TastyTrade: Professional Analysts Are Useless

In sum, the video explains that analysts generally buy stocks that have gone down and sell stocks that have gone up, and have a 50/50 win rate. The video argues their methods and success rates are not hard to replicate -- and that this explains why analysts ratings become far less influential in the marketplace, with some firms abandoning the entire of professional analysts entirely.

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Originally Posted by TastyTrade Brokerages, banks and other financial institutions often employ analysts that research publically traded companies (and some large non public companies expected to go public) to acquire more usable market knowledge. They usually rate the stocks they cover on a 3 point ot five point scale such as buy, hold or sell for a 3 point scale and strong buy, moderate buy, hold, moderate sell and strong sell on a five point scale. Different firms use different terms but almost all fit this mold. The questions we had was how accurate are these analysts and how do they make their calls. A study was conducted from 1998 to 2015 to present of a total of 10,250 company ratings. The study examined 2 questions. Under what conditions did analyst place their recommendations? Second, how accurate were the recommendations? We noted that the overall number of analyst recommendations has declined in recent years. A graph was displayed from 1998 to present of the amount of analyst recommendations issued by banks and research firms. Recently, analysts have been upgrading stocks that have sold off and downgrading stocks that have had big runs up. That is indicated by some of the numbers we crunched. A table was displayed of analysts announcements after a stock increased during the previous week. The 3 possibilities were initiated coverage, upgrades and downgrades. The table showed the percentages for each. A second table was displayed showing whether the analyst correctly predicted the movement of the stock. The analyst’s upgrades, downgrades and totals were measured after 1 month, 2 months and 6 months. A final table was displayed showing the percentage of successful analyst recommendations (based upon the price action one month after the announcement) as well as the total recommendations made. Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the the takeaways and the detailed results of the study testing industry analyst stock recommendations.

TastyTrade: Professional Analysts Are Useless