The lowdown on analysis

Andrew Leckey

September 25, 1991|By Andrew Leckey | Andrew Leckey,Tribune Media

I consult dozens of analysts each week.

Unfortunately, my sessions with these helpful professionals are concerned with investment psychology rather than my mental well-being.

Despite the wide dissemination of their words, financial analysts are generally misunderstood by most investors.

Their recommendations to "buy," "sell" or "hold" stocks are either admired or criticized, depending on who's considering them and what results those choices bring.

Financial analysts basically do research, run all the numbers, interview company executives, take a stab at economic projection and make recommendations based on their gut-level instincts.

It's not an exact or totally logical science, particularly in this current period in which the finish line for recession remains hazy. Various analysts disagree on specific stocks for a variety of seemingly valid reasons.

Their research determines stock portfolios of individuals, mutual funds and pension funds. Columns quote them, trying to choose those with the best reputations or strongest background in a firm.

There can be intense pressure on analysts, especially with so many companies serving up unwanted surprises about profits and growth projections. The stockbrokers who follow their recommendations and the investors who buy or sell stocks based upon them understandably expect results.

Throw away any preconceived notions about financial analysts. They represent every personality type, some bookish, others gregarious. Their accents range from Brooklyn to New Delhi and everywhere in between. They talk either of decades, or mere months, on the job. Some relax in posh offices, while others are crammed into tiny coffee-stained cubicles. Some write well, others don't.

About half the securities industry analysts have master's degrees or better and 15 percent are women. Many have earned the certified financial analyst (CFA) designation, completing a three-year study and test certification program.

Most with experience can receive $90,000 to $100,000 annually in salaries and incentives, and real stars can make $1 million or more.

What matters most, of course, is how often they are right. An urbane, well-written forecast about the future of a stock is useless if proven wrong. Analysts who are wrong most of the time aren't analysts for the long haul.

Not all recommendations about the stock of companies are positive. This triggers unhappy responses from some companies, though most roll with the punches so long as the logic was clearly spelled out.

Pressure takes many forms. For example, Marvin Roffman, a casino analyst for the Philadelphia-based Janney Montgomery Scott Inc. brokerage firm, won a hefty settlement because he was dismissed after Donald Trump threatened to sue the firm over negative comments. The insightful Roffman had been critical of prospects for Trump's Taj Mahal casino in Atlantic City.

Never invest in anything, and a stock in particular, if you don't understand the basic logic behind it and generally agree with it. In the long run, you're responsible for your investment portfolio.

The buck stops with you, not a financial analyst on Wall Street.

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