Brokers have a tendency to speak in mysterious ways. Here are some examples of broker babble.
Have you ever been able to crack broker babble? For me broker speak has long been a source of mystery.
As a simple person, I can grasp the concept of "buy" and "sell" recommendations. To me, a "buy" means the shares probably look cheap, so it's time to climb on board. The opposite of a "buy" is, of course, "sell". This usually means the shares may look overvalued, so it may be a good idea to move on.
I can even understand a "hold" recommendation. It means hang on to the shares if you already own some. Mind you, if you don't already own any shares then consider sitting on your hands for the time being. It probably means something may happen to the shares but it is not entirely clear which direction the shares may move!
However, my eyes glaze over as far as other broker-inspired babble is concerned. Brokers and analysts have a tendency to speak in mysterious ways. For instance, what does it mean when a broker recommends a "firm hold"? Clearly it is stronger than a weak hold. But isn't a hold just a hold. And how does a "hold" differ from "neutral", which is another popular broker recommendation?
Another fashionable reference by brokers is "equal weight", which I assume is similar to "hold" or "neutral". That said, it does feel less forceful than a "firm hold" but has more conviction than a "weak hold". That is unless you don't have any shares at all, in which case you may need to buy some to bulk up your holdings. But be careful not be "overweight" or indeed "underweight" in the shares!
"Accumulate" and "add" are two other recommendations that need further qualification. Do they mean you need to buy some more if you already have a few shares, but don't buy any if you don't already own any? In which case, should you "avoid", which is another common broker recommendation.
"Underperform" and "outperform" are two more curious recommendations. In the case of underperforming, does it suggest the shares will underperform the sector or the entire market? But if a share is expected to underperform, then shouldn't a outright sell recommendation be more appropriate?
In reality, brokers are often reluctant to issue outright sell recommendations for fear of upsetting the company concerned, and limiting the amount of business they might do with them in future. Consequently, there are far more buy than sell recommendations. That may also help explain why recommendations not to buy shares are dressed up in fancy euphemisms that to all intents and purposes mean a sell.
Another thing to bear in mind is that a lot of the recommendations that we read in newspapers and magazines are already quite old. So by the time you and I hear about them, the tips have already have whiskers on and the shares may have already moved on.
As I see it, broker recommendations are meaningless without accompanying notes that detail an analysts' research. The investigation can be quite thorough, and may help investors to draw their own conclusions on whether to buy or sell a share.
To unravel more of the stock market's mysteries, read Investing Terms Explained.
