Can We Follow Analyst's Recommendation Blindly?

One of the greatest mistakes I made when I embarked on equity investment some years ago is basically lack of independent thinking.

I used to read analyst's stock recommendation report and bought the shares accordingly without further due diligence. The end result?

 I lost money in Masterskill shares when I blindly follow the analyst's BUY recommendation. 

Lesson learnt!

Nevertheless, do you like to drink Starbucks or dine at Kenny Rogers Roasters?

Starbucks and Kenny Rogers are some of the businesses owned by Berjaya Food Berhad. Share price was performing well from 2012 to 2014, brought cheers to many shareholders.

Following the surge in share price in second half 2014 due to acquisition of remaining stake in Starbuck Malaysia to make it a wholly-owned subsidiary, investors who were excited and follow stock recommendation of certain bank-backed research house, would have realised close to 50% in capital loss.

During the share price downtrend from early 2015 onwards, the analyst maintained BUY recommendation on Berjaya Food despite poor business performance at Kenny Rogers segment which dragged the Group's consolidated financial performance. Subsequently, the recommendation was changed to HOLD.

Those who bought and follow blindly (like I used to), would have sufferred losses. Hence, always train to think independently, always question the recommendation and question our thinking process to minimize mistake and optimize returns.

Analyst reports are useful to some extents, but do not follow the recommendation blindly!