Credibility of Stock Research Reports
Every other day I receive some or other multibagger tip in my inbox, thanks to some random research that I do from time to time that requires me to submit a valid email id to activate. By rule, I would never take a look at these free reports and tips, only reading the scrip name in the subject line. But I’d make it a point to mention the names of these scrips to some of my analyst friends who’d laugh off at the name of stock – usually belonging to some index like BSE Indonext etc but would request me to forward the email when mentioned that email contained comments from people like Deven Choksi … of course in area like equity research, the name of analyst does matter, but it seems that I had underestimated the “herd mentality”. I’ve seen people laughing off at these scrips names first and then calling up the senior analyst to quote that “Deven Choksi recommends this scrip” etc…
I tried checking some random tips from 2-3 months ago so that I could check wrt technicals, if the recommended uptrend was noticeable or not. I noticed that for majority of these tips, there IS infact the uptrend noticeable. That to me signifies nothing. Market has gained tremendously within last quarter. Infact BSE has gained more than 60% within last 1 year itself. I wish there could be some on going study on these reports to ascertain the genuinety of these recommendations. Its feel good effect. Markets are going up and good times will lead to laxity – laxity to bad numbers, negligence, buy recommendations without detailed research because of general uptrend and that precisely might lead to the bad times!
Well, another significant factor is shortage to talented and more importantly “Experienced” analysts who have seen the whole business cycle. Right now theres almost about everybody I know , ready to give some or other scrip idea. Perhaps as of now these things do not matter, because general uptrend will lead to appreciation over medium term period if not exactly short term. So they shall be proven correct nevertheless, and that might earn them some credibility without much effort…
Perhaps some rigging can be actually attributed to these reports, names of analysts and recommendations.. perhaps the broking arm of some firms tries to give buy recommendations to please the company which is the client of their investment banking arm..perhaps there’s nothing like this happening, but everyone’s coming out with buy recommendations because everybody else is doing that. About 99.9% of reports okay, thats an exaggeration – but 9 out of 10 reports have upward bias these days and I believe ONLY on the basis of greater fool theory and the bull run. I am convinced of it mainly because of the exodus of the research reports. There can be about 1000 new reports every week and looking at these one might relate them to the mass production in the factories. Stock research requires cash flow projection over medium to long term and a detailed and meticulous tracking that one wonders HOW these reports get generated in spote of the shortage of personnel. Perhaps the analysts are working round the clock 24/7.. perhaps there are some robots generating these reports – since stocks go up these days by rule!
Anyways, something must be said for regulatory intervention – the lack of it rather! I am not aware that there is anything with respect to sharing of infomation by way of these reports. There’s something like prohibition on publishing reports after filing of draft prospectus till 45 days after commencement of trading, but thats only IPO related.
Perhaps one day there shall be some measures so as to regulate the flow of information and ensure the quality of these reports, but till then we may sit and marvel at the number of these daily/weekly/fortnightly/monthly reports… or some of us may actually go ahead and buy the scrips based on these tips and profit out of that, proving the rest of us fools!!
Posted on October 24, 2007, in BSE 30, Bull Run, Irrational Exuberance, Sensex, Stock Markets and tagged Bull Run, Equity Research, Stock Markets, Stock Research Reports, Stock Tips. Bookmark the permalink. Leave a comment.