“Investors Business Daily” (IDB), an American financial journal published recently the following interesting statistic:
On 3000 companies followed by analysts, IDB compared the performances of the 600 most recommended versus the 600 the least recommended. Here are the results:
- In 2000: -24% for the most recommended versus +6.4% for the least recommended.
- In 2001: -5.1% for the most recommended versus +20.5% for the least recommended.
- In 2002: -20.7% for the most recommended versus -16.4% for the least recommended.
- In 2003 (up until July): +30.7% versus +35.6% for the least recommended.
True, forecasting is a difficult business, one needs only to think of our poor meteorologists. At Claret, our model primarily is based on actual financial results instead of a series of forecasts. Also, note that the market never gratifies the majority. The short sellers are numerous and many other technical data indicate that caution is a widespread word. This brings us to think that for the time being, the risk of seeing an important drop (10%) of the market is relatively remote. Thus, September and October might pass by without much trepidation.
Nevertheless, stocks are expensive, especially the tech sector (Ebay is at 90 times earnings, Intel 40 times and Nortel 50 times, …), and any bad news could bring another major correction. Reminscing about the tech bubble, we would suggest meditating on the following sentence: “In the business of speculation, if you get out too early, you’ll miss the party; too late, you’ll be going to your own funeral”.