What is a financial analyst? What does he do? How does he do it? Are his results accurate? Should an investor rely upon his forecasts?

A financial analyst gives an opinion of a company’s financial condition in relation to its management, products, sales, profit margin, former, present and projected growth derived from its financial statements, industry sector status, interviews with industry’s leaders and technical analysis. These are basics and other mitigating factors can be involved.

Each analyst has his own way of investigation. What the investor wants to know is, “If I buy that stock will it go up?”

There are only 3 judgments that are meaningful – Buy, Sell and Hold. Brokers give such meaningless advice as market perform or under perform and overweight and under weight. What does that really mean? Wall Street brokerage houses all incline toward either Buy or Hold. There are very few Sell signals.

Investors rely heavily on analyst reports to make decisions. Recently it was disclosed that too many analysts were employed by the brokerage companies that were market makers for companies they were advising their client to buy. Theoretically that has been stopped, but a wary investor must do his own due diligence.

The report prepared by the analysts is subject to question as much of the material in it is outdated. The report may have been prepared months ago and much of the information in it is no longer valid. The entire market may have changed from a bull to a bear which will bring down even the best stocks.

Large institutions pay tens of thousands of dollars for thick detailed reports and still manage to under perform the average of the S&P500 index.

It would be wise to see who prepared the report and when it was first issued. It has been found that big stock analyzing companies like Morningstar sell reports that are 6 months old.

Some analysts are very good and others are poor. If possible find the real time track record of the person who wrote the report. It may not be available if it is a brokerage report. Market letter analysts are tracked by Hulbert Financial. This is a subscription service that shows actual recommendation results of the paid subscription market letter. Very few market letter analysts have good long term records. Most cannot outperform the S&P500 index.

Try as they may analysts are professional guessers. It is very rare to find any that will write a negative report. That 32-page full color report on slick paper is not going to help very much if it is weighted toward the buy side. That won’t be determined until the investor loses money.

Be careful of any stock analysis report.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved.

Copyright 2007 Albert W. Thomas All rights reserved. Author of "IF IT DOESN'T GO UP, DON'T BUY IT!"