John Irons's Blog


Economic News, Data and Analysis

Stock Rankings

I’ve just heard that,as of yesterday, Morgan Stanley has changed their stock ratings to three categories: Overweight, Equal-weight, and Underweight.
This seems to be an improvement in the terms relative to the more traditional strong buy, buy, hold and sell. (Why would anyone ever purchase a buy when there is a strong buy available? Why would anyone want to hold when you could sell and get a strong buy instead?)
The new rankings seem to be an improvement in part because they recognize that people tend to (and should) hold a wide range of stocks.
There is a problem with their implementation however – according to the report I saw on CNBC only about 25% of the stocks reviewed are classified as “underweight.” This seem to me to smack of a lake wobegon (sp?) on wall street – where most of the stocks are above average.
So here’s my solution: keep the categories, but mandate that 1/3 of the reviewed stocks be in each class. That way, in order to upgrade a stock, another must be downgraded. This would be a perfect solution to the “ratings inflation” that currently exists.


Filed under: Economics



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