Investing Question
Not sure how many of you are familiar with this website, but I just came across this: https://www.tipranks.com/analysts/top?llf=sub-hea…
Basically, it ranks ER analysts on the percentage of stock recommendations they get right and the average percentage gain per winner. The top guys have around an 80% win rate and like 35% average gain per winner (annual). So my question is, would it be a viable portfolio strategy to just follow one of these analysts to a T and do the exact thing that they recommend? Most of them have like hundreds of picks so you'd have no problem with diversification, and when accounting for losers that ends up at like 25% ROI, not to mention each one has several 100+% jackpots. Obviously the average person isn't smart enough to pick stocks and is better off investing in SPY or something, so why not just follow one of these guys to take all of the work out of it? I get that if their track record is limited to like 2 years you can't put too much weight in their success, but if you have a guy who has consistently produced winners for 10+ years, I'm failing to see any real possible downsides (which is why I'd love to hear your thoughts).
I'm not going to answer the question directly right away, I'll just tell you what's off base with your thinking. with the exception of 2 or 3, all of the analysts are technology analysts which has been the single best performing sector in the market. the question you should be asking is not "do these analysts pick stocks that go up" but "if I follow an analyst-picked portfolio, will I outperform their sector over multiple market cycles?" and that information is not given. I'd like to stack up these analysts against IVW (not a recommendation) and see what their performance is comparatively. that's #1, are you asking the right question (so far, no)? btw, IVW is up >36% as I write, so about average with the analysts' average picks.
#2, what are the drivers of analyst success? could there be another factor at play? for example, I believe technology stocks have benefitted from a momentum trade recently (look up AQR/research affiliates papers on factor based investing for more on this) and that it might not be analyst skill, it might just be that they happen to be in a honey hole sector. AMOM is up >40% this year, better than analysts, all it's doing is picking what's done better recently. So #2 is ensuring you're actually isolating the analyst's skill, and not other factors (of which there could be many).
#3, finally cognitive biases. how long of a career have these analysts had? are they simply beneficiaries of survivorship bias, selection bias, or hot hand fallacy? have their picks outperformed throughout multiple market cycles, or do they just look good during bull markets?
in short, I think this is a foolish idea. you would essentially be concentrating your entire portfolio in technology stocks and have similar performance with just buying a tech sector ETF or figuring out what factor benefitted tech the most (hint, it's momentum) recently. I'd also argue that this method would save in costs because you're not constantly having to alter your positions, you're buying a broad based ETF, mutual fund, or static stock portfolio and just giving it time to grow.
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