Analysts Lose 17% for Investors in Brokerage
June 6, 2008 (Bloomberg) -- Investors who followed the advice of analysts who
say when to buy and sell shares of brokerage firms and banks lost 17 percent in
the past year, twice the decline of the Standard & Poor's 500 Index.
Buying shares on the advice of Merrill Lynch & Co.'s Guy Moszkowski, the
top-ranked brokerage analyst in Institutional Investor's annual survey, cost
investors 17 percent, according to data compiled by Bloomberg. Deutsche Bank AG
analyst Michael Mayo's counsel to purchase New York-based Lehman Brothers
Holdings Inc. lost 59 percent. Citigroup Inc.'s Prashant Bhatia still rates
Merrill ``buy'' after its 56 percent retreat from a January 2007 record.
Of the 38 analysts tracked by Bloomberg who follow stocks in the Amex
Securities Broker/Dealer Index, 31 produced losses for investors. Investors who
bought brokerages on ``buy'' recommendations, sold when they switched to
``hold'' and speculated prices would decline when analysts said ``sell,'' lost
17 percent in the last year through June 3, compared with the S&P 500's 8.5
percent drop.
``One would expect that if there was any industry Wall Street estimates would
be more precise on, it would be their own,'' said Richard Weiss, who oversees
$60 billion as chief investment officer at City National Bank in Beverly Hills,
California. ``But this particular debacle was so global in nature and
pervasive, you can't blame them for missing this one.''
The Amex index of 11 companies fell 38 percent in the past 12 months as the
meltdown of the subprime mortgage market forced the world's biggest financial
firms to report $386 billion of losses and writedowns.
`Worst Excesses'
``Ten years ago, the expectation was that analysts would simply avoid the worst
excesses,'' Bove said in an interview. ``The idea was just to beat the
benchmark. Today, analysts have got to make you money in both up and down
markets. You don't have any excuse.''
Bove said other analysts may have made money-losing recommendations because
they based their reports on brokerage earnings rather than examining risk in
credit markets.
Peabody and Devine didn't return calls seeking comment.
Analysts lost influence after 10 securities firms paid $1.4 billion in 2003 to
settle allegations that they used tainted research to promote investment
banking clients. Regulation FD, a Securities and Exchange Commission rule
implemented in 2000, prevents companies from disclosing information to analysts
that "they don't tell the public".
