Analyst? With credibility? Ha ha...

I have nothing against research analysts. I have quite a few friends who are research analysts with respected fund houses. A few are very good and I respect their views. However, I would never ever want to become a stock analyst. A vast majority of these guys have no credibility. I would strongly advise the retail investor to strongly disregard analyst views and NEVER ever buy based on analyst recommendations. Trust me - my job gives me access to all the reports ever published, and I read quite a few of them (for a few laughs, and mostly during leisure time).

Sample this. I choose this at random - this is, in my view, a representative example of what analyst views are worth. Disclaimer: I do not have anything against these particular fund houses, just used here as examples. All of them are as good or as bad. Take a sugar company called Shree Renuka Sugars ('SRS'). The business is cyclic, and totally commoditized. Everyone knows that commodity cycles turn with great regularity. If sugar is scarce today, it will be in plenty tomorrow (and vice versa).

In a report dated Jan 18, 2010, Morgan Stanley recommended Overweight on SRS, with a target price of INR 125 (adjusted for bonus). In a short period of 3 months, the price target was reduced to INR 70 (or a downward movement of 45%). This was primarily because the stock corrected by approx 45% during this period! The world did not change in this 3 month period, and the outlook on sugar should have been known as recently as 3 months before!

Ditto Merrill Lynch. As recently as Feb 11, they said BUY with a price target of INR 173. In 2 months, the price target suddenly became INR 80 (or 50% of the one before). Talk about volatility!

Or Credit Suisse. They take the cake. They went from INR 128 to INR 58 in a similar period of time.

Credibility, anyone?? Why should anyone believe these jokers? It is not my case to trivialize the important work analysts do. However, there is something called perspective! And something called balance. And foresight. Just moving target prices around because the stock moves in that direction does not a credible analyst make! When will this change. Dot-com, Enron, Lehman - nothing has changed analyst behaviour so far. I wonder what will!