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  • Chocy963 Chocy963 May 17, 2006 9:27 AM Flag

    Rookie question

    I have been searching all morning for a simple answer to a basic question and have been unable to find one...

    What exactly is the difference between "outperform" and "market perform"? I understand that market perform is not as favorable, but it is still better than "hold", "underperform" and "sell". So, just how bad is market perform and why in the world do people get so freaked out because one, little-known (at least I had never even heard of Piper Jaffray) downgrades them slightly?

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    • Regarding-"Wall st. is so picky.." You are so correct. I remember when Apple had blowout earnings-but not up to the walls expectations-history breaking for Apple-stock went down.

    • pink has given a useful answer to your question already, i think. i would like to add a few comments.

      the analysts whose investment grades, such as "market perform", you get to read about, all belong to what is called the "sell side". often, they are brokerages, as well. they write their reports for their clients, for whom they act as brokers. so they have an interest in their clients making trades, because they live on the commissions. that's why you have a lot more "buy" than "sell" recommendations. during the heyday of wall street a few years ago, you could hardly ever see a "sell" put on a stock. now there a few token "sells", perhaps a few real ones, too, which you should take seriously.

      there is also the "buy side". these analysts are paid by institutional investors who can affort them (or even pay them a hefty salary) to write commissioned reports for their clients. their recommendations are not published anywhere at all. you can be sure there a lot more "sells" to be found there.

      pink is right: the changes in recommendations are more important than the rec,ommendation itself. i pay no attention to the "analyst opinions" page on yahoo at all, only at the analyst estimates page for a particular stock. that's because estimates changes are sometimes made before an opinion change, but never afterwards.

      but i feel the whole system of "market performs", "holds" etc. is useless as a tool to form an opinion. my favourite financial paper publishes these opinions not as part of editorial content, but somewhwere on the last page of "market information".

      one company, whose stock i own, puts almost all analysts' report on them on their corporate site a few weeks after they are published. comparisons render bizarre results: report A has a "buy" on the stock, but a lower target price or eps estimate than report B, which has a "hold", and this goes on and on.

      my advice: don't pay any attention to these recommendations at all unless you know what the stock price was when they were made, and why they were made.

    • Thanks for answering my question.

      Sadly I don't have any great formula for choosing stocks. But, I have done alright. I have a very small amount of money invested thru a roth ira. If I can make a few hundred dollars on each one I am happy. I have bailed out of a lot of stocks that I could have stayed in and made more. But, I have also taken what I could get and gotten out of some that later plummeted. Oh, and there is that one that it would cost me more in the transaction fee to sell than the stock is worth right now :) But, for the most part - I have come out ahead overall.

    • Market Perform means that the stock should move generally the same as the overall market. When a stock has a beta of 1 that means it moves as the market moves. So, if you think the market is undervalued and going to go up then, in theory, this stock should move up as well. Likewise if the market were to move down.

      Consequently, Market Outperform means that the analyst thinks the stock will do better (go up more) than the overall market. It does NOT mean that if the market goes down this stock will go down faster/further.

      Hold indicates that if you already own the stock it's not a bad idea to hold it since there isn't significant downside risk but also not an indication to buy it if you don't own it.

      Hope that helps.

    • Its all in the mind of the beholder. What is the difference between pretty, very pretty and beautiful?
      I think what most people react to is any change in sentiment. For example a strong sell to a hold is considered postive whereas a strong but to a hold is considered negative. But really one needs to look behind the change in sentiment and gleam out why the analyst is making the call. Irrespective, the analyst can be wrong just like anyone else, and sometimes you have the analyst for one company issuing an upgrade while another firm issues a downgrade. I personally don't suggest investing solely on analysts edicts- Often times insiders invest on analysts upgrades or downgrades before they are made public anticipating a change in price once the upgrade/downgrade is issued(even thought that's illegal) (in my opinion it still occurs). You also need to realize that the analyst is not working for you, the individual investor who may have no relation to his firm, but for the firm (and this is what has prompted all the investigations in recent years). Take this post with a grain of salt as I consider myself a rookie as well.

 
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