Stock analysts on Crack!! How can bad news be good?

[TheLoneGunman]

I fairly actively play the stock market (since I was kicked out of the job market) and have been involved for many years (was associated with some major financial websites).

I am just stunned by the way analysts look at certain stocks.

Yahoo lost at least $40 MILLION last quarter alone and analysts thought this was a GOOD thing??!??!

This evening, Intel announced that it's profits went down an astonishing 94% and analysts said this was better than they expected !!!!

I am confused. If they opened their doors and posted a "rob us" sign out front, their profits would only have fallen 6% more. Why is this a good thing?

At the same time, other companies lose one customer or have a decline in the amount of INCREASED profits (i.e. they "only" grow by 10% instead of 20%) and their stocks get sacked and the company starts into a downward spiral.

This just completely sucks.

[ufcrusher]

Well it depends, if you were to go to vegas with a $1000 and half way through call everyone to tell them that you think you have lost the entire $1000. But really end up coming home with $100 in your pocket, then you did better than expected. Its all about putting a spin on things. They can say it looks like you pulled out of the woods.

As for why some stocks that have been appreciating but slow, get sacked by analyist, its because the decline is seen as an omen of things to come. Its as though you were trying to get your money together for vegas, and suddenly people arent willing to lend you any for the trip. Since some people have lost faith in you already, its likely that others will think, what is up with this guy and get stand-offish.

[TheLoneGunman]

You really believe that???

<scratches head>
<looks stunned>

[stupidzbu]

the people who make money in the stock market are the damn analysts.. no one else!

there was this stock.. PSIX... march 2000 they announced that it was a great stock... nothing could go wrong... etc etc etc... peaked at $65 a share...

then Q3 reports come out.. and the stock traded at about $.65 a share... every analyst on the face of this planet was on teh stock.. saying hwo the company sucked... how they had no future.. they didn't know if it was going to make it through the year...

so .. january 2001 comes along.. the stock jumps in 5 trading days from $.70 a share to $4.20 a share.... and in the MIDDLE of the LAST DAY when it hits $4.20 .. THEN the analyst start talking about the stock.... and guess what?
they said GOOD things about it.. and within 5 minutes.. the stock was being shorted like CRAZY until it bottomed at $2.70 for the day..

who made money? THEY DID! they shorted and shorted until they made a grip of money (this is all my speculation.. but obviously SOMEONE must have shorted it!)

so... thats the game they play.. they say what they think is in their best financial interest.. and as long as they don't cross the fine line that TOKYO JOE and others have crossed.. the dip ****s who buy and sell at analyst discretion ONLY (majority of those trading).... will cause these irregular actions......

[Butch]

Whenever analysts say "good" or "bad" or anything similar it is always in relative terms. There is no such thing as an absolute good or an absolute bad. Yahoo losing $40 million was better than expected . . . so it is good news and should raise the price since the expectation that it was going to do worse was already built into the price.

Similarly, you could have a company make a profit of $100 million, but if they were expected to make $200 million, it's bad . . . the $200 million profit was built into the price, and since it didn't reach it . . . the shares will tumble.

Stock prices are not about what is going on right now . . . they are about the perception of the future. Doing better than expected or worse than expected now can only act to MAYBE foreshadow what will come.

[TheLoneGunman]

How about this...

Yahoo and Intel have cute chicks who put out for stock analysts...

Egghead and Webvan have ugly old guys who want to take about P/E ratios...

Guess who gets the high rating and who gets the Sell rating...

I don't know this for sure, but it seems to make sense

[froggystyle]

Im with TLG on this one.... its like saying that mcdonalds corp was expected to sell rat poop burgers and they ended up selling cow poop burgers and this is better than expected. either way its stil $#it no matter how you smear it.

[Jihforce]

You people actually listen to analysts???
Your best bet is to research the company yourself if you are going to put money in it. Its a risk folks, this is the same thing as gambling. If you don't know the name of the game, don't play.

[hapoo]

Originally posted by Jihforce
You people actually listen to analysts???
Your best bet is to research the company yourself if you are going to put money in it. Its a risk folks, this is the same thing as gambling. If you don't know the name of the game, don't play.


You MUST listen to them... Its very true that they are the ones setting the prices but if you dont know what they're doing then you could be screwed. I'm not saying do what they say... but base your decisions on their plans.

[Butch]

You really don't have to listen to analysts . . . in fact, I would recommend against it if you have at least some knowledge of the market. It has been shown over and over again in studies that analysts on the whole really do not do any better than the market as a whole. The only way you'd have a better chance of making money following an analyst is if you know what he is going to say before his report is made public. But that is trading on insider information.

Analysts are basically there to make money for the investment banks. They are expected to be kind to companies partly in the hopes that the investment banks will win the rights to raise capital or advise on M&A (Very high margin businesses). The SEC is now enacting regulations that will essentially erect a wall between analysts and the investment banking arms of firms . . . and for good reason . . . analyst information is biased to benefit the firm. If I remember correctly, less than 2% of analyst reports involve "sell" ratings . . . why? It would piss off the companies . . . which would not be good for business. I think most of us could pick more than 1 in 50 companies that we think should be shorted or sold if held in a portfolio.