when do you listen to an analyst?
Have they ever been right? Of
course I am asking this question in jest, yet there obviously is a bit of truth
in the comment. Not more than three or
four weeks ago an analyst downgraded DE for all the reasons the talking heads
were downgrading CAT. As I heard the
downgrades coming in on CAT I thought fundamentally they made sense. Slowing mining industry, lower price in gold,
soft or hard landing in China all make sense why CAT was heading down. On the way home I was on the phone with a
friend discussing the market. While
talking “shop”, our code word for pretending to be a CNBC analysts’, I let him
know someone was going to downgrade DE tomorrow. Why he asked?
All the analyzing I had done brought me to one conclusion, “Since CAT
was being downgraded and DE follows CAT, I am just expecting it”. Fundamentally nothing was wrong with DE. In fact, most research pointed to higher
highs for DE.
day DE was downgraded and fell 2% because apparently the analysts have some
great information. Unfortunately, the
information stated in the downgrade was not only inaccurate but the similar,
overlapping reasons CAT was downgraded. If
you trade, learn to read the financials to truly know how a company is
doing. Learn to understand revenues,
liabilities, assets, margin, and debt obligations. Understand why a company makes money and how
it compares to the industry or sector. If
you’ve read the analyst’s report on DE, it digresses from the company reported SEC
Filing at earnings. Apparently, in the
financial markets, analysts’ know more than the officers of a company. Also, apparently forward guidance and past
performance have nothing to do with future results. What do you think?
I know is that DE filled the gap within a week and it appeared this was nothing
but a small pullback. I often wonder if
downgrades are to help companies buy back into the stock at a cheaper price? Do these people really know what they are
talking about and how much do they get paid?
With so many downgrades and upgrades do we even need an analyst to
explain why? After the pullback the
company really started the bearish downtrend.
That’s when I realized something is to be said for analysts’ reports on
companies. The companies these analysts
work for have more money and time than I do to do the research to justify their
findings. Here’s what I do now when a
new upgrade, downgrade or analyst report comes out.
I want to see what the main points are in their report. These main points are the red flags I then
need to look for in the near future. I
also check any numbers in the report with a company’s’ financials. Maybe there is something I missed,
misunderstood or a tip for the future.
NO I never trade on an analyst report on a company. I do see if the reasons for the downgrade or
upgrade make sense. If there are trends
in other industries, sectors or parts of the world why not know about it. I want as much valid information as I can get
to make my best educated decision on what to do next. It could be time to buy a protective put for
downside protection. A covered call can
give me a small amount of downside protection to weather a small pullback. It could mean it is time to exit the equity
all together. In real life this is one person’s opinion and
best guess at the future. If predicting
the future was easy, I guess we would all be doing it. Right….?