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ProActiveFinancialPlanning.com |
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The Financial Planning Center Comprehensive Financial Planning
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How to Manage Your Investment Risk |
Common Investment Mistakes or Poor Investment Decisions?
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Common Investment Mistakes or Poor Investment Decisions?
Diversification vs. Asset Allocation-Managing Investment Risk Hope for the Best but Plan for the Worst Summary |
How credible are analysts’ recommendations? Are your current investments housed with large broker/dealers that simultaneously engage in the business of retail and underwriting? There may be a conflict of interest. Many investors rely on research reports generated from these analysts to make their buy and sell decisions. In the late ‘90s, analysts from major brokerage firms were recommending dot-com companies with astronomical price targets. When the market peaked in March 2000, it wasn’t until these high-flying stocks were nearly worthless before the analyst changed their recommendations to sell. Apparently, analysts whose firms engage in underwriting tend to be overly optimistic and will avoid placing a sell recommendation in order not to jeopardize future underwriting business for the benefit of their firm. Unfortunately, this comes at the expense of the investor. The New York State attorney general's office has announced that Merrill Lynch & Co. will pay a $100 million civil penalty to settle charges the company misled investors with "tainted" stock research. …penalty would be paid…as a statement that they indeed have done wrong." (NY Times, 5/21/02). Does your broker make recommendations to you based on their analysts’ recommendations? Is the broker’s firm engaged in underwriting? Analyst research can be an excellent source of information, but be aware of the conflict of interest if it exists. This module is available by email in a seven-page, printable version upon request. Contact ProActive Financial Planning to Request. |
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