This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Time and again, the best investors (I'm thinking here of Fool co-founders David and Tom Gardner, but Peter Fisher and Peter Lynch are also on record) tell us that if you absolutely must sell a stock, sell your losers, and ride your winners. Yet this morning, CAPS All-Star stock picker UBS did just the opposite.

In an abrupt about-face, UBS closed out its endorsement of what was at the time its single best-performing pick on record: Russian dairy and juice concern Wimm-Bill-Dann (NYSE: WBD). And UBS did it with a bang -- going from "buy" to "sell" in the space of a heartbeat.

In light of Wimm's almost perfect performance last quarter, UBS' downgrade seems curious. But considering that UBS rode its previous bullish projection to a 131-point outperformance of the S&P 500, the analyst clearly knows a thing or two about Wimm's business -- and doesn't like what he's seeing today. So the question is, should investors follow UBS in abandoning ship?

Let's go to the tape
Before blindly following UBS's recommendation, it's worth taking a moment to consider the firm's record. What you'll find there bodes ill for Wimm-[Bulls]-Dann: With a CAPS ratings of 95.66, not only is UBS in the top 5% of CAPS players overall, it's also one of Wall Street's Best analysts (No. 9 on the list, to be precise).

Reviewing a list of its best picks, we find the firm still riding three stocks that have notched 100-plus-point outperformances:

At the bottom of the score sheet, we find UBS still clinging to just two 100-plus-point losers, although Cummins is gunning to make the list:

Foolish takeaway
You can read my own thoughts on Wimm here. But today's takeaway deals less with how I view UBS' downgrade, and more with what the above picks tell us about investing in general.

• UBS notched its worst losses when rating stocks "underperform." The CAPS equivalent of shorting a stock in real life, underperform ratings don't have to be wrong to lose an investor CAPS points, and real money (if implemented in the real world.) As John Maynard Keynes so wryly put it: "The market can remain irrational longer than you can remain solvent." If you're hesitant to sell losers -- or pertinent, to close out losing short positions -- learn from UBS' lesson.
• Second lesson: UBS may have closed one 100-plus-point winner, but it's still hanging on to three others. The moral of this story is not that you should sell your winners. The moral here is that sometimes, you need to sell even a winner, when its story has changed.

Last week, I described my own fears that the story is changing at Wimm. Today, UBS confirmed that it's thinking along the same lines. And that's why it sold.

You know what I think about Wimm. You know UBS' view. Want a third opinion? Get it from the top-scoring investor on Wimm-Bill-Dann. Click here to learn what Akita10 thinks about the company.