I’ve bought and sold a few homes in my lifetime, and the one rule my dad infused into my head was to protect myself by hiring a lawyer for the transaction. The first time around I asked why waste the money, the bank has a lawyer and offered to handle my end of the deal too. My dad gave me one of those stares that said be prepared to get learned, and he said to me, “This is the biggest financial deal of your life, you’re putting everything on the line here, your credit, your future. Ask yourself, who’s going to protect you if the deal goes bad, or there are problems…the bank?”
He followed up with, “Who’s best interest does the banks lawyer hold, your’s or the bank’s? Who’s paying the lawyers salary, who’s providing them their next deal?” Well the questions were rhetorical, the answer was obvious. The lawyer holds the bank’s interest first, my interests had to be second to the bank, if it ranked that high.
So, let’s take the Apple analyst employed by the brokerage that’s holding your money. The same brokerage that only makes money if you initiate a transaction, if you buy or sell stock. The broker doesn’t care whether you buy or sell, he just cares that you do something, and hopefully do a lot of it. Because every transaction includes commission and fees.
Now, what’s the job of the analyst? Well, ideally his job is to give you superior advice that will affect your decision on whether to buy, sell or hold. If you hold, there’s no commission. But if you buy or sell, the broker makes money. I’m not suggesting that the analyst is purposely providing buy or sell analysis, what I am saying is that it is not in the interest of the broker to hire analysts that are conservative in their analysis. The more erratic the analyst, the better for the broker.
Now take a moment and look at all the analysts out there, they are hardly ever right, they’re arrogant, smug, dripping with power, and they hold zero responsibility. They are the weathermen of finance. They don’t have to be right. And that’s just fine by the broker.