Tags: Wall | Street | picks | unreliable

Wall Street Stock Picks: Unreliable Indicator of Success

By Dan Weil   |   Monday, 31 Dec 2012 08:27 AM

Following the stock choices of Wall Street analysts may make you money, then again it may not.

The 10 most-disliked stocks among analysts tracked by Thomson Reuters produced much stronger returns than did the 10 most-liked stocks in two of the past five years, writes Wall Street Journal columnist Brett Arends.

And in two other years, the most and least popular stocks were essentially tied. Overall during the last five years, the most chosen stocks generated average losses of 11 percent, while the least chosen offered returns of 16 percent.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

"The consensus is often wrong," Lawrence Glazer, portfolio manager at Mayflower Advisors, tells The Journal. "There's no better contrary indicator than when a stock is loved by Wall Street and Wall Street research."

However, analysts did a good job this year when it came to picking winners. The most-recommended stocks provided gains of 19 percent. They weren’t so successful picking losers, as the least-recommended stocks returned 10 percent.

Individual investors apparently are no better than the pros are. Stocks that were bought at the beginning of a one-year period by individual investors underperformed those that were sold by 3.2 percentage points, according to a study by University of California, Berkeley business school professor Terrance Odean.

“[F]or the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to mind," writes Nobel laureate economist Daniel Kahneman.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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