Not suitable for retail investors
Why do I advise most retail investors not to read analyst reports? The reasons are as follows:
- Because most people don’t think well, or lazy to think.
- It is easy for everyone to be led by the mass. This is the best way to guide retail investors or investors who don’t think and do their homework to buy the stocks and push up the stock price.
- Most investors think that what they want to do for their investment homework is to watch a bunch of financial TV programs, watch a bunch of news, follow internet KOL, investment advisors, and celebrities, but the purpose is actually to collect the stock code — this is almost everyone think.
- Most people only want to see the target price mentioned by the analyst, worth buying or not, and don’t want to see the rest of report. This is the problem of the reader and cannot blame others.
- Analysts only allow the media to reprint what they want to feed to the media, and it is impossible to disclose the entire report to the media (that is, the part that you and I can see) ───because the “complete” report is paid, and it is usually expensive. In order to fill the page, the media will only do the copycat job, and do not have the qualifications to verify. Most of them are lazy and will not verify, or they have no ability to distinguish.
But the report is very accurate
This is true. In terms of short-term stock prices, to tell the truth, the forecast is indeed very accurate. But as I have repeatedly advocated, short-term investment is not an affordable game for retail investors. But this is the purpose of Wall Street and their way of survival and making money! For those who are interested in this topic can read a legend investment book “Wining the loser’s game” by Charles D. Ellis.
In addition, don’t be superstitious that the larger and more famous investment banks are, the more readable their analyst reports will be. According to my many years of experience, the fact is just the opposite. The larger the scale, the more famous investment banks have no advantage except for the more money. On the contrary, the analysts of some small investment banks report are much better; at least in the technology sector.
Whick kind of report is worth reading
The “Golden Boys” in Wall Street are also mortals. They don’t have three heads and six arms. A few respected Wall Street analysts really do great jobs, they have done a lot of research work, and they spend money on market research, supply chain surveys, corporate management team interviews, and follow corporate announcements, analyze financial reports or financial forecasts, and do due diligent checks, which are consistent with the fundamental research that I have been advocating for investing based on facts — this type of report is worth your time to read. But any report that only mentions the words “According to our financial model, experts say, or our forecast”, you don’t have to hesitate at all, just throw it in the trash can.
You can’t see these things
As mentioned earlier, the full report is paid, and it is usually expensive. Usually you can only see a few analysts’ realcomments or negative analysis about the company in the paid and complete report; and it’s usually implied, it’s impossible to tell you clearly. Because if they tell the truth in the report, no one will buy this stock. The golden rule of Wall Street is to attract more people to the stock market, because the more people there are, the higher the profits they can make from it. This is also the fundamental reason why you never see negative news in analyst reports. Very unreasonable, but this is the unwritten industry norm.
In addition, you can only pay for the complete report to see the “complete” information listed by the analyst about the company analyzed:
- The catalyst that affects the stock price of this company, the favorable factors of operation (aka tailwind).
- Corporate competitiveness, operational challenges (aka headwin).
- Twelve-month target price, or set stock price validity period.
- The exact price of when to enter and exit.
Why is there an analyst report?
Because of market needs, investment banks will sell these reports to institutional investors, investment advisory companies, securities brokers, wealthy families, and various investors who need investment advice; this is one of the core businesses of investment banks.
As I mentioned before, all analyst reports will set clear reporting objectives, no exceptions. It is not useless, otherwise investment banks would not pay them such a high salary.
A place worth learning
What investors need to learn is the analytical philosophy behind these Wall Street analysts. It is called “Thesis” in Wall Street, this is the real greatest value. If you can realize it, you will understand everything and learn the logic behind their analysis; then I will congratulate you, because you don’t need any analyst reports anymore, you already have the ability to write your own. This is also the main reason why I wrote a blog post “Thinking Can’t Outsource” before.
If you really understand the things mentioned in this article, then the analyst’s report is a very good thing, and you should take the time to study it.
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