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Some Stock Analysts Are Poor Advisers, Study Finds
Oct 08, 2002 (The Palm Beach Post - Knight Ridder/Tribune Business News via COMTEX) -- As Adelphia Communications Corp. filed for bankruptcy protection in June, five of the 10 stock analysts who followed the cable company rated it a "buy." Three called it a "hold," while only two analysts advised investors to sell.
And when WorldCom Inc. filed for reorganization a month later, seven of the 27 Wall Street analysts covering the telecom continued to advise investors to buy its shares.
Investors who followed that bullish advice would have lost money, because shareholders generally get nothing after a firm files Chapter 11.
The lesson, according to Weiss Ratings of Palm Beach Gardens, is that you still can't expect unbiased advice from investment firms -- even after the collapse of the dot-coms and Enron embarrassed brokers who once touted those firms.
In a study that underscores Wall Street's continuing credibility crisis, Weiss found that many brokers recommended failing companies even as the troubled firms were filing for Chapter 11. Of the 62 brokerage firms covering companies that went bankrupt from May through August, 46 firms, or 74 percent, maintained "buy" or "hold" ratings on the struggling stocks, Weiss said Monday.
That's better than when Weiss studied the same issue four months ago and found that 91 percent of brokers rated failing companies "buy" or "hold."
"There have been a few more token sells issued," said Roderick Powell, senior equity analyst at Weiss Ratings. "Although there has been some improvement, it's still not enough to put complete faith into the brokerage firms."
It's not a revelation to assert that brokers don't place individual investors atop their priority lists. After New York's attorney general sued Merrill Lynch for publicly recommending dot-coms that it privately savaged, brokerage Charles Schwab aired a TV spot that painted the industry as sleazy. In the ad, a fictional executive urged brokers to tell customers a stock is "red hot" even though its fundamentals "stink."
Steve Pomeranz, a financial planner in Boca Raton, said Wall Street seems to be responding to pressure for reform, although he agreed that analysts still aren't the most objective source for advice.
"In many cases, analysts are trend followers," Pomeranz said. "They're not really getting out in front of events, because they have a herd-like mentality."
Weiss, which sells its own ratings of stocks, says investors should seek independent sources of investment advice.
By Jeff Ostrowski
Some Stock Analysts Are Poor Advisers, Study Finds
Oct 08, 2002 (The Palm Beach Post - Knight Ridder/Tribune Business News via COMTEX) -- As Adelphia Communications Corp. filed for bankruptcy protection in June, five of the 10 stock analysts who followed the cable company rated it a "buy." Three called it a "hold," while only two analysts advised investors to sell.
And when WorldCom Inc. filed for reorganization a month later, seven of the 27 Wall Street analysts covering the telecom continued to advise investors to buy its shares.
Investors who followed that bullish advice would have lost money, because shareholders generally get nothing after a firm files Chapter 11.
The lesson, according to Weiss Ratings of Palm Beach Gardens, is that you still can't expect unbiased advice from investment firms -- even after the collapse of the dot-coms and Enron embarrassed brokers who once touted those firms.
In a study that underscores Wall Street's continuing credibility crisis, Weiss found that many brokers recommended failing companies even as the troubled firms were filing for Chapter 11. Of the 62 brokerage firms covering companies that went bankrupt from May through August, 46 firms, or 74 percent, maintained "buy" or "hold" ratings on the struggling stocks, Weiss said Monday.
That's better than when Weiss studied the same issue four months ago and found that 91 percent of brokers rated failing companies "buy" or "hold."
"There have been a few more token sells issued," said Roderick Powell, senior equity analyst at Weiss Ratings. "Although there has been some improvement, it's still not enough to put complete faith into the brokerage firms."
It's not a revelation to assert that brokers don't place individual investors atop their priority lists. After New York's attorney general sued Merrill Lynch for publicly recommending dot-coms that it privately savaged, brokerage Charles Schwab aired a TV spot that painted the industry as sleazy. In the ad, a fictional executive urged brokers to tell customers a stock is "red hot" even though its fundamentals "stink."
Steve Pomeranz, a financial planner in Boca Raton, said Wall Street seems to be responding to pressure for reform, although he agreed that analysts still aren't the most objective source for advice.
"In many cases, analysts are trend followers," Pomeranz said. "They're not really getting out in front of events, because they have a herd-like mentality."
Weiss, which sells its own ratings of stocks, says investors should seek independent sources of investment advice.
By Jeff Ostrowski
