Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

sell signal

Why Wall Street Analysts Almost Never Recommend Selling

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Have you ever found it curious that Wall Street analysts almost never recommend selling any stocks? It seems like even the stocks that analysts are lukewarm on get a “hold” rating most of the time. So why is this the case? Tom and Brendan discuss that in this video from Mullooly Asset Management. They begin by discussing a recent article titled, “Why Wall Street Couldn’t Say Sell on Blackberry“. The article contains some interesting numbers that Tom and Brendan dissect a little bit to reveal some alarming statistics. You need to hear these numbers if you’ve ever trusted a Wall Street analyst’s recommendations before.

The truth of the matter is that Wall Street Analysts almost never recommend selling stocks because they get paid to write buy recommendations. Many big Wall Street firms would never write a sell recommendation about a stock because they fear they’ll lose investment banking revenue if they do. That’s why so many stocks receive “hold” ratings when they should really be receiving “sell” ratings.

Make sure you watch the video so you don’t miss any of this information!

Why Wall Street Rarely Says Sell

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Wall Street analysts have a lot of different ratings for stocks. In this week’s podcast Tom and Brendan take a look at why Wall Street rarely says sell. The conversation mainly revolves around a recent article found on MarketWatch, which you can find here. The article contains buy-sell-hold ratings from Sam Stovall, who is the Chief Equity Strategist at S&P Capital IQ. The data compiled contains over 11,000 individual ratings for the companies in the S&P 500 from Wall Street firms.

The alarming thing about the statistics contained in the article is that 93.5% of the ratings were “hold” or higher. The scale used contains five categories strong buy, buy, hold, weak hold, and sell. So that means only 2.2% of the ratings are a “sell”, and 4.3% of the ratings are a “weak hold”. You can clearly see from that data that Wall Street rarely says sell. In this case, they say sell just 2.2% of the time.

Wall Street Rarely Says Sell

So why does that alarm us here at Mullooly Asset Management? Tom and Brendan explain. When we look at a stock we like to make sure it is what we consider technically sound. To do this we use the Dorsey Wright and Associates rankings. Using these rankings, we found that 45% of the stocks analyzed have poor technical scores. Technical scores measure relative strength, a topic we have discussed here on the website quite a bit.

Tom and Brendan go over a recent example of a stock that Wall Street would simply not give up on. Despite having a poor technical score, analysts couldn’t seem to say sell on Blackberry. Back in March 2011, Blackberry violated its bullish support line at $57 a share. In October 2013, it is trading around $8 a share. Other similar examples include the likes of Enron, AIG, and AOL. Wall Street rarely says sell, and they continued giving buy recommendations on these stocks after they broke their support lines.

So Wall Street rarely says sell, but why? Wall Street firms used to make money from clients buying and selling stocks, however that isn’t really the case anymore. Now they make more money from investment banking activities. It would be pretty tough for investment banking firms to gain clients if their analysts bashed too many stocks with “sell” ratings.

Point and Figure Charting: Not Just For Stocks

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Point and Figure Charting is not simply for stocks, mutual funds or exchange-traded funds. Of course, if you have an investment in your 401k or your retirement account at work, we would be happy to analyze the funds and investments in your account for you. But we can analyze so many other topics, for example housing starts or buy and sell signals. In this video, we examine the point and figure charting  for XHB, the S&P Homebuilders Index, along with the history (and chart patterns) of Housing Starts in the United States, going back over twenty-five years.

You have heard me say before, past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

 

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Relative Strength: The Basics

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Relative Strength is possibly the single best approach to keep tabs on winners and losers in the stock market. How do you know if your investment is merely taking a breather or pulling back — or how do you know if this is the start of a freefall off a cliff? Relative Strength, along with point and figure charts, can often hold the keys.

Charts with Relative Strength BUY signals tend to:
Go UP FASTER than the rest of the market
— and tends to go DOWN SLOWER than the rest of the market.

Charts with Relative Strength SELL Signals tend to:
Go UP SLOWER than the rest of the market
— but tends to go DOWN FASTER than the rest of the market

We say “tends to” because it is not a RULE, but we often see tendencies in these patterns.

For more information about point and figure charts, feel free to call us!  A change in relative strength is a VERY big deal. But I would also add the following: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Point and Figure Videos: start here

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If you are looking to learn the BASICS of Point & Figure Charting, you should start with this short video here. The point and figure video is only a few minutes long and covers the basics of how point and figure charts began, what these charts can (and cannot) do. I would also add the following:

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

 

The next video to follow up is Point and Figure Charting Vol 1.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Point and Figure Charts May Disagree With Experts On Stocks

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Lately, I’ve been getting calls from some folks who are asking questions like:

“Why didn’t we buy GE at $7?”
“Why didn’t we buy Citibank at practically zero?”
“Why didn’t we…blah blah blah…”

Many of these same folks were screaming “Make it stop!  Make it STOP!” only a few months (and in some cases, just a few WEEKS) before.

Human behavior is a great source for comedy routines.
Look, many people in my line of work want to over-complicate this stuff.  They want to talk over your head and use jargon to confuse you, and perpetuate their existence.  I know, they send “fan mail” to me all time.

Basics.  Just basics.  Look at pictures.  I use point and figure charts to help manage your money. I would like to acknowledge the use of these charts from Stockcharts.com.  You can check them out here.

Would you buy anything that had a pattern like this?   Now, before you answer, scroll down a little and look at the second chart (below).

Would you buy this pattern?

You know this company.  They “bring good things to light…”

The only time I would think about buying a pattern like this would be if it were incorporating writing (selling) covered calls against the stock.  Otherwise, yecchhh…
That’s just way too much risk for me.  Do me a favor.

Read the next line carefully:

The definition of RISK, as a verb, is “to act in spite of the possibility of injury or loss.”

I don’t know about you, but that first chart looks like risk to me.  Take a look at the next chart.

Amazing? NO, AMZN (Amazon)

The picture is heading in a completely different direction than the first picture.  Yes, it is heading up!

OK.  But you say…

“I don’t buy stocks.  I only invest in mutual funds.”

Or, perhaps you are saying…

“I only have 12 different mutual funds to choose from in my 401k plan at work.”

Charts are charts.   It really doesn’t matter if we are looking at a chart of a mutual fund, a stock, or the price of gasoline. I look at the charts in your 401k plan on a continuous basis. If none of the charts are going up, here is our plan: we stay on the sidelines.  Pretty simple.  No need to be a hero.  This is money you will have to LIVE on some day.  (You’re not counting on social security, are you?)

Today’s Lesson: Buy things that are going up.

That’s an important lesson!   And a lesson MOST people overlook, or forget.
So, good job.
Now take the rest of the day off.