To buy, sell or hold? That is the question

much attention to analysts’ views, but it does, and especially so at reporting time.

We saw the Apple share price weaken before its recent profit result because one analyst downgraded the stock from ‘‘outperform’’ to ‘‘neutral’’ – that is, even though, according to Thompson Reuters, 18 Wall Street analysts rated Apple a ‘‘strong buy’’ and 26 of 57 analysts covering the stock thought it was a ‘‘buy’’. Only two analysts rated the stock as ‘‘underperform’’, one as a ‘‘sell’’ and 10 had ‘‘hold or neutral’’ (see page 16).

One of the problems with analysts’ recommendations is that the reason for downgrades often has nothing to do with the underlying company, its structure or its management.

It can be just that the analyst thinks the share price has run ahead of itself and may be ahead of his target price which, as we have already discussed, is not a particularly useful yardstick.

The other complication is that often analyst recommendations are written more for institutional investors, who shift their portfolios around regularly, rather than for retail investors, who may not want to or be able to juggle their portfolios daily.

So how should we sift through the myriad analyst recommendations? Unfortunately there is no straightforward answer, and there is no such thing as consensus.

For all the market’s nous and sophisticated technology, subjectivity reigns supreme, and for every positive view, there is often a contradicting negative one.

While ignorance is never a recommended investment strategy, when it comes to acting on changing analysts’ views, there is something to be said for counting to 10, making a coffee and following one’s own counsel.