How do you decide where to invest your cash? For some it will be a case of simply handing the money to their financial adviser to sort out. Others take an approach not too dissimilar to picking a horse in the Grand National, going for firms that sound familiar or comforting in some way.
Many of us try to keep abreast of what’s happening by following the advice of the City experts, the analysts who pop up to tell us which shares are a good “buy” prospect, and which you should shift.
The trouble is new research has suggested that if you did the opposite of what those analysts suggested this time last year, then you’d actually be better off than if you’d followed their advice.
Missing the mark with the ‘buys’
Investment platform looked at the ten FTSE 100 firms which most often received a “buy” rating from analysts in January 2017 and found that these shares actually fell in value across the year.
Shire, for example, received a “buy” rating from 86% of analysts, yet dropped by 16.7% over the year. Dixons Carphone was promoted by the same percentage of analysts but had an even worse 12 months, dropping by almost 44%.
Indeed, of the top 10, only half managed to increase in value over the year, and in the case of Paddy Power Betfair even that was only by a paltry 0.6%.
Overall, the 10 most recommended shares fell in value by 9.3%.
Selling off solid performers
Just as worryingly, the 10 companies most frequently given “sell” ratings last January not only performed better than the ten “buy” firms, but they even outperformed the FTSE 100 itself.
For example, almost two-thirds (63%) of analysts suggested selling Rolls Royce at the start of 2017, yet its share price has jumped by more than 28% since then. Similarly more than half of analysts gave Royal Bank of Scotland a ‘sell’ rating, only for it to rise by almost a quarter (23.8%) in value.
But the biggest mis-step was Antofagasta. 44% of analysts gave it a “sell” rating, yet the shares jumped by a massive 48.9%.
Interestingly, when it comes to shares on the FTSE 350 the analysts did much better. The ten shares that received the largest number of “buy” ratings jumped in value by more than 35%. That said even the shares picked out as good candidates to be sold rose by more than 25%, outperforming the index itself.