Wednesday, March 15, 2006

Myopic Analysts?

Should stock analysts be judged by the same criteria that they seek to judge company CEOs with? Or would that be too myopic?

Perhaps that would be unfairly demanding a higher standard than that seen in our investing society today - the ability to exhibit some patience during trying times. Seems as if our society doesn't have too much patience anymore, whether that is waiting for improvement in corporate fortunes, or waiting for our stocks to produce outperformance. And hence the unbelievable turnover in some mutual funds, as much as 75-150% annually.

According to The Seven Sins of Fund Management (warning: link is a 105 page pdf), the average holding time for an NYSE-listed stock is now just 11 months, in comparison to an average of eight years in the mid-1950s. Does anyone think that the average investor returns are significantly better due to all this frenzied trading?

In light of this, a recent news item caught my eye ...
"Turf CEOs after five poor quarters, analysts say"
According to a recent survey of 282 analysts, based in North America, Europe and Asia - conducted by Hill & Knowlton Canada - up to 52% of them will forgive poor financial performance for three quarters, but by five quarters, their collective patience has run out. After that, they say, the CEO should be replaced.

Which of course begs the question on my part - would these analysts be willing to subject themselves to the same criteria - i.e. if their "buy" picks don't outperform others in the sector over that same time frame, would they acknowledge their failings and leave?


Hey, just asking.


The Confused Capitalist

1 comment:

Ry said...

Good post. It's funny how the guys with the good 1-3 year numbers battle the guys with good 5-10 year numbers for assets. It's one thing when the marketers cut throats, another when the guys in the trenches do. Process never dies. Performance will always come and go...I guess preferably come big and go small.