Who’s the Best Stock Market Analyst?
By Dr. Steve Sjuggerud, President, Investment U
Monday, May 12, 2003: Issue #238
“We’re not interested in your little $50 million dollars anymore.”
I couldn’t believe it – they didn’t want my business. That’s what Citibank told me about eight years ago. At that time, I was the Vice President of a global closed-end fund. We had to find somewhere else to go with our $50 million.
You’d think that $50 million would get you somewhere on Wall Street. But there are still many locked doors – doors only reserved for some level much higher than our measly $50 million. Names at this level include Goldman Sachs and JP Morgan, where you can only get their research if you’re a client. And you can only be a client if you have more money than most small countries.So I have to be honest here. I smiled a big smile this morning when I read the Wall Street Journal’s “Best on the Street” survey, where the Journal set out to find the best analysts in the business. I smiled because Goldman and JP Morgan did horribly. Judging by the Wall Street Journal’s study, their research is far from “priceless” – it’s practically worthless
The Journal exhaustively examined the stock recommendations of 77 brokerage firms and 1,400 analysts. The big winner – the firm with the best analyst recommendations – was not a Wall Street brokerage firm at all it was the independent analysts at Standard & Poors. It may be no accident that S&P has no brokerage/investment-banking conflicts of interest with its stock research. It just does analysis and sells it.
S&P had the best batting average by far among the firms with more than a handful of analysts. Out of S&P’s 34 “eligible” analysts (according to the Wall Street Journal’s criteria), an astounding 14 of them won awards as best analyst in their respective sector – for a batting average of .470.
The best “big” brokerage firm, by far, was Morgan Stanley. But it wasn’t close to S&P in its batting average. At “only” .370, basically one in three of its eligible analysts won his or her respective category. That’s still pretty darn good – 20 out of the 54 eligible were the best in their fields.
Exclusivity Doesn’t Pay
So now consider the exclusive guys – Goldman and JP Morgan. I don’t think they could have performed any worse
Only three of JP Morgan’s 48 eligible analysts won their categories. And Goldman wasn’t much better, with four out of 51. In both cases, that’s a batting average of less than .100. If this were really baseball, Goldman and JP Morgan would be immediately “demoted” to the minor leagues. No, actually those batting averages are so abysmal, they would probably be drummed out of baseball altogether.
If this study by the Wall Street Journal about stock analysts shows anything, it shows that exclusivity doesn’t pay.
How To Get The Best Research – Cheaply or Even Free
Standard & Poor’s really proved itself this year, the first time I’ve seen it in such a “contest.” And their research is cheap. At most, it’s $35 per stock report on Yahoo (you may even find it for free at your local library).
In addition to S&P, there are two other sources of good independent research covering tons of stocks. First is the Value Line Investment Survey, which is also available for free at every library I’ve ever been to. Quoting Value Line’s web site, “A stock portfolio of #1 Ranked stocks beginning in 1965 and updated at the beginning of each year, would have shown a gain of 12,505% through December 31, 2002. That compares with a gain of 815% in the Dow Jones Industrial Average over the same period. Value Line’s #1 ranked stocks outperformed the Dow by over 15 to 1.”
Second is Morningstar – I use this one sometimes too. There is an amazing amount of free information and tools here. Beyond the free stuff, I think the pay section of the web site is well worth the $109 a year as well. Morningstar offers a 14-day free trial, which is worth looking into. (Neither Value Line nor Morningstar were a part of the Wall Street Journal’s study.)
Cheers to the analysts at S&P. And jeers to the hotshots at Goldman Sachs and JP Morgan – glad I never knew ya.
It’s nice to be reminded of what we already know deep down – that honest hard work (with a little luck) is where profitable ideas come from – not exclusivity and self-dealing.
Good investing,
Steve
Today’s Investment U Crib Sheet
- You can try out some of Value Line’s and Morningstar’s excellent independent stock research products at www.ValueLine.com and www.morningstar.com, respectively. I consult both now and again.
Related Investment U Articles:
- $600 Apple (Nasdaq: AAPL) Stock?
- Express Scripts Expansion
- The Great Minds of the Market: Charles Dow
- Investing in Secondary Markets
- Three Formulas for Finding Value Stocks
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