Finance: What is a stock rating?

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Transcript

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

00:50

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

00:53

career on the planet where an individual can work fewer

00:56

hours and make more money than if they can read

00:59

a crystal ball of stock picking futures and invest their

01:02

own money Well remember that you could have bought twenty

01:05

five grand worth of amazon two weeks after its aipo

01:09

in the late nineteen nineties and today that would be

01:12

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

02:16

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

02:27

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

02:45

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