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Sunday, May 18, 2008

Lake Wobegon Stock Recommendations

It's pretty well known that "Sell" recommendations on Wall Street are about as rare as honest politicians in Washington (they're out there, but don't expect to find a lot of them).

It seems like Merrill Lynch is trying to change its ways. They have a new standard for their analysts - Beginning in June, they will require that its analysts assign “underperform” ratings to 20% of all stocks they cover (currently, only 12% of covered stocks fall into that category). Their hope is that the new standard will make their recommendations more credible, since a "buy" will no longer be the default evaluation.

A similar movement is going on in academia. A number of schools (the Unknown Alma Mater among them) have put limitations on grade distributions (i.e. there's a maximum percentage of A's and B's that an instructor can assign). It's not as much of a problem in the Finance and Accounting areas, since we're generally tougher graders than those in the Liberal Arts areas. I'm not aware of how things are done in other areas, but Business Schools have been moving in this direction for a couple of years now. It may be one of the few cases where academia has actually moved faster than the business world. I guess even a stopped clock shows the right time a couple times a day.

Read the whole thing here.

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