It is often said that one critical statement to a child offsets 10 positive ones. The same effect can be found in the stock market, where an analyst’s downgrade is worth, in dollars and cents, sometimes ten times that of an upgrade. Take for example the price movement of shares of shoe company Skechers (SKX) which today fell almost 8%, over $70 million in market capitalization, after an analyst downgraded the stock.
For the most part, the law protects opinions from prosecution or law suits. But shouldn’t regulators be allowed to look behind reported opinions to determine whether action is warranted? Huge damages can result from inaccurate opinions. The best example is bond ratings by recognized services, with mega-billions recently lost on investments which had been deemed ultra-high grade. But losses can also result from negative opinions.
There is no proof, evidence or even insinuation that an analyst at Sterne Agee had any nefarious goal to cause holders of Skechers stock to lose $70 million today. Nor is there any information to link this downgrade to the short interest in Skechers’ stock, last reported at one-fourth of the stock’s float. Yet, those short the shares collectively profited by about $10 million today.
As this analyst attempts to report the future of Skechers, perhaps investors should instead look into the history of the analyst. Curiously, back in April of 2009, Stern Agee’s analyst Sam Posner downgraded Nike (NKE) stock. Not surprisingly, the stock immediately fell about 6% in value. After the shares then rose almost 25%, he upgraded Nike shares 8 months later (Nike shares are now up over 80% since the downgrade).
In fact, Stern Agee previously downgraded Skechers’ shares in February of 2009, after which the stock immediately fell 25%. Six months later, after the stock had DOUBLED in value, the stock was upgraded, followed by almost no perceptible immediate price change.
One would think that – after previously helping Skechers’ stockholders to avoid doubling their money, then causing at least some holders of Nike shares to miss 80% in profits – this company’s analyst opinions would carry little value, but even questionable bad news travels fast.
Securities regulators have their hands full and may be discouraged about the ultimate value of investigating analyst opinions, but it would certainly be sad if no one even considered the ability of share prices to be manipulated by analysts’ opinions, especially negative ones.