Blogging For Apples: Wall Street Drowns, Bloggers Victorious

Research has certainly come a long way…

Fortune magazine wrote a great article today comparing the efficacy and accuracy of Wall Street research houses that follow Apple Computer (AAPL) and unpaid Bloggers doing the same thing. This stems from a gauntlet-style challenge being tossed from the Bloggers to the Pros in the last few days leading up to AAPL’s fourth quarter earnings call.

The table below shows the results, and the full article is here…

Apple vs Bloggers

Needless to say, the Bloggers kicked the crap out of the “Pros” (and I use that term lightly). The dark green boxes show where the ratings were closest to the actual numbers, and the orange boxes show where they are furthest. The Bloggers clearly won and there are a couple of cases where the “Pros” numbers were so far off, they look like they were following RIMM instead.

But I caution those reading this article to save it for posterity. The reality is that Wall Street analysts have the ability to retroactively change their ratings and earnings estimates. We have written on this topic before, and we will again in the future, but for now, here is a portion of an abstract that explains the phenomenon…

From: Rewriting History – by Alexander Ljungqvist , Christopher J. Malloy, and Felicia C. Marston; April 16, 2008


We document widespread ex post changes to the historical contents of the I/B/E/S analyst stock recommendations database. Across a sequence of seven downloads of the entire I/B/E/S recommendations database, obtained between 2000 and 2007, we find that between 6,594 (1.6%) and 97,579 (21.7%) of matched observations are different from one download to the next. The changes, which include alterations of recommendation levels, additions and deletions of records, and removal of analyst names, are non-random in nature: They cluster by analyst reputation, brokerage firm size and status, and recommendation boldness. The changes have a large and significant impact on the classification of trading signals and back-tests of three stylized facts: The profitability of trading signals, the profitability of changes in consensus recommendations, and persistence in individual analyst stock-picking ability.

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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