Why does any firm issue a hold rating?
Isn't this just a low conviction cop-out? Given most equity research firms cover a wide range of companies, if you give out one hold rating but there are 100s of buy rated stocks, why wouldn't I just sell my "hold" rating stocks and reallocate capital elsewhere, like to buy rated stocks (assuming I could reallocate without changing the variance/getting too overweight somewhere)
Seems like a low-conviction way to say "we dont know anything"
If equity research is gonna be wrong half the time anyways, they might as well pick a side, right? What am I missing? Is this not just a "baghold" recommendation?
d
Your premise is off. Nobody is buying/selling purely based on a buy/sell rating from a sell-side equity research analyst. And the sell-side analyst is never meant to have high conviction on every idea, but they can suggest conviction by having a price target far above/below current price. They provide a research service / mgmt access, while the buy-side analyst makes the buy/sell decision and determines conviction. But it's for this exact reason why some firms label their ratings something like "underperform, market perform, and outperform", because it removes the nominal "recommendation".
Would clarify I'm more interested in buy side ER here. I understand that sell side is going to have different priorities.
What are you talking about? Where are you looking to see that buyside equity analysts are making their recommendations public?
Work
Doesn’t sound like you understand donkey dick my boy
Imagine you cover 20 stocks. Your boss (PM) asks you to rank stocks you think are actionable. You label 5 as buys, 3 as sells, and the rest neutral ("hold").
That way, later when stock XYZ rips, your boss can yell at you for having a neutral rating on such a sure thing.
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