Remember the pre-Enron world? Or for that matter, do you remember the way things were before the entire market was unraveled in 2000 and 2001? It was truly a different time then - a time when you could do no wrong. All you had to do was throw a little money in the market, and wait for your ship to come in. A lot has changed for investors since then.

But it's not just the individual investor that has had rethink the way the world works, in the aftermath of a harsh bear market, and in the wake of countless corporate scandals. The key Wall Street players have been forced back to the drawing boards as well. And rightfully so. Accountability is the name of the game now. Everyone from the White House to the SEC to the local PTA is demanding full disclosures, verifications, and proof that they should be trusting of anything anyone says. I personally applaud the raising of the bar, for everyone's sake.

The new standard has even worked its way - or should I say forced its way - into the halls of the research and analysis departments of all the major firms. Again, I couldn't be more thrilled about the improvement. But at the same time, I still find myself frustrated at the rather poor quality of investor guidance these research departments are cranking out. Oh, don't get me wrong - there are some good ones. But after all the safeguards and oversight that has been put into place in the investing world, I'm still stunned by the lack of accountability that's allowed to exist.

Just to clarify, I'm not accusing anyone of improper actions. I truly believe that almost all of the major Wall Street firms are putting their client's best interests at the forefront of most of what they do. It's just that they haven't gotten any better at it. Just as stunning, however, is that fact that these analyst opinions are still garnering so much attention, and heeded as the place to look first for decision-making insight.

As an example, I recently went back and plotted the last few years worth of upgrades and downgrades on a random stock's chart - Monaco Coach (MCW). In general, an investor should expect to see a lot of 'buys' and upgrades near a long-term low. Likewise, there should be a lot of 'sells' and downgrades bear long-term highs. As I suspected, we saw something entirely different. Of the eight bullish upgrades (where the firm announced an even more bullish opinion than they had previously held), only one was timed right at a major bottom, and only two more were reasonably profitable, where the stock moved 20% higher (or more) from the point of the upgrade. The other five bullish upgrades were either unhelpful, or completely wrong. Just for perspective, you would have been better off flipping a coin to make the buy/not-buy decision.

Sadly, although not surprisingly, the success rate was just as dismal on the downgrade side of the chart....although for slightly different reasons. Two of the seven downgrades came immediately before a major upside move, prompting investors out if the stock at what seemed to be a major low point. In two of the cases, the downgrade finally came about halfway through a multi-month selloff, essentially leaving investors 'holding the bag'. Four of the downgrades did indeed come at a time before a major downside move, but even then, it may not have been helpful information. Three of those four downgrades were still graded as 'Buy", 'Neutral', and 'Maintain'. How is an investor supposed to interpret that? In the case of Monaco Coach, there was never a sell rating, even though the stock has been through long-term pullbacks of 50%, 64%, and 60% since 1999. Those are huge (and obvious) dips. Yet, none of the analysis firms ever called a major top, nor issued a sell signal in a timely manner.

Take a look at the Monaco-Coach chart, then we'll continue.

Monaco Coach (MNC), weekly, with upgrades/downgrades

Red arrows represent downgrades, where a firm is less bullish on a stock than they previously had been. A green arrow represents an upgrade, where the firm is more bullish on a stock. Note that a downgrade does not necessarily mean a bearish opinion is in place - it could just mean the firm is less bullish.

Am I being tough on these analysts? I don't consider it tough. I just consider it fair. In their defense, forecasting isn't easy to do. Believe me, we do it every day, and it's very tough to do. On the other hand, we get paid to be right, as do they. If we had the same track record some of these analysts have, we'd have a hard time keeping clients. The issue is ultimately the one that investors want - accountability. Considering that investors are paying attention to these upgrades, downgrades, and ratings, I don't think it's unreasonable to hold these people accountable. It is, after all, your money that's on the line.

So, what do you do about it? I rarely advise ignoring anything, but in this case, that truly may be the best advice. If you had acted on all of these upgrades and downgrades for Monaco-Coach, not only would you be broke, you'd also be bonkers. But if you must incorporate these opinions, I'd highly recommend that you only worry about the opinions of the analysts and firms that have proven their track record to you. Even in this day and age, I can see that most research and analysis departments are in place mostly to make noise, spark trading interest, and garner attention for a particular brokerage firm. The actual results of their advice is a secondary priority.......a distant second.

But still, I feel that you're better served by doing your own homework, watching your own charts, and not jumping every time there's some news about your stocks. Hopefully the chart of Monaco-Coach has inspired you to worry a little less about what the so-called pros think about your stocks. Of course, that's the benefit of an investment management service such as ours - we do research that actually works for investors, instead of against them. Whatever you choose to do, never assume that you can't beat the market, or can't beat the pros. We do it consistently, and you can too, by not following the crowd.

And if you're looking for another example of why you may want to ignore analyst, opinions, take a look at the upgrade/downgrade chart for Dowhemical (DOW). In fact, you can pretty much find the same problems and inconsistencies for any stock you can think of.

Dow Chemical (DOW), weekly, with upgrades/downgrades (click for full-size image)

JB