In the institutional world, investors prize the contrarian view. When everyone is bullish, the commmunity rewards analysts who are willing to go against the crowd, point out what is not working, suggest where strategy is flawed, and opine where investment spending is suboptimal. Disagreeing doesn’t mean the analyst thinks they know more than the CEO; it’s what analysts are paid to do.
I’ve said before analysts aren’t paid on their stock picks, or on how often they cheerlead for management. They get paid on commission flow, which is a function of being right, over-servicing their clients, and dominating the investment narrative. In looking at the firms selected to manage the SpaceX IPO — JP Morgan, Goldman, Morgan Stanley, Bank of America, and Citigroup — only one (BOA) has a buy rating on TSLA, and the others are either neutral or have a sell rating (JPM). All employ analysts who are highly visible and lead distribution teams that can place millions of SpaceX shares with potential investors.Retail investors should try to understand the institutional investment process. Wall Street bulls and bears duke it out professionally and respectfully every day. When stocks go up relative to intrinsic value, portfolio managers take money off the table. That’s referred to as sell discipline. When stocks go down relative to value they add to their positions. Whether you agree with their views or not, recognize that WS analysts are contributing to the investment debate by sharing their insights, analyses, and predictions. Contrarians will disagree with you, test you, and push you to constantly reassess your position. Their job is not to cheerlead management or the stock, but rather to serve up and debate the truth.The copyright of this article belongs to the original author/organization.
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