Following a Herd of Bulls on Apple By JAMES B. STEWART February 8, 2013
Last September, Apple shares hit a record $705. And to the overwhelming majority of Wall Street analysts, that meant one thing: buy. By November, with Apple stock in the midst of a precipitous decline, they were still bullish. Fifty of 57 analysts rated it a buy or strong buy; only two rated it a sell. Apple shares continued their plunge, and this week were trading at just over $450, down 36 percent from their peak. How could professional analysts have gotten it so wrong? It wasn't supposed to be this way. A decade ago, Congressional hearings and an investigation by Eliot Spitzer, then the New York attorney general, exposed a maze of conflicts of interest afflicting Wall Street research. There were some notorious examples of analysts who curried favor with investment banking clients and potential clients by producing favorable research, and then were paid huge bonuses out of investment banking fees. Many investors and regulators blamed analysts' overly bullish forecasts for helping to inflate the dot-com bubble that burst in 2000. After a global settlement of Mr. Spitzer's investigation by major investment banks and the Sarbanes-Oxley reform legislation in 2002, investment banking and research operations were segregated. Conflicts had to be disclosed, and research and analyst pay was detached from investment banking revenues, among other measures. These reforms seem to have worked - but only up to a point. Other conflicts have come to the fore, especially at large brokerage firms and investment banks. And studies have shown that analysts are prone to other influences - like following the herd - that can undermine their judgments. "The reforms didn't necessarily make analysts better at their jobs," said Stuart C. Gilson, a professor of finance at Harvard Business School. It may be no coincidence that the only analyst who even came close to calling the peak in Apple's stock runs his own firm and is compensated based on the accuracy of his calls. Carlo R. Besenius, founder and chief executive of Creative Global Investments, downgraded Apple to sell last Oct. 3, with shares trading at $685. In December, he lowered his price target to $420, and this week he told me he may drop it even further, to $320. ... http://www.nytimes.com/2013/02/09/business/following-a-herd-of-bulls-on-apples-stock.html _______________________________________________ Medianews mailing list [email protected] http://etskywarn.net/mailman/listinfo/medianews_etskywarn.net
