Beat the Street With 25 Cents

Got a quarter? Can you flip it? Congratulations: You're a stock guru.

For months now, I've been using Motley Fool CAPS to evaluate the Wall Street wizards who rate stocks and to gauge the likelihood that those ratings will pan out. In my recurring column "Get to Know a Guru," we meet the unsung heroes and the villains of Wall Street. In "This Just In," we put the experts to the test, to determine whether their upgrades and downgrades are worth the virtual paper they're printed on.

Today, I want to step back and see the big picture. Using the full breadth of CAPS to take a snapshot of the Wall Street Wise, I'll lay out for you who's hot, who's not, and overall, whether these analytical hotshots are smarter than a fifth-grader.

News flash: They're not
We often hear the statistic: "80% of mutual funds underperform the market." But until now, it's been hard to fact-check that bit of commonly accepted Foolishness. Fortunately, CAPS does something nearly as good. It records every stock pick from 161 professional stock pickers, from professional talking heads such as Jim Cramer to financial bastions such as Citigroup. It tracks the recommendations' performance, and, most importantly, it records whether the picks are beating or lagging the S&P 500's return. So how are the experts doing? Drumroll, please ...

Most are lagging the market. Out of 161 professional players, 96 have sub-50% accuracy records on their picks.

Wall Street's wall of shame
Fasten your seat belts, folks, because I'm pulling no punches today. Meet "Wall Street's Dirty Half-Dozen" -- the six least-accurate institutional investors, along with the worst recommendations that they've made public:

Wall Street Worst Firm*

Accuracy

Worst Recommendation

How Bad?**

Cathay Financial

14%

Select Comfort (NASDAQ:SCSS)

62 points

Collins Stewart

21%

Sigma Designs (NASDAQ:SIGM)

48 points

Jesup & Lamont

22%

Yingli Green Energy (NYSE:YGE)

37 points

Maxim Group

24%

Bon-Ton (NASDAQ:BONT)

81 points

Punk, Ziegel

27%

Panacos Pharma (NASDAQ:PANC)

73 points

Dawson James

27%

TranSwitch (NASDAQ:TXCC)

47 points

*Data taken from Motley Fool CAPS at the time article was written.
**Which is to say, "How badly is this active pick underperforming the S&P 500?"

As you can see, even the "best" firms on this list guess wrong seven times out of 10. What's more, two denizens of this list have appeared in each of the past three editions of this column. After three months in a row in the doghouse, I think we can safely say that Maxim and Cathay, at least, are pretty consistently bad. Pardon my bluntness, but I think you're better off flipping a quarter than paying these analysts for investing advice.

Lies, damned lies, and statistics
Confession time: The numbers above certainly suggest that the old truism about mutual funds, and the professionals who run and market them, holds true. But in a service like CAPS, there are bound to be bugs in the system. (It's still in beta, by the way.)

Some such "bugs" are intentional, such as our decision to not permit ratings on "half-penny" stocks with market caps of less than $100 million, or stock prices under $1.50 per share. Some are not -- glitches in the system that may unintentionally affect the statistics CAPS generates. So before the analysts named above cry bloody murder, let me extend the following olive branch: We're listening.

If you've got a gripe about your rating, and the facts to back it up, we'll work with you to fix the problem. Drop our CAPS feedback board a note, and we'll give your arguments a fair hearing. On the other hand, if you're just mad because we're highlighting statistics that you'd rather not advertise, there's not a lot we can do for you.


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