About Analyst's Reports

Introduction
I've delayed writing about this topic for awhile already. It was spurred by some conversation that I had a while back. This post is mainly about trading/investing with analyst's reports.

What spurred this topic
A while back I was talking to a friend about analyst's report. He's a very intelligent man who's aspiring to be a trader (and I begin wondering why everyone wants to be a trader). At some point in time, we talk about analyst's report and as someone who wants to help, I offered him a copy of an analyst's report that I had with me. He refused, speaking of his skepticism of the report.

Honestly, I was a wee bit surprised and I felt sad. Not sad about my kindness being rejected though. More so for the general attitude of people towards research analysts. However, this post isn't about them. It's about relating analyst's reports to the level of compentency of a trader.

Different Trader Level in relation to Perception on Analyst's Reports
Here I would like to classify a trader into 4 levels with level 0 as the lowest and level 4 as the highest.

Level 0 - the ignorant one
Someone who doesn't know of the existance of analyst's reports. This is probably someone who is still a newbie in trading, or someone who have no idea what is investing/trading. He is probably quite safe from the risk of ruin for his money is probably still in the safe deposits or under his pillow.

Level 1 - the amateur
Someone who knows the existance of analyst's reports. Use it only by scanning through looking for hints and ideas that coincides with his and then based his decision on them or just look at the final recommendation (which is normally in Bold) to either buy or sell. Unfortunately, this is where most novice traders who just started trading falls into. The risk of ruin? Extremely high - almost definite in excessive use of leverage.

Level 2 - the all-knowing
I'm not sure if this is exactly a good category. For someone who falls into this category, he is someone who is definitely very intelligent, hardworking and probably read a lot of books about trading with the first few chapters repeatedly saying that most people lose money in the stock money and to a certain (large) extend, they relied on analyst's reports. Those articles probably state how contradicting the market reacts to the recommendations of the analysts. In these articles, they will also teach people not to believe or rely on those reports and to "do their homework", how analysts write reports to help their funds unload the shares, if they are so good they would be traders instead of writers, blah blah blah....

I've read these writings before so I know about them.

However, what these articles probably doesn't tell you is that what these analysts have in their hands, are probably not what you, as a retail trader/investor has access to. And that being them, specialising in work and selected topic industries for years, they are probably more familiar and knowledgable about what they write about than you, and that somehow, they are ranked according to track record so they have to perform (somehow). The articles probably also doesn't tell you how much hard work was actually put into the report by a good analyst.

By allowing ego to play a part in your trading by ignoring these reports either because you think you are better, or you think it's smart to not fall into the foolish traps that level 1 are in, you are probably limiting yourself in potential and to a longer term extend, you might probably be worse off than those in level 1 - at least when they lost it all, they are stopped out or they grew smarter and more hardworking. As for someone who is too smart to learn humility, the long term would only be sufferings. As one who is probably the reincarnation of the mighty lion, Leo, I think I have more than enough experience and knowledge to recognize ego when I see it. I personally spent a lot of conscious effort keeping myself in check (not very successful but at least I recognized it and it working on the issue).

Risk of ruin = low, risk of health (both mental and physical) = medium to high

Level 3 - the humble servant
This is the level that most traders should aspire to be in (at least in my opinion). Someone who can accept and respect others. Someone who knows that he still has much to learn and acquire. And most importantly, that life is a journey of continous learning (and unlearning). Someone who is humble. I am not going to say much about this level, for when you're here, you'll know it.

Conclusion
In concluding, I would hope that traders do spend some time in accessing themselves. This is probably the hardest and most time-consuming part of being a trader (at least it is for me). Technical analysis or fundamental analysis are just tools for tradings just as a sword (or rifle in modern times) are to a soldier. The key is not the tools, it's the one using them.

I would like to end this post with a quote abouting the difficulty of learning that I recently read from "The Aggressive Conservative Investor":
"The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those who have been brought up, as most of us have been, into every corner of our minds. - J. M. Keynes"

Poem

Came across this poem when I was looking for another:

白衣卿相《别思》 

十里长亭霜满天，青丝白发度何年？ 
今生无悔今生错，来世有缘来世迁。 
笑靥如花堪缱绻，容颜似水怎缠绵？ 
情浓渺恰相思淡，自在蓬山舞复跹。

When I was looking for this:

十里平湖 
《倩女幽魂》背景插曲 

十里平湖霜满天 
寸寸青丝愁华年 
对月形单望相互 
只羡鸳鸯不羡仙