Exile On Wall Street is one of those books you can’t put down. It’s not often that I read a book that confirms what I have said for years. It’s just my opinion but I have long believed that analysts don’t know how to tell investors when to sell and truthfully they don’t want to. It does not serve their own interests.
Former banking analyst Mike Mayo has written an excellent book titled, Exile On Wall Street in which he gives a captivating inside view of the workings of big bank brokerages, how the analysts function and why they put their own interests ahead of investors.
The author has indicated in his book that many times he got into trouble with banks, his own bosses and if you can believe it, clients, when he would issue sell signals on bank stocks. Have you ever noticed how few sell calls are issued on not just bank stocks but any stock? At the height of the credit crisis in 2008 do you know that very few sell calls went out on the big US Banks?
Exile On Wall Street Confirms What I Long Suspected
I have a few interesting charts I have kept from that volatile period. Here is the chart from Wells Fargo Stock on Dec 9 2008. There was 1 sell rating that day by analysts. For most of the fall 2008 there were only a handful of sell ratings. Most were buy ratings despite the continuing plunge. I guess analysts figured they would eventually be right. Check today’s ratings by analysts through this link.
Wells Fargo has 1 sell rating on Dec 9 2008
Here is a chart of Bank Of America Stock for Nov 11 2008. No sell ratings and only 1 underperform. It was like this throughout fall as well. Check Bank of America stock even now. This link will give you analysts ratings on BAC through yahoo.
Bank of America has no sell ratings on Nov 11 2008
Exile On Wall Street Contains Fascinating Details
I gave up on analysts a long time ago. The author explains that in the past decades sell ratings on bank stocks was not lopsided. Often it was almost 50 – 50. But starting in the late 1990’s more and more analysts changed from sell ratings to such things as “under perform” or “sector perform”. It reached a point where the ratio was 100 buys to every sell. He mentions as an example, how one time Merrill Lynch had 940 stocks rated as buys and 7 sells. Morgan Stanley Dean Witter had 670 stocks rated as buys and zero sells.
Part of the reason according to Mayo is that analysts do not want to alienate firms which could hurt business for bond offerings, equity offers and buybacks and other deals. In other words, analysts put their own interests ahead of investors. Mayo’s book contains terrific reading about the problems he encountered in refusing to follow the crowd. That part of the book is just excellent.
I cannot recommend the book enough. While I realize that many investors have given up on analysts years ago and what Mayo has gone through is probably what most investors believed was going on anyway, the book is still wonderful reading. Just my opinion, but Exile On Wall Street by Mike Mayo, gets my recommendation for every investor.