Analyst Independance
Downgrade Warning
A) Analyst independence is the ability of equity research analysts to provide its customers with fair and accurate opinions about the health of a given company or predictions about its future share price performance without fear of reprisal from the companies which they are grading. Many analysts are afraid to produce negative reports about companies because the companies may retaliate by not including their firm in potentially lucrative offerings. Maintaining a buy rating on stock after it has fallen is not in it and of itself a sign that an analysts independence has been compromised. If an analysts strongly believes that a firms underlying fundamentals are good and expects its share price to rebound, then there is nothing wrong with maintaining a buy rating on a stock whos share price is fallen., In fact the analyst may argue that it is an even better time to accumulate shares, as the stock may be cheap relative to its earnings or its peers. Analysts who recommend tech stocks of the broader market do not necessarily lack independence. In spite of the recent market volatility as well as the tech stock crash of the early 2000’s, conventional investment wisdom still recommends investing in the stock market and tech stocks. However most analysts are eternal optimists (after all people want to believe there is always a bull market because most people are long the stock market) and therefore one should take any research analysis with a grain of salt.
B) Peter Houghton’s memo basically states that if an analyst is thinking about downgrading a companies stock he must first notify the company so that they can try to convince them to reconsider. This of course opens the door for the company to try to strong arm the analyst into not downgrading its shares. Practically speaking it doesent make any difference weather they are making factual changes or are being coerced. Letting the
A) Analyst independence is the ability of equity research analysts to provide its customers with fair and accurate opinions about the health of a given company or predictions about its future share price performance without fear of reprisal from the companies which they are grading. Many analysts are afraid to produce negative reports about companies because the companies may retaliate by not including their firm in potentially lucrative offerings. Maintaining a buy rating on stock after it has fallen is not in it and of itself a sign that an analysts independence has been compromised. If an analysts strongly believes that a firms underlying fundamentals are good and expects its share price to rebound, then there is nothing wrong with maintaining a buy rating on a stock whos share price is fallen., In fact the analyst may argue that it is an even better time to accumulate shares, as the stock may be cheap relative to its earnings or its peers. Analysts who recommend tech stocks of the broader market do not necessarily lack independence. In spite of the recent market volatility as well as the tech stock crash of the early 2000’s, conventional investment wisdom still recommends investing in the stock market and tech stocks. However most analysts are eternal optimists (after all people want to believe there is always a bull market because most people are long the stock market) and therefore one should take any research analysis with a grain of salt.
B) Peter Houghton’s memo basically states that if an analyst is thinking about downgrading a companies stock he must first notify the company so that they can try to convince them to reconsider. This of course opens the door for the company to try to strong arm the analyst into not downgrading its shares. Practically speaking it doesent make any difference weather they are making factual changes or are being coerced. Letting the