Mr. Shangkong | What analysts won't tell you about selling out of a stock
Investing in equities is all about timing, so why do most banks say so little about when to exit - and what does a 'hold' rating really mean?
In the stock market, there is a widely acknowledged principle: it's more important for investors to know when to sell than when to buy because you can only secure your profits when you sell.
As a financial journalist, I often get a dozen research reports in a single day from various investment banks that want to recommend this or that stock. One thing that those investment banks have in common is that they all keep telling you to buy a stock, but very few of them will later remind you when to sell.
Some may argue that we should listen to what the mainland's securities regulator often talks about: being a long-term investor in China's stock market. But how long is long?
Have you heard of any major investment bank in the past few years that's ever told its clients to sell big Hong Kong- or Shanghai-listed Chinese state-owned enterprises amid an obvious downtrend in their profit growth?
In principle, there is a so-called Chinese wall at investment banks to isolate research teams from business departments to avoid potential conflicts of interest. But principle is one thing and practice is another.
In the real world, most bankers I know will acknowledge privately that such a Chinese wall is more or less ineffective as research teams are often considered a cost to banks, while business departments are regarded as revenue generators that pay the bills and the salaries of researchers.
In a realistic capitalist world, does this make a lot of sense?
