuals seek safety over return.
Today, probably more than ever, the tide is shifting for retail investors. Those that want to venture into the shark infested waters of Wall Street on their own can certainly find plenty of tools, data and research online. Wall Street has the clear advantage in this game with billions of dollars invested in programs that can manipulate prices, front run trades and move markets to their benefit.
However, an independent advisor can help level the playing field between Wall Street and you. Provided they have the right team, tools and data they can spend the time necessary to manage portfolios, monitor trends, adjust allocations and protect capital through risk management. That expertise, combined with advances in technology, now allows individuals the freedom not to be locked into finding an advisor that lives down the street but to find the best fit for their personal goals and objectives. Today, top quality advisors have clients worldwide and can manage portfolios, communicate and service those clients effectively through technology.
The rise of independence is a good thing. Hopefully, it will continue to take root and grow into a dominant force in the marketplace that can affect regulatory change in the future for a more fair, transparent and less conflicted financial market. In the meantime, it is crucially important to start asking the right questions to figure out who is on your side.
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There are millions too many Mom's and Pop's (my Mom included) taking it in the shorts from their financial "advisors".
But, they trust the Nightly News with Brian Williams to tell them the truth too so...
Even an 'independent' stock picker will on average not perform better than a monkey in picking stocks, yet will charge fees. This is proven fact, yet somehow people find it impossible to accept, insisting on paying fees.
How could ancient civilizations spend so much of their output on things that did not add the value they purported? Imagine all the output spent on temples for the witchpriests, sacrifices for the witchdoctors, lavish upkeep for supposedly godly royals?
But today we have a similarly sized dead weight from the financial sector, with teareaders and bubble inflaters. Most of financial services is just that; picking stocks or lending for non-productive purposes, both enterprises with zero added value, yet comprising a third of the economy. These are our godly royals.
This article was written in 1983, or so... right?
What a fucking waste of effort.
"I got better information from the cab driver on the ride to the airport." - Nassin Tabeb, after a meeting with Wall Street analysts.
Can anyone confirm that france banned shipments of gold and silver via mail?
I can't, but do you mean leaving the country or coming in or both?
Bullish for boxes labeled "lead fishing weights".
Bing translate says: "pesées de plomb"
I believe both. I read it from a poorly written article here http://beforeitsnews.com/gold-and-precious-metals/2013/06/france-bans-sh...
Lead fishing weights LOL :)
Source: http://www.marketupdate.nl/nieuws/goud-en-zilvermarkt/frankrijk-verbiedt...
From: http://www.legifrance.gouv.fr/affichCode.do?idArticle=LEGIARTI0000274389...
Quote:
"The insertion of banknotes, coins and precious metals is forbidden in postal shipments, including shipments with declared value, registered mail and shipments subject to formalities intended to certify the posting and delivery thereof."
This seems highly in violation of the principle of free circulation of people, goods and capitals within the EU, btw, so probably won't stand a chance when challenged in EU courts.
What are these things call "Wall Street Analysts"? Do they have something to do with stacking?
I don't think the 45YO cops and firemen who retired are baby boomers. What are they called ?
B Williams says " Heroes, warriors, smartest generation, care givers , etc...
I call'em 'Lucky shits"
The Millionaire next door.
This explains propaganda. This explains stupid money. This explains "There's a sucker born every minute" is a phrase often credited to P. T. Barnum (1810–1891) Wiki. This explains lite beer !!
Someone puleeeze!! bring me some rot gut !!
so first off "if the Baby Boomers have done nothing" (financially speaking of course...basically gone long Treasuries as they've aged) "they're sitting on a windfall right now." depending on their lifestyle, how things went with the kids, college, taxes, hospital bills...you name it...if they were able to "stand fast" and do nothing (did they need a financial advisor to do that did they? absolutely not) at all they've really done well. THAT is the most important lesson about the "the media" and "your money." THE MEDIA WILL NEVER TELL YOU THAT DOING NOTHING WITH IT IS A GOOD THING. but in fact...more often than not...it is a GREAT thing. there will be a change at some point...perhaps soon, perhaps far. suddenly...you're money might become really bad...like the 70's. i'm not a boomer but an obviously cynical Gen-X'er who really doesn't believe anything anyone says. Am i concerned about Social Security like BK is here? of course. i don't want Wall Street running that thing. do i want Obamacare to actually work so that i can start getting some actual health insurance for the first time in forever? absolutely. i've had Government health insurance "managed by the private sector." i will tell you for a fact it doesn't get any better. so sure..."divining intentions" is one thing. but speaking from experience is a whole 'nother thing entirely. THAT'S where the dialogue starts...not with "watch out...those people have an agenda." of course...this advice is given free of charge as well...i have no problem saying that either. probably why i'm not getting paid to write this stuff. but i do love all the billions trading against my mere..."far from it." God these people hate so. So much so the LOVE to announce their "massive intentions." But leaving aside how small their banks have become...where are these once proud Nations...indeed entire Continents now? At the behest and behold of some "dude on the internet"??!!
The truth about "Wall Street Analysts", is that they bend over for counterparty offerings with irregular-regularity.
I know a financial planner, she's nearly broke, but still hanging on with borrowed money. After I went all-in in gold at $722/oz, I kept telling everyone to buy phys. Nobody listened. Then, when gold started breaking out big time, the financial planner had only one thing to say: "BUY GOLD". As soon as SHE said it, many of my friends bought phys. One gal bought a kilo brick. She's now my roommate. And she has trouble with boats, too.
In doing my healthcare blog in the area of Health IT, I have had a couple analysts reach out to me when they got stumped as what was going on with the company went beyond the trading algorithms. One was the big deal with Allscripts and to me, being a former programmer I knew exactly what happened when they had that terrible first quarter, they didn't have enough time to merge two different systems with a company they purchased. As a geek you read between the lines a bit and the company had a CEO who was a rich figurehead and with no tech background that tried to project sales, etc. with software that was not done. When the shares died and shereholders wanted answers....well...no where else to go. But at any rate the analysts could not figure this out and again being in that field it was so obvious.
I agree an independnt is much better to go with but caution with all for sure. In the 5 yerars of my blog too I've been kicked out a bit out here, one by a hedge fund who hired some amateur reputation restore company to fix what folks found on Google...pretty funny story actually...but when the big money guys fall to getting sucked in with tech it is worth talking about now and then.
http://ducknetweb.blogspot.com/2012/02/healthcare-blogger-gets-spammed-b...
The best one though is Google, bit conglomerate that identified me as not being "machine name compliant"..in other words their machine learning technology took my last name of Duck and it translated out to me being a real fowl:) I had to appeal to the big conglomerate and gee they told me I was right in my dispute..I was compliant...(grin)...I used my real name but again when the machines make errors like this one it is funny and makes you wonder if in the future if you have children if it will be a suggestion to choose machine compliant names:)
http://ducknetweb.blogspot.com/2013/01/im-sorry-your-google-plus-name-do...
And again when the analytsts get stumped...well not too often that geeks have their day explaining math code and models:) Remember Dimon does't understand them at all and look at the money he makes.
Look, here's the truth (in almost all positions in society at this point): if you're working there, you've been selected because you respond in a certain way and won't rock the boat.
Filtering System > Education > Selects for Obedience > Trained > Emergent System that Selects for it's own Actors. This isn't rocket science.
"I'm sure you believe everything you say, but if you believed something different, you wouldn't be sitting where you're sitting".
Now (and naughty naughty of me here: you want it, there's a price, maybe my freedom is their freedom? What a twist), if you're part of a homo sapien system (be it a Society, a Corporation, a Nation, a Monarchy or a Sport's Team) you're selected to perform a role. How well you can internalize, modify, live with, exploit or otherwise negotiate emotionally with said role is your personal Odyssey. This is why America has such high stats of mental / emotional illness - your propaganda tells you explicitly that this isn't the case, that you're all special snowflakes and individuals and nothing exterior shapes you and your minds break through cognitive dissonance. The Chinese are much better at this than you. This is also why certain taboo techniques (blackmail, secret information, sexual deviancy, pedophilia, snuff, blood oaths, whatever) are used to bond you to the higher roles - it's used as a Fear / Threat model to prevent breakdown leading to the "Virtuous Sainthood" response (which would break the Game somewhat).
You can always find God, as long as you swear to silence and become a Monk, of course (watch the tweets out of the Vatican damping down the Pope's cries at the moment, and the less said about the children, the better). And, sorry Rand fans, but entrepreneur is one of the roles: you're still the canines. An extremely noble profession (more a Wolfhound than a Beagle), if you're not a cheating bastard (might want to look up the differences between Edison and Brunel someday - hint: Edison was a complete cunt), but a canine none-the-less.
Luckily, I'm a dog lover, not a cat lover.
There are those among you who can think beyond this, and create roles or are doing other things who are the exciting ones (and in many cases, crushing those who don't play by the rules. HAI! Yep, they tend to squish anyone pushing for a non-hierarchal version of the game, if you've not noticed).
None of this is important: if you want to win, identify the role, know the outputs said role expects and game them or embrace them or be happy with them or use them until you grow past them. It's not hard. Mostly it's Sociopaths who realize this, but there's no inherent reason that you have to be (it's just more common given their internal mind-set). Now, should it be this way? Maybe not. I get told off / shunned for playing the role of the psychopathic monkey icon. The white whale who swam alone singing to itself a genocidal song. The one true Cassandra singing of what-will-come. Memento incarnate. And so and so forth.
None of that is true, of course, but there's a point to it (and an internal cost, you'll never feel it, that's the point): You don't want my role to be necessary. Tick and Tock, both end. (And both fear the shock of the new, but both think they'll win - and neither get Spinoza). Engines and TVs, ceasing to work. Electrical bonds, forgetting their roles. Entropy in a spam-can. QM M.A.D. (The Universe is beige - if you like humor, that was the color of the 1970's).
You now possess the technology and genetic knowledge (close, probably 5 years) to massively upgrade the homo sapien cognitive experience (it's a U curve, so don't worry if you're smart - it'll merely boost the ones who aren't. And that includes the money makers, they're mostly only 10-20% higher than the commonality, that's why they get off on ruling over the hierarchy so badly. It's a psycho-sexual thing, something you'll notice that's massively crippled in the American model, it's by design - monotheistic religions are good at it, a free culture needed it more ingrained. So no tits on TeeVee). First one to start doing it properly will make billions.
Worrying about the Stock Market at this point in the Game is rather missing the point. It's going to crash, probably 2-3 months if no-one does anything, probably Feb 2014 if extraordinary measures are put in place. The worst thing that can happen now is that you all turtle up and refuse to move / grow or give into bloodbaths (And yes watchers, this is the irony).
Tl;dr
Meh. Ron Paul is a bit old school. Oh, and one last riddle: if the Christian Religious ones are looking for the second coming, but everyone's been drinking the blood / eating the flesh, it's kinda the point that it's not a single dude this time. Basic Theology Logic 101. Just sayin'. But no, the Rapture is for retards. Srsly. Braaaaaains.
You must have a serial junker. That was a good post.
It meshes well with Celine's Second Law, the pre-selection of worker output that occurs in hierarchical humanity.
Also...
massively upgrade the homo sapien cognitive experience
I hope this happens -- looking forward to it. My shitty brain doesn't consistently (for lack of academically correct terms) tune into synchronicities and non-local...information(?)...nearly as well as I'd like it to. Tonight it's switched off. =/
aurora's best posts are those with a couple pluses and one minus.
this one right here was epic and completely over the heads of most here unfortunately.
There's already nootropics, electrical stimulation, dietary information and the like that can easily do this, without having to tinker with embryos. As stated, it's a U curve, so the middle benefits most. Outliers don't really get a better deal, but there you go.
Correct diet has been shown through at least four solid peer reviewed studies to reduce youth prisoner violence by up to 40%; Computer Games have never been scientifically proven to increase aggression (in fact, there's slight evidence for the contrary). Which one do you see your paid up Company Congress Man trumpeting to be changed?
p.s. Hail Eris! Someone gets my jokes! (Although I can source all these - Discordia is fun n all, but there's more than one strand to a lyre)
If you're still hanging around, AEM, a couple things here...
First, will whoever stole Brother Reverend Magoun's pornography please return it. (So??)
Secondly, I was holding out for artilectual-style cyborg implants (preferably the ones with the patch that disables nerd-rage!)
Thirdly, I had entirely the wrongest impression of you at first. I do click on your links now. A note: you linked to Bjork's "Crystalline" in our previous exchange. Are you able to play a musical instrument?
I ask because there's something about playing another musician's work, note for note, (especially with instrumentals, although sometimes it's damn near impossible!) one begins to, imho, literally assume the brainwaves (again, for lack of academically correct terminology) of the artist. Even more so if one studies the artist's stage mannerisms. They think about a helluva lot more than music. It's weird. I'm not me when I do that.
Implants are already being tested (do a search - if CNN has it, I'm allowed to tell you; the hidden realm is a bit further ahead).
I'm not allowed to sing, for good reason.
It has nothing to do with music, per se.
"We will sing the world". They create the world together by dancing and singing. As they do so, the earth forms and takes shape.
It's all the music of the Spheres. Memories of Whiteness; find it, read it, Grokk it.
Oh, my friend, we're older but no wiser
For in our hearts, the dreams are still the same
I will not bend; thus, I'm a bit of an outcast.
Really hope you stick around to read this, but I'm a slow fucker sometimes.
Implants are already being tested
I whole-heartedly wish them well. I want in on this, because I am dissatisfied with my current rate of learning. Would love to hear more and will research this on my own. Thank you.
music, per se.
Sincerely, I am dumb as a brick, but I will tell you this: I listened to their WAV sample and that ain't no 52 hz. I clocked that (first by ear, then verified with my own pitch-generation software) at ~512 hz (a wonderful number btw -- run a sine/sawtooth/square wave at 512 and compare for yourself), it's a perfect octave above scientific-pitch "middle-C" which is 256 hz (scientific-pitch differentiates all octaves by powers of 2 based on the C tone).
In the womb, I kicked my mother in time to the beat of external music. I know music and I know tonality. I say that whale is singing exactly one octave above scientific middle-C at 512 hz. And if that conflicts with the article, then fine.
If you're referencing the whale's solitude, then coincidentally, welcome to the fucking club. Not trying to be a dick here, I do like you and sincerely believe that for the most part you are well above my paygrade. (And I've actually been dying to ask out of curiosity: what the hell are you?) But the only "those were the days" moments I can personally recall were school days: when I was too much of a quarterback for the honor roll kids, too much of an honor roll kid for the punk rockers, and too much of a punk rocker for the other quarterbacks. So, sveikas, fellow weirdo. Yes, there is a broader scope in play, but I haven't known it.
As to your third link, please correct me if I've misinterpreted, but my initial reaction is: no. No, no, no, NO! Emotions are your friend. They are fuel. You put that fuel into a "good" (define that as you see fit) purpose, and they will carry you well. I look no farther than the Tylers for evidence of that. They're fucking passionate.
To rely 100% on left-brained logic is to rob oneself of half one's brainpower. Logic merely verifies (or disqualifies) what the intuitive hemisphere knows (or doesn't know) automatically. Those who abandon the right hemisphere have succumbed to a sort of l'appel du vide (original, and I daresay I've encrypted just as much human history in those notes as anyone else has by other means). Remember where love originates. Remember where identity originates, even if you take a lot of cognitive vacations (best term I could devise here, for departure from one's own mind). The problem I run into with trying to find "objective" answers is that, as Robert Anton Wilson said, any model of the universe that you construct that excludes you, and your personal biases, is an incomplete model. Goddess help us if that results in a slight change in initial conditions for the model. Consider me in the Steve Pavlina camp to some degree there.
Look, I honestly think I'm out-gunned here, so please fire at will because I want to improve, but don't give up on me just yet.
As a last note, if teh netz must be destroyed, we (or at least I) can rest assured ZHer's and others will pop up on private networks after the fact. Networks > Hierarchies.
It'd be unwise to view me as anything but an extremely silly and malevolent sprite, I'm no Indian with a spot on her forehead.
Third link was a bit lazy of me, so apologies (let's just say I was incapacitated at the time), relies on knowing the film. The counter-point / outcome is this. Unity of both, without existential excess or exclusion. Balance, if you will.
p.s. Algos are fully able to strip data from YouTube links; at the very least Title, subject, duration etc. They're very proud of their language reading abilities - the next stage is meta-content.
Even a simple bard like me knows his sprites (and blitter objects). I was thinking something closer to fallen-angel territory.
[No need to apologize, I've watched very few films. I'm more of a Nobuo Uematsu type, in practice.]
What do you need an analyst for, the stock market is about emotion. Somebody looking at numbers isn't going to tell you anything.
I don't need an analyst, I have Creamer.
Find one of Goldman's muppets and do the opposite of what they're told.
If this is news to somebody at this point, they don't likely have enough money left to do anything about it.
There's a reason why they call them brokers, because after they're done with you, you're broker.
Why aren't these people being gassed? How else are we going to clean up this mess?