Get to Know a Guru

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." In our recurring column, "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all. And in "Get to Know a Guru," we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: Sanders Morris Harris.

Profiles in punditry
In Wednesday's edition of "This Just In," we examined a pair of dueling recommendations from two Wall Street firms tracking DVR pioneer TiVo (NASDAQ:TIVO). One of these firms you've certainly heard of -- Bear Stearns. The other, perhaps not -- and that's a shame. You see, as I pointed out yesterday, Bear may have the better name recognition among investors, but when it comes right down to it, Sanders Morris Harris (a.k.a. SMH Capital) has the better reputation.

Not that I'd ever heard of the firm myself. It's only through the process of double-checking Bear's logic against the arguments of its peers that I learned who SMH is. Fortunately, the main aim of this recurring column is to pass along this kind of knowledge, and help you to ...

... get to know a guru
According to Motley Fool CAPS: "Sanders Morris Harris offers personalized asset management services to a wide range of clients. SMH is proud to admit that they often invest in the very securities that are recommended to clients -- of course being mindful of suitability issues with laws, regulations, risk and tolerance. This alignment of company's interests with those of clients distinguishes SMH and produces superior performance. Research efforts concentrate on a limited spectrum of the market, with a focus on companies in the Southwest."

Further digging reveals a couple of other factoids that may be of interest. SMH Capital is a relatively young company. A subsidiary of Houston-based investment bank Sanders Morris Harris Group (NASDAQ:SMHG), whose own history dates back only to 1998, SMH Capital per se has less than a decade of investing history. That said, the firm boasts analysts poached from many of the leading names on Wall Street: from Bear Stearns itself, to Citigroup, to JP Morgan Chase, to Warburg Pincus.

Are these guys any good?
So much for the firm's biography. What we really want to know about is its resume. When SMH speaks, should investors listen?

Actually, yes, you should. Tracking of the firm's picks gives it a 94.50 CAPS rating, leaving it just shy of the top 5% of CAPS investors. Making correct stock picks nearly 60% of the time, SMH may not be the best stock shop on the Street, but it's close. Its notable successes include:

And if you're wondering what's been keeping SMH out of the topmost ranks of investors, it's picks like these:

Trivial pursuit (of profits)
Another bit of trivia I found interesting in researching the firm: While its overall record of recommendations shows SMH batting close to .600 for accuracy, there's one subcategory of recommendations where these guys bat 1.000 -- sell ratings. Granted, the firm doesn't make a lot of them. Out of the 33 picks we've tracked since beginning to monitor the firm's record nine months ago, SMH has only advised investors to sell a stock twice. Both times, however, the firm's sell calls have beaten the S&P's performance.

Statistically, it's more an anomaly than a track record. But so far, SMH hasn't once steered investors wrong when it told them to sell. Now that it's panned TiVo's stock, I'm guessing this is one winning streak that TiVo investors wouldn't mind seeing broken.

Curious to learn whether any other professional analysts both (1) like TiVo and (2) have records better than SMH's to support their bullish sentiment? Visit our TiVo page on CAPS and review the full list of analysts that we track, who in turn track the stock.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 491 out of nearly 29,000 raters. TiVo is a Stock Advisor recommendation.