Making Sense Of Stock Market Analyst Recommendations

For many people an important part of stock market investing is listening to stock broker’s recommendations.

In fact, the views of some stock brokers, or stock market analysts, can cause the value of stocks to increase or decrease depending on what they have to say about a particular company.

So it is definitely worth listening to their recommendations, even if you don’t follow them.

There are several types of recommendations, or advice, stock brokers can give. Some of which include:

Strong Buy And Buy

As a stock market investor these are the type of stocks you want to buy, as there is a good chance their value is going to increase.

It is worth remembering however, that buy recommendations tend to be the most common type of advice given by stock brokers because brokers sell stocks.

Accumulate And Market Perform

A stock market analyst who gives this type of advice tends to have positive expectations about the performance of a particular stock, yet remains conservative in their advice because they cannot say for certain how those stock will perform.

Hold Or Neutral

This type of advice is usually a nice way of saying that you should sell your stocks.

Sell

When you are told to sell your stocks then you probably should sell them because their value is going to decrease.

The sell recommendation is usually given as a last resort when things are looking really bad, and can very often create panic amongst investors who try to sell before they reach the bottom.

Using A Stock Market Analysts Recommendations

When investing in the stock market you need to consider as much information as possible to ensure you make the right investment decision.

A stock market analyst’s recommendations are just one of these sources of information, and should therefore not be used solely on its own to decide how you invest.

Stock market analysts for example, often have biases because their livelihood very often depends on the companies they are presenting.

So always consider why a stock broker may be talking up or talking down some stocks.

The best way to use stock market analyst’s recommendations is to do your own research first, and if you find an analyst’s recommendations who support your own findings, then there is a good chance that those stocks will perform well for you.

To help you become more analytical about stock market analyst recommendations, consider the following points when listening to their advice:

How Is Their Decision Made?

Consider how the analyst has come to their decision, and use what they have done to help you with your own research. Do you come up with similar findings as they do?

Analytical Approach

Stock market analysts use different approaches when analysing the stock market, and sometimes these can give very different results.

For example, some analysts look at a company’s current financial condition and their position in the industry and the stock market as a whole.

Other analysts look at how a company’s stock has performed over time and use that information as a predictor of how that stock will perform in the future.

The most accurate method is to use both of these approaches. Again, when you do this research yourself does it support or contradict the analyst’s recommendations?

Track Record

There is little point in listening to the recommendations of a stock market analyst if everything they have said in the past has turned out to be incorrect. Listen to those who have a proven track record and dump the rest.

Company Performance

It is important to know how an analyst views a company’s performance. How do they look at sales and earnings? The company’s balance sheet? Debt?

Another important consideration is the industry a company is in. If a company is doing well but the industry they are in is declining, then there is a good chance their stock value will decrease in the foreseeable future. How much information does the analyst give you about this?

Research

In order to analyse the stock market an analyst needs to do research. You should be interested in what type of research they have done and what their sources of information are.

Some sources may give misleading, inaccurate or biased information which then affects the recommendation you receive from the analyst.

Stock Peaks

If you are told that a stock is going to peak in value over the next coming months or years, be very careful about following such a recommendation.

It is very difficult to predict how a stock is going to perform in the future, so you need to be confident that they have a good reason for giving you such advice.

Biased Information

Always look out for stock market analysts who have ties to the company they are recommending, as very often the information they give will turn out to be inaccurate.