Watching the Detectives
Watching the Detectives
Shhh! I’m talking about money, or more precisely, investing in the stock market. The motivation for putting together this information emanated from one, somewhat rhetorical, question. Who holds to account those professional analysts who hand out recommendations on ASX listed companies, whether it be via our television screens or on the various websites pervading cyberspace? That first question led to a second question, less rhetorical and more inquisitive. Is there a source of information that can help me hold these analysts to account, or at least create a starting point in the process towards answering the first question? Or to loosely quote Elvis Costello, let’s do a bit of Watching the Detectives.
I decided to put the analytical part of my brain to work, I did a lot of data trawling and came upon a slew of recommendations made by so-called experts in the stock market. I looked at 190 ASX listed companies. I had already done quite a bit of work in collecting important information about various ASX listed businesses, ostensibly for my own purposes, numbers such as Return on Equity, Price to Earnings, Debt to Equity ratios, all boring for most of us but important when you’re considering the viability of a business. I have come up with some interesting findings, the main one being that whilst some analysts are very good, others are better off trying something else and laying off trying to complicate an already complex field.
All of the data contained in the spreadsheet, such as the aforementioned ratios, the dividend yields and other boring figures, comes from the companies themselves or the analysts, and is designed, in part, to allow further investigation as to whether a particular business is worthy of consideration. The only subjective information you’ll find are my ratings of the analysts recommendations. I have used an approach explained on the “Analysts Ratings Explained” page. You’re free to put your own interpretation on that approach, free to disagree, free to adjust the boundaries for each of the ratings, free to disregard it altogether. It’s completely up to you.
I have listed the 180 plus companies from the Westpac Consensus recommendations (a panel of analysts collated by the bank) and over fifty recommendations from the Morningstar Premium Rating Service and rated all of them. Analyse this information with a critical eye. Let me know if it might be useful. I’ll provide the spreadsheet to download at some point. Investing requires educating ourselves about what the market is about, holding one’s nerve and adopting a degree of healthy skepticism because the stock market is just that, a market, it’s therefore not logical. People make decisions about money for the same reasons they make decisions about everything else, the feeling in the gut. If nothing else, this information may help you realise that simply following someone else’s advice is filled with risks if we don’t also do some research and gain an education of our own into these matters. Of course, these analysts will tell you the same thing, to cover themselves, while also taking your money. It also serves as a word of warning, that swallowing a pill just because the doctor says so, or in this case, a stock analyst, comes with its own perils.