The FT said today that research analysts' buy or sell recommendations have almost no effect on a stock's price. Investment banks have been forced to provide independent research to their clients for the last five years. This was because regulators suspected the banks were too closely linking recommendations with other, more lucrative deals they were working with the same companies they were recommending. (Remember, they rarely advised selling anything until last year when the manure hit the proverbial fan.) This research pact is about to end, but as the U. Pittsburgh and Tulane study showed there is little to fear. Analysts' recommendations only impacted prices by about 0.03 percent either way.
I have said before that sentiment is running the markets. Therefore it is more important to know what the masses think than what a company's current P/E ratio is. There is a service gaining momentum out there called the Trade Ideas Monitor from technology company youDevise. TIM is technology that enables institutional brokers to send trading ideas to their customers. Then it tells us what they did. Given these brokers and their clients - hedge funds, funds, asset managers - are pretty big fish, what they do tends to move markets. In the past few weeks the brokers have been advising their clients to take their profits and run. Last week the stock markets tumbled. I think I'll stick to TIM and let everyone else look at traditional research.