Back in December when Apple's price was bottoming in the high 140's, the number of analysts recommending owning Apple was much less than are currently recommending Apple. Very few analysts initiate a buy when the price is dropping.
Unlike most everything else we purchase, people (analysts included) buy when prices are down and don't buy when prices are up. But....in securities, the opposite happens. When the prices are up, people are interested in owning the stock. When prices are down, there is little interest in owning the stock. Now that's ass backwards.
The reason for this is several fold. Analysts are judged by how well their selections pan out - usually in the short term (3 to 6 months to a year). Therefore, they recommend what will make them look good in the short term. As an investor versus a speculator, the real returns are achieved by buying well-run companies at discount prices and holding long-term. I define long-term as 3 to 5 years or more. What happens in a year's time is usually noise, but analysts, like sales people, often sell what the market will buy, not what is best for their clients.
Clients are usually subject to many biases. The herd bias is often strong. When the general market doesn't want to own a stock, the herd turns against the stock, but when everyone is excited as the stock moves up, the herd chases the stock. This is a great way to lose your investment. Another bias is the recency bias. In the recency bias, a stock has moved up in the near term, so the "investor" thinks it is the time to buy. It often is the time NOT to buy.
So with APPL moving up in price again, we see so many recommendations for APPL. Even though prices are higher, analysts want to recommend the stock that will help them keep their job. They don't know what will happen in the next 3 to 6 months with the fundamentals of the company, but the market price is moving up. You may want to think analysts have a “crystal ball” but, the crystal ball only exists in fairy tales. Following these recommendations as a stock's price moves up is a great way to "lose your shirt".
Understanding analysts' motivations and the market’s behavioral biases are a great way to improve your investment returns. Just like when you were a kid, following the crowd will just get you into trouble.
