Sell Side Analysts Are Chasing

As investors we all have that herding mentality. It's perfectly natural.

We've thrived as a species for many reasons, but one of them certainly being our ability to stick together and work together.

Our ancestors used this to fight off neighboring tribes or wild animals.

But we don't have those problems these days.

Our brains, however, are hard-wired to think this way.

As investors, it's our job to recognize these natural emotions and not allow them to impact our portfolio decisions.

But the wall street analysts have it way worse.

They have their career risk that the rest of us never have to worry about.

Think about it. If there are 30 wall street analysts that cover a stock, let's say, and 29 of them are bullish, are you going to be the one guy who is bearish?

If you are, YOU BETTER BE RIGHT!

Otherwise, you'll be looking for a new job soon.

Is that worth risking little Timmy's private school tuition, nice vacations and pretty jewelry for wife Margaret?

We have the data. The answer is no.

"If I'm going to be wrong, it's ok because all the others are wrong too".

It's not worth going out on the limb. It's better to just stick together.

And so when prices are moving away from the herd, the revisions follow.

This happens in both directions.

In bear markets, the analysts are historically way too bullish and have to keep lowering their targets.

In bull markets, like we're seeing now, analysts are raising in unison.

It's a beautiful dance we like to observe to help confirm the type of market envinrmnet we're in.

Sell side analysts on the wrong side, and coming into the year way too pessimistic, just confirms all the other stuff we've been seeing.

Further sell side revisions to the upside would be consistent moving forward with rising stock prices.

Humans behaving like humans.

It's perfectly normal.

But it's our job as investors to exploit their flaws and vulnerabilities for our own profits.

That's capitalism.

And I love it.

- JC