No. of Recommendations: 1

Interesting stuff. I'm not sure this is a point for index funds, but it's certainly a point against analyst recommendations.

I was reading an interview recently with a Schwab manager trying to explain away the fact that their "F" rated stocks had outperformed their "A" list last year. His excuse was, "No matter how our A stocks performed you should still own them since they're safer investments."

What he didn't get was that efficient markets price this stuff in, so the investor gets stocks with worse fundaments at a discount. (Schwab rates companies based on fundamentals)

Investment banks rate stocks mainly to induce institutional clients to do banking or trading with them. They aren't paid by, and few even track, subsequent performance.

WEB has a great quote, something like: "When you see an analyst rating, do one thing- laugh!"

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