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Most banks are screwing up on their stock picks

Graphs by InterTrader | text by Jeff Desjardins | posted with permission of Visual Capitalist | November 30, 2016

Let’s say that a bank such as Goldman Sachs publishes a recommendation to “Buy Stock X.”

It’s hard to ignore a bet by a powerful investment bank such as Goldman. We are mere mortals in the pecking order and they are supposed to be the all-knowing smart money from Wall Street.

Do we buy the stock or is it simply wiser to pass?

Bank performance overall

The folks at InterTrader have done considerable legwork to dive deep into the data on investment bank recommendations made in 2015. They looked at every bet made by the 16 top banks throughout the year to assess both potential returns and accuracy.

The results are pretty underwhelming.

If you bought every stock recommended and held until the end of the year, here’s what your performance would look like:

Most banks are screwing up on their stock picks

Overall, when holding the stock picks for the year, banks were only 43% accurate with their predictions.

That’s right—flipping a coin would have been potentially more effective than buying bank stock picks, which ended up down 4.79% on the year. The S&P 500 finished down only 0.69%, but simply just making any interest in a savings account would have been more effective.

A closer look at individual banks

While banks as a whole struggled with picks in 2015, it’s also important to look at banks on a more micro level to see how they performed.

Here’s a look at the recommendations by Deutsche Bank, and how it did:

Most banks are screwing up on their stock picks

Deutsche Bank nailed 41% of their predictions and had a -8.93% return if picks were held throughout the year.

As you can see, some of their picks such as Microsoft and gained double digits. On the other hand, recommendations such as Whiting Petroleum got absolutely crushed throughout the year, dropping 70.1%.

Overall, Deutsche Bank’s performance here definitely didn’t do much to help the struggling company get out of its rut.

Which banks were most accurate?

Here are the banks, from best to worst, based on accuracy of their calls:

Most banks are screwing up on their stock picks

Nomura, Credit Suisse, BAML and Barclays all batted above .500 if stocks were held throughout the year, while 10 banks all did worse than a coin flip.

Citigroup had an off year, only nailing 14% of its picks.

Which banks had the best returns?

Here are the banks, from best to worst, based on the performance of these recommendations:

Most banks are screwing up on their stock picks

Just two banks, Credit Suisse and Nomura, had positive returns if stocks were held through the year. Meanwhile, Canaccord Genuity’s picks were knocked down 16% over the course of 2015.

An important caveat

Throughout the above article, we show the results if stock picks were held from when they were made until the end of the year.

However, it is worth noting that the investment banks actually did slightly better if picks were held for shorter durations of time:

Time Accuracy Gains %
30 Days 55% 0.80%
90 Days 49% -1.48%
180 Days 42% -3.66%
End of Year 43% -4.79%

In other words, if you sold all stock recommendations exactly 30 days after buying, you would have actually made a 0.8% return throughout the year. This is still a lower return than a savings account, but it is an improvement on losing 4.79%!

For a more in-depth dive into the data, we highly recommend checking out InterTrader’s interactive version of the results.

Posted with permission of Visual Capitalist.

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