Be very wary of the recommendations of stockbrokers' analysts because they do not have the investor'...
Be very wary of the recommendations of stockbrokers' analysts because they do not have the investor's interests at heart, warned Richard Prew, head of UK equities at Norwich Union.
Prew condemned stockbrokers' analysts for their untrustworthiness while speaking at FundNetwork's 'The Big E-asy' conference last week. He said: "Take Sage for example. They have a fantastic track record with the shares up to £9 from £2 only two years ago. Analysts told us the shares are discounting 30% profits for the next 15 years. If they produced this, their profits would be greater than the GDP of Canada, so I sold them."
This was by no means an isolated incident, Prew said, recounting other examples. He added: "We took an average from the top 10 London stockbrokers and they say Vodafone will be at 400p by the end of next year, a 60% increase from its price of under 250p currently but the market will likely only increase by 10%. Vodafone is 9% of the market so it is very unlikely." Prew noted that this year has been the most volatile on record for the market, with the whole FTSE moving by over 5% on six different days year to date, compared to a previous record of just twice in a year.
He added: "Hedge funds contribute to volatility in the market, so do momentum investors and stockbrokers' analysts."
Prew berated the herd mentality of analysts that leads them to always rate stocks as a buy.
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