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OTHER INVESTOR
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In a very short-lived discussion this week (12/9) between David Faber and Becky Quick of CNBC, an interesting story arose regarding analyst upgrades and downgrades.
It turns out that Goldman Sachs analyst Laura Conigliaro raised her rating on EMC Corporation's stock to "outperform" from "in-line". Everything seems routine so far, however, at Goldman Sachs there is a new 'for every action there must be an equal and opposite reaction' when it comes to upgrades and downgrades. This 'policy', which I have never even heard rumors of, is unknown to the main street individual investor. It apparently mandates that a certain percentage of downgrades must be maintained for a certain percentage of upgrades within each sector of coverage. So while EMC gets the accolades and the upgrade, another stock must now suffer the downgrade. In this case Brocade received the downgrade from "outperform" to "in-line".
There were no outstanding fundamental reasoning's involved, no reports of sales lacking or a poor annual outlook, just that another company in that particular sector had to be downgraded to maintain an equal (or mandated) upgrade percentage ratio. (Faber went on to say he had 'heard' of such a thing (a required percentage balance), but had never seen it in writing before.)
So let me get this straight. A few years back there were too many buy recommendations on stocks from analysts. Then there were the misleading and 'influenced' recommendations on stocks. And now we have the 'current balancing act policy' recommendations based on really nothing at all? Again, my confidence in the analyst's data, markets and media is overflowing. I mean, how else can I feel except all warm and fuzzy inside?
Why bring the media into this? Because of their complete lack of attention to this story. Also because the individual investor is being provided a 'downgrade' to a stock without sufficient supporting evidence or reasoning. Yahoo finance just lists BRCD as a 'downgrade', and there are absolutely no news stories (anywhere) to explain why. As a shareholder all you know is that something 'may' be wrong. Rest assured, there is nothing reported on Brocade at this point indicating a problem let alone an actual reason for a downgrade. The only problem comes from Goldman and other like firms that continue to mislead you in now an entirely new manner.
So now that most(?) firms like Goldman have this balancing policy, how do we know what is based on corporate fundamentals and what is simply based on balance policy? You don't know, and you won't know unless the analyst specifically states it in his/her report, and you happen to have access to those reports. Oh, that's right, you don't have access to those reports. Sorry. But this balancing policy is in place to help you, the individual investor, avoid the pitfalls of too many buy signals from over zealous analysts, right? Geez, a few more policies like this and maybe we can all lose the rest of our retirement monies.
I've contacted both Goldman and Brocade and have yet to hear back from either. I've also dropped Becky Quick an email (she has asked us for data before) and hope to hear back with more specifics on the wording from the report and policy in place at Goldman. If anyone out there has this analysts report, could you cut and paste the part in regard to the reasoning behind the Brocade downgrade and send it to us. It would be appreciated.
And finally, as if scripted (or setup possibly in some back alley pay off?), just two days after the Goldman downgrade, Merrill Lynch upgraded its rating on Brocade to neutral from sell, citing "valuation" as well as "the potential for operating margin expansion next year, and Cisco not being as successful so far as we had thought for Brocade."
If we haven't made our point to you yet that analysts are still as meaningless as ever, and absolutely nothing has changed with their self serving direction, we hope that this would finally convince you.
You can't rely on insiders and politicians to help protect you from atrocities that are now a common occurrence on Wall Street. These events are orchestrated and the people being hurt the most are individual investors. The Wall Street 'administration' hasn't changed, the SEC has yet to protect or reimburse you, and the media tows the party line.
You can, however, make sure your voice is heard. Don't hesitate to send an email, a letter, or even make a phone call. The education you can gain with these simple acts will pay off in the long run. And sitting on your hands and doing nothing? Well, we'd have to say you get what you deserve.
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