I never understood the ratings that brokerages and independent research firms use even though they provide explanations on their websites. Evaluating equities is tough enough without having to evaluate the ratings themselves. Despite Spitzer’s lawsuit and the 2002 push by the NYSE and NASD to make them easier to understand, equity ratings are still confusing AND plentiful. We have Perform, Market Perform, Sector Perform, Peer Perform and the similar variations with Outperform and Underperform. We have Overweight and Underweight. We have Buy/Strong Buy and similarly (but very rarely) Sell/Strong Sell. We have more generic terms like Add, Hold, Neutral,Maintain, Avoid, Reduce, Accumulate, and Attractive. We have alphabetical ratings like A,B,C,D,F as well as numeric ratings from 1-99 or 1-5 (some with stars, some without.) Well, there are a few more, but you get the idea - there are a lot of terms to evaluate.

Sadly, most people only focus on these one or two word, letter or number ratings and not the 20 pages of excellent research that most analysts put out to justify the rating. I guess it’s human nature, but there is a premium put on soundbites, and in the investment world, these stock ratings are the ultimate soundbite for brokers as well as do-it-yourself investors. However, successful financial advisors and investors know that they should not rely on ratings alone and that each investor’s unique and different profiles dictate what they should “Buy” or “Strongly Buy”.

I am not sure about everyone, but I know what I want and I know what most people ask me about. It’s quite simple really and it’s not ambiguous. It’s “Is the stock likely to go up or down?”

At Hedgefolios, there are no ratings or recommendations and I never suggest that the Hedgefolio signal should be the sole determinant of an investor’s decision. I choose to focus on the basic question of a stock’s likely direction. Since Hedgefolios emphasizes simplicity, speed, and clarity we only have two signals - UP or DOWN. If, based upon my analysis, I think the stock has a higher probability of going up in the foreseeable future, then the signal is UP and the reverse is also true. The moment that the signal is no longer UP it is immediately DOWN.