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It's no secret that many investors tune out when it comes to the recommendations analysts pump out. After all, the tech bubble made it painfully obvious that some analysts have a hard time making tough calls, and pump stocks even as they crash to the ground. But as it turns out, sometimes investors may be better off just doing the opposite of what analysts suggest. That, in itself, isn't news to burned investors. But more interestingly, their "sell" recommendations outperformed the market by an annualized average of 13.4%. In plain terms, the stocks that analysts told people to avoid actually outperformed the ones they were bullish about by an average of 20.5% per year. "The years 2000 and 2001 were disasters," writes Brad Barber, a finance professor at the University of California, in "Reassessing the Returns to Analysts' Stock Recommendations," which was published recently in the 'Financial Analysts Journal.' Canadian stocks were not included in Barber's study, but anecdotal evidence suggests similar outcomes for Bay Street. For example, the Morning Call tables in Investor's Digest of Canada show that brokers' top picks in late-summer 2001 included Bombardier Inc., BCE Inc., Telus Corp. and Celestica Inc. --just before they tumbled from grace. |
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