Understanding Stocks

WHAT I REALLY THINK ABOUT THE STOCK MARKET 185
buy is like issuing a sell recommendation.) Other analysts criticized
Kumar’s rating and considered the price drop to be a buying
opportunity. They were wrong.
Another reputable stock analyst, Dan Niles, turned negative
on the telecommunication stocks he was covering. As it turned
out, even the public didn’t want to listen. It was reported that he
received hate mail and threats as he candidly analyzed the telecom
sector. On the other hand, dozens more analysts took advantage
of investors’ greed by making outrageous price calls based
on nothing more than pie-in-the-sky stories and ridiculous valuations.
If you looked at the fundamentals of many of these companies,
it was quite clear that they weren’t going to be making
money anytime soon, if ever.
Although it is too late for those who got talked into buying
many of the Internet stocks at the top, there are many lessons to
be learned from the games analysts play. If you are going to
invest in the stock market, it is essential that you understand how
upgrades and downgrades influence a stock, and that you learn
about the incestuous relationship that analysts have with the
investment banking divisions of the brokerage companies.
The SEC has talked about eliminating the conflict of interest
that exists between investment bankers and the analysts in the
research department. Until the system is changed, however, you
can’t trust what analysts or their research departments say about
stocks.
Conclusion
Before you attempt to buy your first stock, be aware that you are entering
a battlefield populated by sharks that want your money. If you are
going to invest in the market, you must fight them with knowledge (a
very effective shark repellant). If you aren’t willing to do your own
homework (independently do research on companies and stocks) and