About 2 years ago I began to subscribe to Morningstar's investment research. However I have now cancelled it because there were just too many problems with the quality of the research. I realize that most Wall Street investment research is next to useless but I thought morningstar would be better because it did not have any conflicts of interest like the others.
The main reasons for canceling Morningstar are the following:
1. They analyze too many stocks, which prevents them from providing in-depth research. So many stocks that all you get is a consistent boilerplate analysis, which is revived twice a year along with a few updates (earnings and other announcements). They give you a general thesis regarding the company, a simple grade regarding management and financial health, and a valuation target. My main concern is their valuation section, which I have noticed simply moves up or down based on the movement in the stock. During 2008 and 2009 they were constantly lowering their price targets on the financials to keep pace with their steep declines. Then as the market surges in March 2009 they simply raised their price targets. Another egregious example was with Potash Corp which according to morningstar was worth around $320 when the stock was at $240, but 6 months later was worth $90 when the stock fell to $70 This is not stock analysis but simply trend following on the part of Morningstar.
2. They only analyze mid to large companies and completely ignore small caps. For me this is a big issue--I do not need another research report on Microsoft, Apple, Google, etc. There are well over 100 analysts (probably more) covering these companies and I don't really need another one.
3. Constantly changing analysts--I have noticed that Morningstar seems to constantly be changing analysts. I am not sure if they simply have a high employee turnover or what but it is frustrating especially if you are lucky enough to find a good analyst.
4. No different than other Wall Street firms--This is the biggest reason I decided to cancel the service. I actually compared Morningstar's research reports with Merrill Lynch's and found little difference. Morningstar seems to be influenced by the general consensus of the street and usually offers little more than what other investment firms are saying. This is not particularly useful for investors as you make more money but trying to go against the crowd.
I have found from experience that the best investment research is the research you conduct yourself. I never trust Wall Street research because they are usually trying to sell you something or win business from companies by rating the stock a buy. This happened in the case of Enron where you could only do business with the company if you had a buy rating on it. Naturally all of the investment banks had a buy rating up until the dramatic collapse. The rule to learn is to never trust Wall Street research--ever!! Especially Goldman Sachs who has a notorious reputation for trading against its own clients (telling pension funds to buy CDO's while at the same time shorting them).
Black Swan Insights
The main reasons for canceling Morningstar are the following:
1. They analyze too many stocks, which prevents them from providing in-depth research. So many stocks that all you get is a consistent boilerplate analysis, which is revived twice a year along with a few updates (earnings and other announcements). They give you a general thesis regarding the company, a simple grade regarding management and financial health, and a valuation target. My main concern is their valuation section, which I have noticed simply moves up or down based on the movement in the stock. During 2008 and 2009 they were constantly lowering their price targets on the financials to keep pace with their steep declines. Then as the market surges in March 2009 they simply raised their price targets. Another egregious example was with Potash Corp which according to morningstar was worth around $320 when the stock was at $240, but 6 months later was worth $90 when the stock fell to $70 This is not stock analysis but simply trend following on the part of Morningstar.
2. They only analyze mid to large companies and completely ignore small caps. For me this is a big issue--I do not need another research report on Microsoft, Apple, Google, etc. There are well over 100 analysts (probably more) covering these companies and I don't really need another one.
3. Constantly changing analysts--I have noticed that Morningstar seems to constantly be changing analysts. I am not sure if they simply have a high employee turnover or what but it is frustrating especially if you are lucky enough to find a good analyst.
4. No different than other Wall Street firms--This is the biggest reason I decided to cancel the service. I actually compared Morningstar's research reports with Merrill Lynch's and found little difference. Morningstar seems to be influenced by the general consensus of the street and usually offers little more than what other investment firms are saying. This is not particularly useful for investors as you make more money but trying to go against the crowd.
I have found from experience that the best investment research is the research you conduct yourself. I never trust Wall Street research because they are usually trying to sell you something or win business from companies by rating the stock a buy. This happened in the case of Enron where you could only do business with the company if you had a buy rating on it. Naturally all of the investment banks had a buy rating up until the dramatic collapse. The rule to learn is to never trust Wall Street research--ever!! Especially Goldman Sachs who has a notorious reputation for trading against its own clients (telling pension funds to buy CDO's while at the same time shorting them).
Black Swan Insights
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