When Analysts Matter

Posted by: Ben Steverman on June 27, 2008

Wall Street has a love-hate relationship with its research analysts. On the one hand, equity analysts have a decidedly mixed record of accurately predicting the future. If you bought when your typical analyst rates a stock a “buy,” you’d probably be no better off than buying when he or she said “sell.”

Yet analysts do move stocks. Investors are clearly influenced by the daily upgrades and downgrades.

I would explain this by arguing that research analysts embody the Wall Street consensus.

A writer once observed, “How do I know what I think until I see what I say?” Many things don’t crystallize until you write them down.

Research notes serve this purpose for Wall Street. They demonstrate to the investment community what it is thinking about a particular stock or industry.

And in the past week, something has crystallized: The financial sector, especially the big banks and brokers, are in trouble. As I write here, I think this growing consensus contributed to stock’s big sell-off on June 26.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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