Loans and Mortgage Tips

Brokers know that you want researched stocks recommended by experts. That is why you came to them to begin with. Each brokerage house, therefore, has its own experts rating stocks just for you. When brokers rate stocks, on average more than 65 percent are rated buy, less than 35 percent are hold, and less than 1 percent are rated sell. Every broker, therefore, has a long list of buys to show you, several of which are certain to piqué your interest.

Unfortunately, buy ratings have a dual purpose. Buy ratings sell stock to you and they sell services to companies issuing stock and bonds. In 2000, brokers made more than $30 billion dollars helping companies issue stocks and bonds. These stocks and bonds are always given buy ratings. That keeps the client coming back; it may or may not keep you coming back.

Studies show that buy-rated stocks have random returns on average no better than the market. Frequently they serve to prop up stock prices temporarily so insiders can cash out their stock options at a profit before the collapse. Insiders have to act quickly, though. According to a 2001 study by Investors.com, buy ratings on IPOs by the analysts of the underwriting firm lead to losses six months later of greater than 50 percent.

Investors also go to their broker for comfort and support during the markets down periods. Unfortunately, a full-service broker is not a financial counselor or a psychologist, but a salesperson looking for a commission. He will always have a product to sell you in an attempt to ease your discomfort.

Greater complexity in loan workouts is a result of increased diversity, both in the participants involved in financing companies and in the nature of financial claims. Traditional bilateral banking relationships are being replaced by more transaction-based financing arrangements, including the direct access to investors in the capital markets. As a result, when corporate distress occurs, there is a very wide range of institutions that become involved in support operations. Potentially conflicting objectives from a wide spectrum of financiers, including venture capitalists, credit insurers, institutional and retail bondholders and vulture funds, can be difficult to reconcile. At the same time, the complexity of companies’ legal structures and financial management activities results in a loss of transparency. Considerable effort is required to unravel financing arrangements if such companies encounter difficulties. The process of determining the prioritisation and negotiating strengths of the different claims on a company’s assets is hampered, causing uncertainty among the participants.