One of the key metrics in my stock-picking methodology is earnings surprises, which is how much companies beat Wall Street analysts with their earnings reports. I’ve tested this variable time and time again over 25 years and it constantly leads me to superior stocks, just as we’re seeing this morning with Sohu.com (SOHU).
The larger question is, why are so many analysts so wrong? I think part of the reason is that analysts are simply afraid to list a stock as a Sell. The New York Times provides an interesting look today at Wall Street recommendations over the last several months. Even as the market was breaking down, analysts rarely issued Sell recommendations.
At the market top, analysts rated 95% of stocks either a Buy or a Hold. That’s crazy! Just like Lake Woebegone where most of the kids are above average, in Wall Street’s eyes, most of the stocks are always worth holding. January was the worth month ever for the market, yet only 5.9% of stocks were rated as Sells
Like any investment advisor, I’ve made my share of lousy recommendations, but I have no fear selling a stock. In fact, only a tiny percentage of stocks ever make it on to any of my Buy Lists. For independent minded investors, I also have PortfolioGrader Pro, where you can see my Buy-Hold-Sell advice on thousands of stocks–and you can be sure that many of them are Sells.