Stock Rating

Categories: Stocks, Banking

Buy. Sell. Hold. That’s about it. Those are the ratings.

Stockbrokers usually employ what is called a sell side analyst, who writes investment reports on the favorability, or lack thereof, of buying a given stock or bond. They are framed generally as “within this price range, this stock is rated buy”...meaning they like the stock here for a given period forward. Maybe a quarter or two, maybe the next 5 years. But the rating doesn't specifically say “Buy at 27 dollars and 12 cents." It just says “buy.”

Why? Well, it starts with the fact that anyone who’s good at actually picking stocks...would pick stocks. There’s almost no other legal career on the planet where an individual can work fewer hours and make more money than if they can read a crystal ball of stock-picking futures and invest their money well. Remember that you could have bought 25 grand worth of Amazon 2 weeks after its IPO in the late 90s, and today that would be worth tens of millions of dollars.

So it's a fair question to ask: why would someone publish a stock rating at all when, statistically, their ratings are no better than a monkey throwing bananas at a dart board? Well, the reality is that brokerages used to make decent money on commissions before computers took so much of the profit margin from the business. For decades, the role of the analyst was to keep the attention of company management so that, when the company did a financial offering, or sold themselves to an acquirer, the company hired the investment bank for their lucrative-to-the-bank investment banking services, and when management sold their own shares in the company they were managing, they’d put the cash proceeds as investments in the lucrative-to-the-bank proprietary hedge funds, i.e. the bank’s own hedge funds.

So, not surprisingly, in most cases in history, when 87 analysts were covering a given stock, 86 of them had strong “buy” ratings on the stock with a little asterisk, which led to another one at the bottom of the page, which said that, when you do lucrative banking deals, please pick me me me! This fact was shouted out loudly in the mid-1990s, and banks quickly adjusted, requiring analysts to segment top, middle, and bottom third enthusiasm levels that they held in their ratings of stocks at given price points. Their success or failure in actually picking good stocks didn’t change, but the asterisks, with the "me me me" things...basically went away.

So all of the above is about stock ratings. When you’re making chicken soup, it’s, uh...a different kind of stock.

Related or Semi-related Video

Finance: What is a stock rating?3 Views

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Finance allah shmoop what is a stock rating Buy sell

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hold that's about it Those are the ratings only three

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of them stock brokers usually employ what is called a

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self side analyst who writes investment reports on the favorability

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or lack thereof of buying a given stock or bond

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at a given price They're framed generally as within this

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price range This stock is raided bye meaning they liked

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the stock here for a given period forward maybe a

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quarter or two maybe the next five years but the

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rating doesn't specifically say by a twenty seven dollars and

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twelve cents it just says by why Well it starts

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with the fact that anyone who's good it actually picking

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stocks would pick stocks and do that for a living

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or for their own account There's almost no other legal

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career on the planet where an individual can work fewer

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hours and make more money than if they can read

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a crystal ball of stock picking futures and invest their

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own money Well remember that you could have bought twenty

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five grand worth of amazon two weeks after its aipo

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in the late nineteen nineties and today that would be

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worth tens of millions of dollars with you doing nothing

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all along the way how's that feel so it's a

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fair question to ask Why would someone publish a stock

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rating at all when statistically their ratings are no better

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than a monkey throwing bananas at a dartboard Well the

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reality is that brokerage is used to make decent money

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on commission's before computers took so much of a profit

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margin spread from the business for decades the role of

01:37

the analyst was to keep the attention of company management

01:40

so that when the company did a financial offering or

01:44

sold themselves to an acquire or will the company then

01:47

would hire the investment bank for their lucrative to the

01:50

bank investment banking services And when that management sold their

01:54

shares in the company that they were managing they put

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those cash proceeds as investments in the lucrative to the

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bank Proprietary hedge funds i e the bank's own hedge

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funds ones they managed and made tons of profit from

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So not surprisingly in most times in history when eighty

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seven analysts were covering a given stock eighty six of

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them had strong buy ratings on the stock with a

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little asterisk which led to another one at the bottom

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of the page That said when you do lucrative banking

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deals please pick me me mean well this fact was

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shouted out loudly in the mid nineteen nineties and banks

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quickly adjusted as they were kind of shame for being

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willing to publish anything tto win banking business and like

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did we expect anything different from them really well those

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new regulations required analyst to segment top middle and bottom

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third enthusiasm levels that they held in their ratings of

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stocks at given price points like they couldn't be strong

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by on everything their success or failure in actually picking

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Could stocks however did not change but the asterisks with

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the mimi me things basically went away and yeah they're

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still bad stock pickers go with the monkeys and their 00:03:04.07 --> [endTime] bananas Why Well because the banana has appeal

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