Fundamental Analysts Belated Downgrades

One of the strange aspects of running a quant shop is watching some of the fundie guys downgrade previously beloved names long after they have been spanked. Let’s cherry pick a few charts and work our way through them.

We’ve noticed this with GM, AIG, and many others recently. Today’s silly downgrade is US Steel.

I don’t want to pick on any one analyst. Since Goldman Sachs are supposed to be the smartest guys on the street, let’s start with them.

Here is their US Steel (X) chart:

US Steel, 2 years

Goldman Sachs current analyst

Source: FusionIQ, Bloomberg

The Buy was made well over $100, the down grade to hold was around $40, and the sell was at $30. Really, thanks for nothing, Goldy.

Here’s our quant system chart:

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US Steel, 6 months

Source: FusionIQ

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Because trend and price action are integral to the ranking system, we simply do not let these disasters run too far away from us to the downside. The first sell was at $180, then a neutral near $160, and another sell at $135.

We use neutral as a “unwind your previous position” for active traders. For long only investors, think of it as a “Hey, tighten up your stop” signal. We don’t generate an actual sell short signal, but active traders use the sells as a short signal.

Lastly, let’s look at the Deutsche Bank call on X: How much value add is buying all the way up, and buying all the way back down?

This is what we like to call the Cape Matterhorn trade: Buy Buy Buy!

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US Steel, 2 years

Deutsche Bank current analyst

Source: FusionIQ, Bloomberg

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I’m not sure this is even a fair comparison. We do research and manage assets with one the goals of managing risk, avoiding disasters, maximizing gains, and protecting capital. The poor bastards who work for big firms have all sorts of other issues to deal with: Size, banking, clientele, bullish bias, institutional demands, herding, etc.

Fundamental analysts: You don’t need them in a raging bull market, and you don’t want them in a bear market.

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