Sell-Side Analyst on Fannie: A History of Being Wrong

Some of you may feel like you've been in the dark throughout this financial mess.  Many investors and members of the media are of the impression that only large institutions have an edge.  One would think that some of the largest banks in the world might have better information than the average Joe.  Earlier this year we highlighted an analyst downgrade of ABK.  That analyst rated the stock a buy throughout a 90% decline and has since dropped coverage.

This morning several other analysts changed their ratings on Freddie (FRE) and Fannie (FNM).  These analysts will go nameless, but one chart in particular is displayed below with the historical recommendations.

click to enlarge

As shown, if we had followed this analyst's recommendations we would have begun a position in FNM at $65, added to it nine times and sold it at $1.91 (being generous) on the open this morning.  One of two things is occurring, either 1) the analysts don't know how to use their tools or 2) their tools are broken. 

We are more inclined to believe the second hypothesis.

Comments

[starwonder:]

Well--Since you have the gift of perfect foresight, you should obviously be on the sell-side yourself...

2008 Sep 08 01:18 PM

[fuzzywzhe:]

Why not give us the name of the analyst? Are you worried people won't continue to take his/her advice if you do?

2008 Sep 08 01:20 PM

[Winston Smi...:]

Every scheme needs a patsy. Analysts are employed in order to fulfill that obligation.

2008 Sep 08 01:42 PM

[SilverLeaf:]

You know, what's sad? Bernanke and Paulson's calls on the economy, housing, and the markets make the fannie/freddie sell-side analysts look like geniuses...you know what's even worse? They have authority! (I'll grant you that Bernanke and Paulson are doing their best, are in a very tough position, and I honestly don't know of anyone who could've done a better job). Having said, I repeat: Bernanke and Paulson (and the government) truly make sell-side analysts shine in comparison.

2008 Sep 08 01:48 PM

[otbricki:]

I like phrase "do not attribute malice where stupidity will do". So I will suggest that analysts are stupid until proven malicious in a court of law (which does happen now and then).

As to the bottom line, it doesn't matter. You have to do your own research.

2008 Sep 08 01:54 PM

[Chemist29:]

Does the carpenter blame his hammer? The tools aren't broken.

2008 Sep 08 01:56 PM

[buysider:]

years ago the good folks at the Value Line Investment Survey added technical analysis to their fundamental approach to securities prognostication. And guess what? They found that paying some attention to technical aspects of the securities pricing helped them ( Value Line) make better forecasts.

Many fundamental analysts pay attention to technical characteristics of securities they follow. If the analyst(s) who rated FNM a buy all the way down paid any attention to technical aspects they probably would have been a little more circumspect in their recommendations.

I am NOT saying that technical analysis is the be all and end all- hardly-it is just another tool to use in evaluating the overall risk reward when investing

2008 Sep 08 02:26 PM

[Jolly_Rancher:]

Since it looks like ABK bottomed and had been removed from coverage, are you maybe suggesting FNM is a buy. In other words, do the opposite of the analysts.

2008 Sep 08 05:32 PM

[liack:]

i'm with "NationalizeEverything... the analyst is just the patsy, or salesperson to get the money out of retail investors

2008 Sep 08 06:24 PM

[madasiwannabe:]

Most of these guys are highly successful bulls trying to survive in a bear market. It's a whole different way of looking at rallies and dips.

Analysis of yesterday is always much more accurate than the analysis of tomorrow.

2008 Sep 08 09:05 PM

[Steven Hansen:]

how can you do an analysis when the data you need to make the analysis is hidden? you cannot believe any technical analysis especially financials.

2008 Sep 09 12:19 AM