Short-term thinking has gotten so pervasive on Wall Street that it has seeped into the very core of the research analysts who work for the big brokerage houses. Take this downgrade of Redback Networks
(RBAK:Nasdaq - news - boards) from strong buy to buy this morning by Paul Johnson at Robertson Stephens. Johnson's a good analyst and I don't disagree with his downgrade; I have said many times on this site that I think that Redback is a dangerous stock to own.
But what made no sense to me is the timing of his downgrade. Eight days ago he upgraded the darned stock from buy to strong buy. The stock was at 35 when he upgraded it, however -- unless you were Quick Draw McGraw -- you ended up buying it at 38, roughly where it is right now! In other words you couldn't buy it and sell it and make money. More important, what the heck did it he do it for? Eight days ago he raved that the stock was cheap on earnings (No, I am not kidding: 64 times earnings is cheap for these guys) and predicted an upside surprise. We got one, but I guess it just wasn't good enough. So he pulls it.
Whatever happened to the notion of recommending a stock and getting behind it and staying behind it? What is the point if you are going to put the stock on the buy list last week and take it off this week? I know the cynical among you will say, "He just wanted to generate commissions." But I know Paul. That's not the case. I think he is just part of the firmament, a firmament that encourages this kind of "buy it, ooops, no, sell it" mentality that helps no one at all. Not even the traders!
In the future, before analysts stick their necks out (and risk having them chopped off, if not by CNBC then at least by me), they ought to think before they issue the strong buy, "Man, will I look stupid if I downgrade this eight days from now." Because you do.
TECH CENTER
