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Why Wall Street Just Doesn't Get It
by Jamie Dlugosch
I've thought for many years that the advantage in the market rotated from Wall Street to Main Street.
In previous cycles the little guy stood no chance over the professional investment manager.
That paradigm gave rise to the current hedge fund market that now controls billions of dollars.
No less influential have been the Wall Street analysts feeding institutions information on individual stocks, often in advance of broader distribution.
For many years the game worked to perfection, generating significant out-performance, but in the last year the gig has been up. And it's falling apart in a bad way.
Dennis Gartman finally came clean, admitting that the professionals mostly trying to guess when the bull market will end have gotten it fabulously wrong several times in 2014.
I wrote about Gartman representing the ultimate buy signal in mid-October when he declared that we were indeed in a bear market.
Um, no we were not.
It was the little guy that stayed the course through these mini-shocks to stock valuations. As a result, those little guys are beating the pants off the professionals this year.
The professional, it would seem, is playing a game of musical chairs. They grab their chairs before the music stops playing, cheating if you will.
There is a price for that cheating. It would be almost comical if not so serious.
Guessing wrong results in poor performance. With so many little guys unknowingly, through retirement funds, participating with these characters, they are falling behind in achieving their investment goals.
On the Wall Street analyst side there have been a number of downgrades of individual stocks ... after those said stocks already tanked for one reason or another.
Shares of Genworth Financial (NYSE: GNW) tanked 30% after the company unexpectedly took a capital hit on reserves.
You should have heard the conference call with management. They were most sincere in their apologies, but it was a little too late.
So, too, was it too late for Keefe Bruyette Woods, which downgraded the stock after the losses took place.
I might think that move was a buy signal more than anything.
They were not the only ones with egg on their face. Both Oppenheimer and Janney Capital Markets are doing the same thing with Abercrombie & Fitch (NYSE: ANF). Shares of the teen clothing retailer are down nearly 20% after a poor showing in its earnings report.
That should not have been a surprise as retailers and especially apparel retailers are struggling mightily. They are volatile, too. So for Wall Street to love Abercrombie, it is a risky love.
Both Oppenheimer and Janney loved Abercrombie ... Oppenheimer with an Outperform rating and Janney with a Buy rating.
Oops, looks like they got that call wrong
Both Wall Street firms downgraded Abercrombie after the earnings debacle.
The new price targets are $30 and $25 per share respectively, nearly 50% off their prior targets.
Institutions and hedge funds following Oppenheimer and Janney would have taken big losses on Abercrombie.
I think the little guy would have known to stay away from Abercrombie to begin with.
The coming year is likely to be more of the same.
The lesson is this: Do your own research and pick the right stocks instead of following Wall Street and the so-called professionals.
Jamie Dlugosch Editor Investor Research Institute
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