Home > Uncategorized > Fear Mongers are Dangerous!

Fear Mongers are Dangerous!

In a previous post, I’ve talked about how analysts may be motivated to issue a false positive recommendation for a company. However, the opposite can be true for a negative recommendation. These recommendations can be even more confusing and dangerous than the false positives. A lot of analysts or people in the know such as hedge fund managers or mutual fund managers may be overly enthusiastic in issuing a negative recommendation on a particular company or on the economy/market as a whole.  There are fear mongers in the news all the time and more than once, they have influence d me to stay out of the market, or take some profits/losses.   I remember enough economists and fund managers anticipating a double dip recession.  This was enough for me to keep cash on the side lines and miss the run up in the last few months.  Although there may be truth to what they are saying, it doesn’t mean that we can’t profit with what the market is doing at this moment.  Some of the motivations they might have are:

1)  Making profits from short selling or buying puts
2)  Trying to get into the market at a lower price
3)  Trying to increase the positive outlook for another competitor
4)  Paid to  by another company who stands to gain from bad news.

Regardless of what the reasons might be, we have to watch the motivations behind what we see or read. Most people believe in negative opinions on the market more than positive. They are less trusting of analysts that issue positive opinions but unfortunately negative opinions can be just as harmful. What’s more is that usually there is supposed to be disclosure if a stock is owned by the individual or the firm. When an individual or firm plans on short selling, they do not own the stock so they do not have to disclose anything.  This is how they can be elusive and they’ll never get into trouble.

I personally do not do any short selling but I am looking into Options trading and I can see myself buying Puts since the risk is limited compared to short selling. For now, I reduce risk by buying less or selling. I’ve tried some of the bear ETFs, even some of the 2x/3x type of ETFs but I’m not a fan because of the fees involved and it hasn’t been profitable being a bear lately! I definitely need to have a better strategy to make money when the market or a particular company is heading downwards.

I did an analysis for the month of February.  I grouped all the opinions by whether they were positive, negative or neutral.  I also counted the number of upgrades and downgrades.  If the opinion was upgraded or the target price was raised, then it  counted as an upgrade.  The opposite is true for counting downgrades.  I found a couple things that stood out:

1) For the majority of analysts, there were more upgrades than downgrades.
2) There was a huge difference between positive opinions and negative opinions. There were a lot more positive opinions than negative for each analyst although the neutral opinions almost balanced out the positive opinions.
3) Some analysts did not have any negative opinions. Everything they covered was positive or neutral.
These analysts must think that everything is fine and dandy with the companies that they are covering. I’ll need to take a closer look at what sector or what companies these analysts are covering. (Next Posting)

Here’s the chart for the analysts in 3) : If you’re interested in the results for the other analysts, please let me know and I can send it to you:

Analysis of Upgrades/Downgrades, Positive/Negative/Neutral Opinions

Follow Up:  After reviewing the companies that Needham covers, it looks like all the well known tech companies. 

I also reviewed companies that Jeffries covers and found a more wider range of well known companies in tech, healthcare, retail, etc.  The vast majority are big names.

Categories: Uncategorized
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