Basking in Shame

They are the ones who have – or ought to have – their fingers on the pulse of a company they cover. Their intellect is what investors trust. They are the ones who go through a company’s business and financials with a fine tooth comb, unrelenting in their persuasion of the truth, unforgiving in their wrath when they discover a wrong. They are the High Priests for the investing fraternity. They are the Analysts.

It would be funny if it were not sad how many times this tribe has failed the world when it most needed them. A group that was tasked to lead through foresight ended up championing the hackneyed phrase that hindsight is 20/20. Time and again Financial Analysts have shown that they really do not add any more probability points for an investor who is taking aim with his dart at the universe of stocks in search of a sound investment.

Performance of Analysts in the Satyam fiasco is no different. Brokerage houses (institutions that hire the Analysts) have been almost falling over each other to shed positive light on a stock that now isn’t even worth the electricity it takes to show the blinking ticker on a trading screen. Here is a snapshot of – even I am tired of using the phrase – irrational exuberance. A collective display of irrational exuberance actually (and this is just between 01-Dec-08 to date).

High Fiving on the edge of an abyss

One thought on “Basking in Shame

  1. When an analyst limits himself to reading, hearing and interpreting the obvious, not surprisingly there will be pitfalls galore. In this context I’ll just point out two things –

    a. CRISIL (Oct 2007) pointed out that the no. of downgrades was more than the no. of ‘maintain’ or ‘upgrades’ – this fact was highlighted by them in press releases a year later (do a search on google you’ll find the quotes attributed to the MD of CRISIL about the same). I am surprised how ‘bulge bracket’ brokers, analysts and fund managers failed to ‘notice’ the same. I am sure with the money they spend on research inputs CRISIL newswires and other software is a dead given for them. MAY BE THEY DO NOT HAVE THE TIME TO READ EVRYTHING!

    b. Starting from the last quarter of 2006 (calendar) interest rates and risk weights of lending assets were being raised by the RBI to cool down price rise and contain underlying risks.

    My understanding of basic economics suggests both the above are ‘lead indicators’ for signs of trouble ahead in market valuations.

    Can we conclude then that bigger the ‘bulge’ in the compensation, the bigger is the gap between hindsight (20/20)and foresight (0/20)?

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