Analysts: The Captain Hindsights of Wall Street

captain-hindsight-flyingCould there be anything more irritating while you’re hemorrhaging money than to be lectured ex post facto on the “obvious-to-everyone-but-you” trends and directions of stock prices by hyper-insulated, highly-compensated financial experts? Like Captain Hindsight of “South Park” fame who zooms in to tell victims of tragedy about all the things that could have been done to save them, the analysts from esteemed houses of finance like Merrill Lynch, Morgan Stanley, Deutsche Bank and Cantor Fitzgerald have the rare quality of predicting the future mere moments after it’s already happened.

Time and again, analysts who cover publicly traded companies critique strategies, question decisions, scold or exalt executive leaders, dissect competitive threats and – finally – issue forecasts for a variety of valuable statistics like revenues, earnings, free cash flow, and, most-importantly, the long-range future price of a share of stock. That they can do this separates them from the mere mortals who slave away in pedestrian jobs at those same companies they cover. How they do this is the basis for their enormous compensation, and for the cloying deference they receive from investors.

Why they aren’t vilified more for their rank charlatanism is beyond me.

After grinding through a company’s quarterly reports, SEC filings, and public pronouncements (and maybe some insider poop), these analysts conjure up all sorts of rationale for establishing a stock price forecast and a recommendation on whether to buy, hold or sell. Tough stuff . . . the funny thing, though, is that fairly often the analyst will adjust a share price forecast just moments after the stock has already made a significant move – that is, after investors have observed the move for themselves, and cannot take advantage of the analyst’s “foresight.”

Consider a couple analysts who cover IBM: Wamsi Mohan of Merrill Lynch, and Sherri Scribner of Deutsche Bank. Each covers IBM and writes regularly about the company’s financials. Mohan is ranked #1310 and Scribner is ranked #2,483 out of 3,858 analysts by TipRanks – which raises the question: does the world really need 3,858 analysts?

Anyway, IBM stock recently slipped yet again from about $150 to $140 a share in a single day, and the analysts’ sharp knives were out for blood (the stock is now at $135). Marketwatch published a story on October 20 – the same day the stock lost 6 percent overnight – titled “IBM is shrinking, and the future looks ugly” in which the prescient Sherri Scribner announced new, lowered stock price futures. According to Marketwatch, Scribner “lowered her price on IBM’s stock to $150 from $160 and reiterated a hold rating, citing currency headwinds that she expects will pressure IBM’s growth in fiscal-year 2016.” Wow – the stock tanked to $140, dribbled further to $135, and “Carnak” Scribner readied everyone to hold on for a wild ride down to $150.

Check out the recent history of prognostication from Mohan and Scribner below.

Mohan

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This is not an indictment of Scribner and Mohan in particular, but rather an illustration of the fanciful world in which financial analysts ply their trade. A world – not unlike those inhabited by political pundits – where every prediction is somehow contorted to match reality. A place to avoid if you’re serious about investing to make money.

RIP Gunnar Hansen

The man who played the sinister Leatherface with grace and aplomb in Tobe Hooper’s seminal “Texas Chain Saw Massacre” died the other day at 68. Gunnar Hansen got the job because he fit the director’s vision of a big, imposing figure who could effortlessly wield a chain saw and hoist a panicked girl onto a meat-hook with authority.

More interested in screenwriting than acting, and concerned about being typecast as the maniac killer in horror movies, Hansen nonetheless took additional roles in the same genre as Leatherface – perhaps an indication of the difficulty of making a career out of writing movie scripts.

It’s been told that the Leatherface character was inspired by real-life psycho Ed Gein who murdered women and robbed graves in rural Wisconsin, collected female body parts, and fashioned wearable items from human skin. But whereas Gein was a wisp of a man who operated quietly out of sight, Hansen’s Leatherface was a hulking monster who brandished a noisy chain saw – perhaps one of the most feared weapons for its power to sever limbs without pity.

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I re-watched the movie in the past year and was struck by how tame it seems now compared to the highly-convincing special effects of today’s horror film industry. And in this light, it’s more evident that most of the shock and fear imposed on the audience was due to Hansen’s relentless and pitiless pursuit of the teenagers who stumbled upon his lair. Truly a classic character who ranks right up there with Freddie Kruger, “Halloween’s” Michael Myers, Pinhead, and Jason Voorhees of the “Friday the 13th” franchise.

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