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Overweight, neutral and underweight

Discussion in 'Stock Market Nuts and Bolts' started by blaz0430, Jan 31, 2014.

  1. blaz0430

    blaz0430

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    What does over weight, neutral and under weight mean in stock terms?
     
  2. pixel

    pixel DIY Trader

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    Re: Over weight, neutral and under weight

    It's a Broker/ Fund Manager's opinion of a particular stock.
    The reference point is the stock's weighting - either in the respective S&P Index, or in the fund manager's individual investment strategy.

    Every once in a while, the fundies will re-rate a company and decide whether it's still worth holding the initially planned number of shares in their portfolio.
    If the result of their calculation is such that they believe the shareprice will improve above average, they suggest investors increase the weighting, i.e. buy a larger number of this share compared to some of its peers. If on the other hand they think other peers in the same investment space are better, they'll suggest to buy fewer.

    If that sounds rather vague, it's because it is. And rarely do two fundies agree on the same rating anyway.
    Conclusion: It may MEAN something, but its USEFULNESS is doubtful at best.
     
  3. DrapSnagon

    DrapSnagon

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    Re: Over weight, neutral and under weight

    I beg to differ {a little tiny bit only}

    Pixel is basically right, but I doubt the impact of individual fund managers on the general market. The brokers certainly have price-moving power in this issue, but I rarely see any fund manager issuing a rating which anyone takes any notice of.

    FNArena and Lincoln both have a comprehensive [free] summary of market consensus on the price targets, earnings/dividend forecasts, and rating of most ASX200 stocks plus some others. Comsec does too, but their universe is limited to CBA research and Morningstar.

    The bible on this subject is Thomson/Reuters, but you need a zillion bucks to subscribe to their feed, so it's much cheaper to use the free-site summaries.

    Finally, if you've been around for a while, these ratings are equivalent to what we used to see as "Buy, Hold or Sell", but those terms have fallen out of favour in the last few years for reasons I don't fully understand.

    I suspect it has something to do with the literal political correctness required in law:- For example, "Overweight" implies that you should only buy this stock if you already own some of it vs the weight in the model portfolio of the broker issuing the recommendation. Otherwise, it could be interpreted as "Buy lots of this at any price".

    Pffft. How stupid do they think we all are?

    Snap
     
  4. Valued

    Valued

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    It's probably best to ignore their recommendations since they stop short of marketing it as advice. The reason is your individual circumstances and goals are not taken into account. They could say this is a buy but they might be intending to hold a stock for 5 or 10 years. If you were only planning to hold for 1 year, it might not be a buy at all. Their risk tolerance might be very different to yours. Further, you don't know on what basis their analysis is done and where they got their information from. All you see is "buy, sell, hold" and any accompanying explanation is vague.
     
  5. pixel

    pixel DIY Trader

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    In this weekend's newspaper column, Marcus Padley offers some great commentary on the subject of broker recommendations. If you haven't found it yet, do try and locate it in your local edition. SMH and Weekend West have it in their business pages; not sure about other cities. But if you Google Padley, you'll probably find a free online copy.

    OK, Try this one: http://www.smh.com.au/business/a-wi...arch-not-broker-forecasts-20140131-31sk1.html
     
  6. DrapSnagon

    DrapSnagon

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    Yes. This guy is one of the very few out there who is driven by a genuine desire to educate. Sure, he has to make a living like all of us, but he delivers insight and real value with his words, and is entitled to charge money for them.

    Everyone should also race out and by his book "Stockmarket Secrets" and send him emails telling him I told you to. Then perhaps I can make him buy me a drink next time I'm in Melbourne. We knew each other for a while about a decade ago.

    Valued: Your opinion is right imho, and accords with what Marcus is saying in the article Pixel quoted. Just as various political policies these days appear to be dumbed down for the masses [into three-word slogans, mostly], the financial services industry seems compelled to do the same. Some of it is certainly "quasi-marketing confetti" as Marcus suggests, but there is still an underlying trend to reduce enormously complex models to a few sentences or paragraphs in a report.

    Have a look at any Private Client briefing paper from any stockbroker {not the free stuff on the web}, and you'll see what I mean. They all have Executive Summaries which are designed to guide the reader in a particular direction without tempting them to read the next 14 pages of detailed work that follows. It's almost like they employ sub-editors like newspapers do to generate headlines independent of the substance of a story [OK, I know no broker has gone that far yet].

    This must frustrate the place-that-is-not-heaven out of the analysts who prepare the material. I know some of these guys, and they slave over computers and reports and news feeds for twelve hours a day, sometimes for weeks, only to find their conclusions taken completely out of context, or dismissed because some intervening event has rendered their work out of date. Worse still, they issue something overnight that turns out the next day to be either insane (eg: just before ADM bid for Graincorp) or eerily spot-on (eg: the downgrades of Newcrest). The former results in an invitation to find another employer, and the latter results in ASX investigations. What a thankless job!

    Snap
     
  7. Valued

    Valued

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    Haha that's good it accords with the article. I glanced at it but barely read it. I honestly don't read the news. I haven't watched TV since 2007 either. I have pretty much zero idea of what is going on in the world. I have this fear that if I get involved in the news, it will influence my own opinion of what is occurring on the charts. I will try to equate the news with stock market movements. I want to avoid that. I also hate advertising. I don't get out much lol.
     
  8. pixel

    pixel DIY Trader

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    Hey Valued,

    Must say I understand where you're coming from; I tend to operate similarly: Cut out the external noise and focus on what the charts tell me. Because, in my experience, the noise is 90% spurious distraction, 8% deliberately misleading, and 2% helpful "early warning". One has to make up one's own mind whether those 2% are worth the bother. Especially when it takes heaps of discipline and cynicism to recognise the 98% for what they are and ignore them. Sometimes, however, I find that even the deliberate red herrings are worth taking into consideration: They tell me what kind of BS some "interested parties" feed the gullible "Mums and Dads"; and that has on many occasions helped me anticipate some strong moves before they showed in the charts.
    It's tricky though.
     
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