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Monday 31 August 2009
Investors who trusted the ‘experts’ end up losing out
More evidence of pitfalls of acting on “expert” advice in buying stocks. Anyone who did what Wall Street analysts advised last March, it appears, has only losses after the biggest stock market rally in seven decades.
Investors who trusted the ‘experts’ end up losing out
Bloomberg 30 August 2009
More evidence of pitfalls of acting on “expert” advice in buying stocks. Anyone who did what Wall Street analysts advised last March, it appears, has only losses after the biggest stock market rally in seven decades.
Citigroup, Bank of America and more than a dozen other firms told clients to purchase European energy producers and US drug makers - defensive plays - while selling banks and retailers. Calculations show an investor who used US$10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9, lost everything and would owe up to US$6,000 to cover bearish trades.
The recommendations did not work because companies with the worst earnings led the nearly 50 per cent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago. Securities firms that failed to foresee that the hardest-hit stocks last year would recover fastest steered investors to drug and energy producers, which have trailed the MSCI World Index by more than 20 percentage points, the data show.
“Analysts are attached to fundamentals,” said Romain Boscher, head of equities at Groupama Asset Management. “This is a technical rally, a rally of sentiment. Analysts were too defensive. There was an inflection point and they didn’t see it.”
Stock returns have not been tied to profits during the five-month rally in global equities. S&P 500 companies that reported a drop in second-quarter earnings have risen 8.4 per cent on average in the past month, compared with a 7.2 per cent advance for those with increases.
“It’s been trash that’s done well,” said Andrew Lapthorne, the head of quantitative strategy at Societe Generale SA in London. “Most analysts struggle to recommend stocks that are rubbish.”
Brokerages did not recognise that shares of banks and commodity companies already reflected losses during the recession, according to a study of analysts’ ratings by Citigroup’s chief US equity strategist, Tobias Levkovich.
“Analysts were too defensive,” said Yves Maillot, a fund manager at Robeco Asset Management in Paris. “They went too low, but they weren’t the only ones. Many investors also missed out.”
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Investors who trusted the ‘experts’ end up losing out
Bloomberg
30 August 2009
More evidence of pitfalls of acting on “expert” advice in buying stocks. Anyone who did what Wall Street analysts advised last March, it appears, has only losses after the biggest stock market rally in seven decades.
Citigroup, Bank of America and more than a dozen other firms told clients to purchase European energy producers and US drug makers - defensive plays - while selling banks and retailers. Calculations show an investor who used US$10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9, lost everything and would owe up to US$6,000 to cover bearish trades.
The recommendations did not work because companies with the worst earnings led the nearly 50 per cent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago. Securities firms that failed to foresee that the hardest-hit stocks last year would recover fastest steered investors to drug and energy producers, which have trailed the MSCI World Index by more than 20 percentage points, the data show.
“Analysts are attached to fundamentals,” said Romain Boscher, head of equities at Groupama Asset Management. “This is a technical rally, a rally of sentiment. Analysts were too defensive. There was an inflection point and they didn’t see it.”
Stock returns have not been tied to profits during the five-month rally in global equities. S&P 500 companies that reported a drop in second-quarter earnings have risen 8.4 per cent on average in the past month, compared with a 7.2 per cent advance for those with increases.
“It’s been trash that’s done well,” said Andrew Lapthorne, the head of quantitative strategy at Societe Generale SA in London. “Most analysts struggle to recommend stocks that are rubbish.”
Brokerages did not recognise that shares of banks and commodity companies already reflected losses during the recession, according to a study of analysts’ ratings by Citigroup’s chief US equity strategist, Tobias Levkovich.
“Analysts were too defensive,” said Yves Maillot, a fund manager at Robeco Asset Management in Paris. “They went too low, but they weren’t the only ones. Many investors also missed out.”
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