Business Management

When the analysts throw in the towel, it’s time to take notice.

Let me explain why. This month the percentage of clear tips from US company analysts – ie their ‘buy’ or ‘sell’ advice on individual shares – fell to just a third of their overall stock ideas. That’s the lowest since Bloomberg began tracking the data in 1997.

All the other stocks in the market were lumped together as ‘holds’ by the analysts. That’s the latter’s way of saying they don’t know what to suggest. In other words, it looks like these company watchers are now completely losing confidence in their own forecasts. They’ve made so many bad calls they’re afraid to make more tips.

And now they’re overlooking a great chance to make money.

Analysts are losing their bottle

Picking the next share to go up isn’t a doddle. If it were, we’d all be doing it. In fact at times it seems easier to find duds than winners, as anyone who’s ever tried stock market investing will testify.

But company analysts do the job for a living. So it’s fair enough to expect them to get it right at least half the time. And that makes the latest Bloomberg findings a bit embarrassing for this group of experts.

The stocks that – in December 2009 – they forecast were the most likely to rise in 2010 have actually undershot the S&P 500 index by almost 3%. Yet the shares they most disliked a year ago have beaten the overall market by an average of 11%.

Hence all the hedging of bets. Analysts don’t want to get caught out anymore. In fact, this is turning into a worldwide trend. In seven of the planet’s biggest equity markets, the combined proportion of ‘buy’ and ‘sell’ tips has dropped to its lowest ever, says Bloomberg. In a nutshell, analysts everywhere are losing their bottle.

So what does this tell us?

Back to the States. Because here there’s a classic example of one area of the market that’s dropped right out of fashion with investors.

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