Merrill Tries to Temper Pollyannas

Merrill Tries to Temper the Pollyannas in Its Ranks
May 15, 2008Market Place By JENNY ANDERSON and VIKAS BAJAJ

SmartStop’s comment: It’s good to finally see a major Wall Street firm paying some attention to the importance of giving investors helpful “sell” advice. We hope this is the beginning of a new trend that will help focus investor attention on the importance of knowing when to sell.

Excerpts: Sometimes Wall Street seems a bit like the make-believe Lake Wobegon: Most stocks are above average, and it is always a good time to buy.At least that is the impression you might get from stock analysts who recommend where you should put your money. Even in bad times, the Street’s army of analysts rarely shout “sell.” In fact, they rarely utter the S word at all.

But Merrill Lynch, the nation’s largest brokerage firm, unveiled a new system on Tuesday for rating stocks that suggests Wall Street finally may be mustering up its courage to say “sell” more often. Starting in June, Merrill will require that its analysts assign “underperform” ratings to 1 out of every 5 stocks they cover. About 12 percent fall into that category now.

Today, after the Nasdaq bust and the outbreak of the deepest financial crisis since the Depression, only about 5 percent of all stock recommendations on Wall Street advise investors to sell, according to Bloomberg. That is up from less than 2 percent back in the heady days of the dot-com boom.
The bank analyzed stock performance over a decade and determined that from 1997 through 2007, on average, 37 percent of stocks in the MSCI world index and 40 percent of stocks in the Standard and Poor’s 500-stock index declined each year. The bank covers about 75 percent of the stocks in those indexes.

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