Here’s a three paragraph taste from that article and Barrons.
“Sell-side ratings are mostly useless,” wrote Trivariate Research founder, and former Morgan Stanley chief U.S. equity strategist Adam Parker in a Friday report. Sell-side refers to analyst firms on Wall Street that “sell” research to the buy-side—mainly large institutions that manage trillions of dollars.
That’s quite a statement from Parker. To justify it, he looked at stock returns for the past 25 years and found that the best returns were concentrated in the least-loved stocks. Still, that doesn’t mean investors should pile into the least-loved stocks and wait, he added. It just means that buying up the best-loved stocks on Wall Street isn’t a great idea.
One reason investors can’t overreact to any one signal or research observation is that things change—a lot. There are regulatory changes that upend Wall Street, such as Reg FD, or regulation fair disclosure, implemented in the aftermath of the dot.com bubble that stopped companies from selectively disclosing information to analysts and large shareholders. There are also hosts of investors looking for an edge who will arbitrage gains from any new informational signal.
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