By Spencer Jakab

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Stock analysts' favorite line may no longer be "great quarter, guys," given all the attention it got-including an academic study.

What about ordinary investors who pay attention to them? All too often, it's "thanks for nothing," or variants not suitable for this PG-rated newsletter, decades after supposed industry reforms.

The distribution of ratings should be investors' first clue. The percentage of "sell" ratings rose briefly after the legal spotlight shone on Wall Street's seers in the early aughts.

It's back down to 5%, which is worse than it sounds. While stock prices broadly rise over time, only a minority of them produce those gains. Most don't beat cash in the bank.

Don't condemn the entire profession, though. Analysts serve a purpose, and some are very useful indeed. We got a reminder last week when fintech company Fiserv reported awful results that lopped off half its value. A single analyst, Rothschild & Co Redburn's Dominic Ball, told clients well before the event to get out when all his competitors kept telling them to buy.

Ball probably won't be getting a holiday card from Fiserv's CEO this year. The reason many professional investors keep relying on analysts who are chummy with executives is that it's perceived as an edge.

But the nuggets they glean in conversation with executives, or the private management meetings those analysts set up for clients, don't benefit individual investors. That's why ratings and target prices, the first things mentioned in the media about analyst reports, are best ignored.

Take a post by Bespoke Investment Group, a little over two years ago, on the nine large U.S. stocks that Wall Street analysts recommended unanimously. Buying one share of each company (including one that underwent a merger) would have returned 17%. That's just a third as much as an S&P 500 index fund through yesterday morning.

Not every analyst produces reports as exacting as Ball, the Fiserv analyst, or as free of bias. Analysts as a group still do a decent job of estimating sales and profits, as long as you adjust the latter. In a typical earnings season, about 70% of companies produce a positive "surprise" relative to analyst consensus.

Getting your hands on reports by those sages still can be useful because their full-time job, as well as that of their hard-working associates, is to paint a basically accurate picture of companies and their industry. Even individual investors willing and able to dig through securities filings on their own can learn a lot from reading those reports, which are typically full of industry scuttlebutt.

The one thing they shouldn't do is to act on the recommendation on the reports' covers.

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November 06, 2025 04:05 ET (09:05 GMT)

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