Do we really need Wall Street analysts when they cannot even tell us the most crucial piece of information in investing? I am talking about when to sell.
We have had a pretty impressive run in stocks during the past nine years, especially over the past 15 months. What shocks me is that incredibly few Wall Street analysts are coming out and downgrading stocks to sells. All I see from analysts are buys, neutrals, outperforms, under-performs, over-weights, and other indications that it might make sense to hold the stocks. What gives?
I am very appreciative that these analysts work long hours to tell the masses that certain stocks and sectors are buys. Honestly, that is not hard to do in a bull market. What most investors have no idea about is the right time to sell. When should you reduce your position to protect yourself? When should you sell the stock and take your profit? That is what we really need to hear from analysts.
There have been a lot of really crazy stock price moves in the last year, but I have not heard any prominent analyst calling any of these stocks a sell. Boeing was up close to 90% last year. Is there not one Wall Street analyst who thinks that it is high time to sell Boeing? What about FAANG? Facebook, Amazon, Apple, Netflix, and Google made up more than a third of the S&P 500’s gains last year. There is not one analyst from a big bank giving these stocks a sell rating or advising investors to trim their positions.
Right before Christmas, Nomura downgraded Apple from Buy to Neutral. What does that mean? If I had an Apple position, what is Nomura telling me to do? No one is willing to come out and say they believe that Apple is a sale at current prices and that it ought to be repurchased if it falls below $150. That is helpful. I very rarely see advice like that from a Wall Street analyst, and it never seems to come from an analyst for a big bank like JP Morgan, Citibank, or Bank of America.
To be fair, analysts do assign target prices for stocks. You would think that when a stock hits the price target, that would be the time to sell. That would make too much sense. Once the stock hits the target, the analysts decide to raise the target price. What help is that?
I understand that analysts do a vast amount of research on markets, sectors, and individual stocks. I have read hundreds of their reports, and I still read some of them sometimes. Right now, when analysts would be most useful to the investment world, they are nowhere to be found. That is what is so bothersome and worrisome.
The almost complete absence of sell recommendations was a key feature of the market tops in 2000 and 2007, and it has become an issue again today. What good are all these smart analysts if they cannot even tell me when to get out of a position?