Stock Analyst Recommendations - Should We Trust Them?

To conclude, the fact that analysts, or their firm, may face a conflict of interest does not necessarily mean that the stock analyst recommendations are flawed or unwise. And yet, don't rely solely on them for your investment decisions. Do your own research, such as reading companies' prospectus, quarterly and annual reports that are filed with the SEC, etc.

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Protecting Yourself from Analyst Conflicts of Interest


Here are some tips that will help you protect yourself from analyst conflicts of interest when researching investments.

•Always read all disclosures about the types of research recommendations that the analyst firm has made and the conflicts of interest.

•Check whether the analyst's firm has underwritten the company's stock offerings.

•Check the lock-up agreements and see if the lock-up period is about to expire or has been waived by the underwriter.

•Research the company's financial reports (you can use the SEC's EDGAR database for this purpose) and if it is hard for you to analyze them turn to a professional for help.

•Gather as much information as you can about the company you are considering by reading independent news reports, reference books, commercial databases, etc.

Finally, always have in mind that even the most unbiased and sound analyst recommendation may not be suitable for your individual financial circumstances.