Why Share Broker And Analysts Recommendations May Not Always Be The Best?

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You can begin your day early morning by switching on the television and listening to broker recommendations or surfing websites that offer tips, equity research analysis and yet go horribly wrong after buying into some of these stocks.

 Why Share Broker And Analysts Recommendations May Not Always Be The Best?
During the heydays of 2008 many investors listening to brokers and analysts on television bought some infra company stocks, real estate stocks and metal stocks which they are holding with losses even after 7 long years.

It's not as if they always go wrong, but the fact is there is a bright chance of going wrong.

Brokers have to keep churning out research reports

To stay ahead in the broking business which has cut throat competition, brokers have to keep coming up with research reports and recommendations. They might do a good job, but, the business environment is so uncertain, you might end-up losing money.

For example, in 2008 it was believed that telecom stocks would soar, because of huge demand. Analysts who recommended telecom stocks are today saying that telecom companies have high debts on their books, there is cut throat competition and spectrum auction payments are way too high.

An top brokerage form was always bullish on a large steel company and kept recommending the same. Suddenly, iron ore mining was banned and the stock plummetted.

The problem at the moment is that the business environment is so uncertain, you are not sure what to recommend. A year back everybody was suggesting buying Wockhardt, suddenly there was US FDA worries and the stock crashed.

So what should investors do?

The best way to make money is to do it the safe way. If you look at the portfolio of mutual funds, the buying is centered around IT and Banking. On the other hand in the portfolio of foreign funds it is around healthcare and FMCG.

The reason for this is that most of the above sectors are shock proof, particularly FMCG. Even while buying into these stocks seek expert help of people who do not have vested interest. Just because an analyst is recommending does not mean you go ahead and buy.

We suggest that you read the article on How To Buy A Value Stock after you have identified a stock and see that it meets the criteria.


Read more about: stocks tips
Story first published: Thursday, May 28, 2015, 8:54 [IST]
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