Robert Powell’s MarketWatch article entitled “Things are bad, but analysts can’t say sell” underscores how unreliable Wall Street’s recommendations are. Wall Street’s lack of credibility continues to undermine confidence in our financial markets. One reason for that lack of credibility is dishonest recommendations. Many Wall Street insiders have long recognized that “Hold” means “Sell” in Wall Street doublespeak.
One thing that came to light during the dot.com bust last decade was the prevalence of fraudulent recommendations by analysts employed by Wall Street firms that gave bogus positive recommendations to companies in order to obtain and keep their lucrative investment banking business. Jack Grubman, the Citigroup analyst who falsified his recommendations on WorldCom stock, was banned from the industry. That disgraceful practice appears to continue today.
Powell points out that despite the collapsing economy, the number of stock in the S&P 1,500 stock index with a consensus “Sell” recommendation is ZERO, and only five (5) are rated as a “Weak Hold.” On the other hand, only 79 stocks out the 1,500 have consensus “Buy” recommendations. That leaves 1,003 with a “Buy/Hold” or “Hold” recommendation.
Out of 19,868 stocks reviewed by Standard & Poor’s, only 167 (0.08%) had “Sell” recommendations and 697 (4.2%) were recommended as a “Weak Hold.” What does a “Weak Hold” mean anyway? What is really worth buying and holding?
“You’re never going to get a lot of sell recommendations,” Sam Stovall, the chief investment strategist of Standard & Poor’s Equity Research, was quoted as saying, adding: “You just have to take street consensus at face value.” Face value? Didn’t he mean to say “with a grain of salt”?
Given Wall Street’s lack of credibility and the increasing risk of a recession or even a depression, brokers and advisors should be very cautious about recommending that clients’ invest their hard earned money in stocks recommended by their firms.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.