What's a Stock Rating Really Worth?

A couple of weeks ago, I warned readers to take advice from analysts, columnists and other "experts," including me, with a grain of salt. But what I didn't touch on was ratings. Star ratings, Top 10 ratings and numerical ratings are handy ways to get an investor's attention. But what are they worth?

What brings this to mind is Morningstar's recent introduction of star ratings for stocks, much like the ones it famously gives to mutual funds. Perhaps it's an exaggeration, though not much of one, to say that Morningstar built its reputation on star ratings. So I expect investors will pay attention to its stars for stocks. They're available only to subscribers for $99 a year.

I'm both a fan and a critic of the fund stars. The idea was ingenious. And back in my days as a beginning investor, I even suggested that investors select from those funds that carry five stars. Most investors want to simplify their search, and I saw it as a way to eliminate noise and cut to the chase. ...