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By Martin D. Weiss, Ph.D
Dr. Martin D. Weiss is Chairman of Weiss Ratings, Inc., the nation’s only provider of independent ratings on insurance companies, HMOs, Blue Cross/Blue Shield plans, banks, S&Ls, brokers and equity funds. His ratings, updated regularly in his Safe Money Report, have received widespread acclaim for their accuracy and were even reviewed by the U.S. General Accounting Office, which concluded that Weiss beat his closest competitor by three to one in warning investors of future troubles. Dr. Weiss holds a Bachelor’s Degree from New York University and a Ph.D. from Columbia University. |
| For a free copy of Safe Money Report, please call an investor representative at 1-800-US-FUNDS. |
A major Wall Street firm recently reviewed 2,000 U.S. stocks. Not a single one was rated "sell." The SEC recently conducted a study on Wall Street’s stock ratings and discovered a shocking truth: Among the thousands of ratings they reviewed, a meager 1% were "sell" ratings. In other words, 99 times out of 100, Wall Street tells you to buy. They almost never tell you to sell. Whether in good times or bad...bull markets or bear markets...no one on Wall Street seems to be looking out for your safety. Stocks with supposedly good value get ratings like "buy," "strong buy" and "outperform." When brokers have doubts, the stocks may be downgraded to "long-term buy" or "accumulate." And bad companies, with horrendous balance sheets and ridiculously high P/E ratios, are rated with sugar-coated designations such as "market perform," "neutral" or "hold." You might think this bias is strictly a symptom of the long bull market. But it’s not. It’s been this way on Wall Street as long as I can remember, even during bear markets. A few years ago, a brokerage firm analyst issued a bad rating on Donald Trump’s Taj Mahal casino. But when Trump got wind of the negative analysis, he threatened the brokerage firm with a lawsuit. The analyst was fired, and the report never saw the light of day. Separately, The Wall Street Journal reported that analysts at a leading investment banking firm who refused to suppress negative ratings about the firm’s favorite clients consistently found themselves out of a job. In short, biased ratings are old news on Wall Street. The big difference today is that a far greater percentage of investors are following them. Consider these examples: McKesson, the largest U.S. pharmaceutical wholesaler, was recently rated a "strong buy" by Wall Street analysts. In response, investors rushed in to grab it up. But the company was trading at a lofty 149 times earnings. It had $1.19 in debt for every dollar in stockholders’ equity. On April 28, the stock was slammed. Not just 5% or 10% ... not 20% or 30%. Rather, this stock lost HALF its value in a matter of hours. Investors, lured into the stock by Wall Street’s superlative ratings, lost $9 billion in 7 hours, $8.8 million per minute. Compaq was also rated a "buy" by the majority of analysts…and again investors swooned over the stock. But it got whacked 7 points, delivering an $11.7 billion loss to investors. The company was trading at a price-earnings ratio of 107, unjustifiable for a company whose sales were already declining. Our response to all this: The Weiss Risk Ratings for stocks and mutual funds. Our risk ratings for stocks range on a scale from 1 to 5. (1 = high risk, 2 = above average risk, 3 = average risk, 4 = below-average risk and 5 = low risk.) And they answer the question: "In the event of a market decline, how vulnerable are your investments?" Whether the decline turns out to be a temporary correction, sudden crash or prolonged bear market, this is a question you should be asking periodically in order to help reduce the overall risk in your portfolio. Right now, our risk ratings for stocks tell us that it would take AT LEAST a 35% decline — over 3,800 Dow points — just to bring the overall market back into a semi-normal range. Our advice: Check the risk of your stocks and mutual funds. Then start to reduce your risk by selling the lowest rated right away. |
