Why were analysts so wrong about Apple stock?

apple9.jpgMaybe they got caught up in the excitement of a $700 stock, like everybody else. Maybe they didn't want to slow down buy orders at the trading desks of the firms they worked for (despite the Sarbanes-Oxley reforms that supposedly segregate research from other departments). And maybe they were too scared to go against the insanely upbeat Apple crowd. Whatever the reason, most analysts offered little warning that Apple shares would collapse. (After hitting the record $705 back in October, the stock is trading at around $450). Oh yes, there were a few contrarians last fall, but they were drowned out by the cheers, as often happens in the Wall Street world of bullish group-speak. In other words, analysts are just like you and me: vulnerable ninnies. From NYT columnist James Stewart:

Analysts have a tendency to tell their audience what it wants to hear. "The analysts are in the end sales people," [Bruce Greenwald, a professor of finance and asset management at Columbia Business School] said. "Their credibility depends on their not upsetting their investors too much. Everybody loved Apple, everybody did well. The bears were always wrong. It took an enormous amount of courage to fight the tide." [Ohad Kadan, a professor of finance at Washington University in St. Louis, agreed.] "Analysts tend to herd. There's no big penalty if you're wrong, because everyone else is wrong. You've got cover. You're not going to lose your job. If you take a different opinion, either you get a big prize if you're right, or you lose your job. An analyst needs to be really courageous to say something different from most other analysts."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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