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All About Analysts

A 46-year-old pediatrician lost almost all of his children's education fund -- over $1 million -- allegedly because a Merrill Lynch(NYSE: MER) broker advised the customer to buy a very risky stock, InfoSpace(Nasdaq: INSP), at its peak and hold it all the way down. He claims he did this based on the "buy" recommendation and price target given by a Merrill Lynch analyst, Henry Blodget, who was allegedly aware at the time that a Merrill Lynch investment banking deal with InfoSpace depended on keeping its stock price up.

This sorry tale is just one more reason we think that you should use any analyst information circumspectly, if at all, and certainly ignore any buy/sell/hold/make-into-origami advice. Read on to learn why and understand whether any recent efforts to regulate analysts make sense, and finish with a laugh from Bill Mann.

Who are Wall Street analysts, and why should we be wary?
"Can Analysts Be Trusted?" by Todd N. Lebor (TMF TeeTime)
The Motley Fool advises that you do your own company research. Why do we do this, when so many well-educated, well-paid analysts are out there doing it already? Why not just read what the "experts" have to say? Why, because their analysis can't be trusted. Sorry, but the truth hurts.

Are analysts any help at all?
Ask the Fool: Analyst Reports
What about analysts' buy/sell recommendations anyway? Can the individual investor learn anything from what an analyst says about a stock?

Can individual investors succeed without analysts? (Oh, there's a softball!)
"Tom Gardner Speaks to the SEC," May 17, 2001
Motley Fool co-founder Tom Gardner (TMF TomG) testifies before the Securities & Exchange Commission about why Regulation Fair Disclosure (FD) has helped individual investors make and manage their own stock investments -- and why analysts don't like it.

Can anything be done about the analysts' conflicts of interest?
"Why Should We Trust Analysts Now?," by Brian Lund (TMF Tardior)
Brian Lund looks at The Securities Industry Association's "Best Practices" report released in June. It intoned that firms should keep their investment banking and analyst businesses separate. This righteous statement came one day before the U.S. House of Representatives began hearings on Wall Street shenanigans. Conflicts of interest have and will continue to occur, as long as money is to be made. Protect yourself from them, since no one else will.

Are there any moves to improve analyst accountability?
"Analyst Accountability Moving Forward?," by David Marino-Nachison (TMF Braden)
Merrill Lynch's moves to restrict the holdings of its analysts are nice, but the National Association of Securities Dealers has a proposal that should help investors even more. If adopted, firms and analysts would have to reveal corporate -- as well as personal -- interests in companies being recommended. While conflicts may always exist, better disclosure helps investors decide who they can trust.

"A Modest Proposal to Analysts," by Bill Mann (TMF Otter)
Bill Mann asks, "If Merrill wants to improve its analysts' accountability, rather than prohibiting them from buying the shares they own, why not require it? It would go a long way toward making sure analysts are eating their own cooking."

And now for a laugh -- at analysts' expense:
"The Analyst Pledge Exposed," by Bill Mann (TMF Otter)
Ever wonder why Wall Street analysts seem to move together on a company AFTER it releases bad news? Well, the conspiracy theorists are on to something: There really is a pact among the analysts. In a major coup, Bill Mann has acquired the text of a secret oath administered to all analysts before they are allowed to cover companies.

Protect Yourself contains opinions that are those of each Fool only and should in no way be taken as the opinion of either The Motley Fool, Inc. or any company in question, or as representative of anyone or anything other than that specific Fool's thoughts. Review The Motley Fool'sdisclosure policy.


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