Strong Buy

  

Categories: Trading, Banking

It’s a rating. “Buy buy buy this stock.” That’s what the sell side stock broker’s analyst will publish. There will likely be a price target along with it. And the stockbrokers who work for the company will bang a tambourine, telling all their clients to buy, baby, buy.

The historical frame on this rating is that “in the olde days” (think: pre-2000-ish), practically every stock and bond was rated Strong Buy by pretty much everyone. Why? Because analyst bonuses were paid by the investment Bankers who ran their group. And how did bankers get paid? They get paid by banking work, i.e., when companies hire them to buy companies for them for a small fee (think: 1% of total transaction cost).

So...what company would hire an investment bank that didn’t have a Strong Buy rating on their stock? Answer: nobody. A corrupt system that finally got called on the carpet for being so. Then things changed, and it became a published thing that analysts who had more than, say, 30% of their coverage rated Strong Buy, were, more or less, shamed.

Strong Buy shaming. It was a Thing back then.

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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

00:11

of them stock brokers usually employ what is called a

00:13

self side analyst who writes investment reports on the favorability

00:18

or lack thereof of buying a given stock or bond

00:21

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

00:25

price range This stock is raided bye meaning they liked

00:29

the stock here for a given period forward maybe a

00:32

quarter or two maybe the next five years but the

00:35

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

00:39

twelve cents it just says by why Well it starts

00:44

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

00:46

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

00:56

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

01:15

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

01:17

fair question to ask Why would someone publish a stock

01:21

rating at all when statistically their ratings are no better

01:24

than a monkey throwing bananas at a dartboard Well the

01:27

reality is that brokerage is used to make decent money

01:30

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

01:34

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

01:57

those cash proceeds as investments in the lucrative to the

02:02

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

02:05

funds ones they managed and made tons of profit from

02:08

So not surprisingly in most times in history when eighty

02:12

seven analysts were covering a given stock eighty six of

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them had strong buy ratings on the stock with a

02:19

little asterisk which led to another one at the bottom

02:21

of the page That said when you do lucrative banking

02:24

deals please pick me me mean well this fact was

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shouted out loudly in the mid nineteen nineties and banks

02:31

quickly adjusted as they were kind of shame for being

02:34

willing to publish anything tto win banking business and like

02:37

did we expect anything different from them really well those

02:40

new regulations required analyst to segment top middle and bottom

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third enthusiasm levels that they held in their ratings of

02:48

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

02:51

by on everything their success or failure in actually picking

02:54

Could stocks however did not change but the asterisks with

02:58

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

03:01

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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