For months now, I've been using Motley Fool CAPS to evaluate the Wall Street wizards who rate stocks, and I gauge the likelihood that those ratings will pan out. In recurring columns like "Get to Know a Guru," we meet the unsung heroes (and villains) of Wall Street.
In "This Just In," we put the experts to the test, determining whether their upgrades and downgrades are worth the virtual paper they're printed on.
Today, I'm stepping back to 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, Eniacal hotshots are smarter than a fifth-grader.
Newsflash: 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 made by 168 professional stock pickers, from professional talking heads like Jim Cramer to financial bastions such as Citigroup. It tracks the performance of all the recommendations, 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 ...
More than half of them are lagging the market. Out of 168 professional players, 93 have sub-50% "accuracy" records on their picks.
Wall Street wall of shame
Fasten your seatbelts, folks, because I'm pulling no punches today. Meet "Wall Street's Dirty Half-Dozen" -- the six least-accurate institutional investors, along with their worst recommendations (that they've made public):
|
Wall Street |
Accuracy |
Worst Recommendation |
How Bad?* |
|---|---|---|---|
|
14% |
Select Comfort |
67 points |
|
|
20% |
Safeguard Scientifics |
30 points |
|
|
27% |
Sigma Designs |
58 points |
|
|
27% |
Kenexa |
38 points |
|
|
28% |
Syntax-Brillian |
81 points |
|
|
29% |
Coldwater Creek |
67 points |
List does not include companies capitalized below $100 million.
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 ana-list have appeared in each of the last four editions of this column. By now, I think we can safely say that Maxim and Cathay are consistently bad. Henley, too, appears all too often on this virtual wall of shame. 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 new service like CAPS (still in beta, by the way), there are bound to be bugs in the system.
Some such bugs are intentional, such as our decision not to 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.
Analyze this
But, in fact, there is one thing. Just like anyone else, you're welcome to subscribe to Motley Fool Hidden Gems, where 60% of our picks are beating the market. Not all of our picks are winners -- we also backed Cathay's Select Comfort a bit too often before ending our recommendation. But with multi-rec superstars like Ctrip.com
