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Schwab US Broad Market ETF Message Board

  • ggray1956 ggray1956 Jul 7, 2010 5:59 PM Flag

    Schwab stock ratings?

    Is anyone perplexed at the rating system Schwab gives there stocks? I have stocks that I trade from ratings A thru F. The A rated stocks do no better than the C rated stocks. I also have a few D and F that outperform the A and B stocks. Has anyone else noticed this anomaly? I appreciate your input..thanks

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    • Schwab's ratings of most of its funds are provided by the universally respected Morningstar service, not Schwab. But Schwab provides full disclosure of how their rating system for individual stocks has panned out--simply go to the Research section of the website and look it up. Occasionally you'll see an abberation, such as D stocks doing better overall than C stocks, but for the most part Schwab's ratings are as trustworthy as anyone's. If you believe in ratings, simply go to "Find stocks" in the research section and look for the stocks that are rated highest by all of Schwab's services (Ned Davis, Reuters, Standard and Poors, etc.). You might find 40-50 "A" rated stocks by Schwab, but you'll be lucky to find a single stock that's rated a "buy" let alone an "A" from all of the advisory services. So that tells you something about the reliability of ratings. Schwab isn't God. They're just trying to give the investor as much guidance as possible. Cramer's "The Street" (found at Ameritrade) does no better. And you can find ratings on Yahoo, MSN.com, and several other financial sites.

      The problem with ratings is that in today's fast-action digital markets, all of the news is out there before it can be of much use to the average investor. With numerous traders buying and selling huge lots throughout the day, a couple of seconds can amount to ancient history. consequently, Schwab's and the other service's ratings tend to reflect a stock's past history more than its future results. By the time Schwab changes its rating of a stock from an A to a C, it's too late to do the average investor any good. but the same is true of any advisory service.

      The great mutual fund investor, Peter Lynch, was famous for visiting places, sampling the product and services, and going against the advisors. I see lots of funds loading up on CVS. Walgreen's has been a laggard for over a decade. But what I actually see at Walgreen's tells me a different story. It's a far more attractive business model and store than CVS, even though it's lost money for the investor for the past decade. But I'd buy it now--before the market mavens see fit to rate it a buy, which is too late.

      • 1 Reply to caponsacchi
      • My own view is that managing a stock portfolio is a full-time job, impossible for most investors.

        Also note the vast majority of money managers DO NOT surpass market returns over time.

        Funds seem to be the best way to go, especially unmanaged ETFs with low expense ratios. ETF's that merely track market indices are excellent choices because just matching market returns over the decades has beaten inflation by a ton- what more should you want?

        SCHB is a good pick as are many Vanguard funds. Study up on building a portfolio with unmanaged index tracking ETFs to reduce anxiety and risk and assure decent long term returns..

    • It's my understanding the ratings in part are based on performance history but also reflect risk.

      Junk bonds have produced the very high returns but have low ratings because of the risk a company will not be able to pay interest at some point. For the past 20 years or so, investors with junk bond mutual funds have made out handsomely, but as they the say, the past is no predictor of tomorrow.

      Same with stocks - undercapitalization, intense competition, litigation, failed product development, etc. can all affect an individual company. So the letter grade is just the beginning - you need to read the research report to understand the letter grade, do additional research and make up your own mind.

      • 1 Reply to vensh
      • Read the details of the four components of the Schwab rating system. You will see they are so hedged and fudged and qualified that it is of very little value, in my opnion, and is no substitute for your own intensive investigation and continual monitoring of every stock that you own.

        But because you are likely as incapable of such stock picking skills as I am, the sensible investing strategy is to create a diverse portfolio of index funds. I can’t imagine a long-term investor would need much more than SCHB, a foreign stock equity fund (maybe VEU) a US bond fund (BND)and a foreign bond fund (GIM?) to have nice returns over the decades, well in excess of bank rates and inflation.

        For the more adventurous, a portfolio of sector index funds (components of the broad market) might produce better returns through a rules-based allocation strategy.

 
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