In my recent “Five Rules” post I recommend avoiding stocks with high (numerically low) combined analysts’ ratings. This may seem very strange to some. After all, in most areas of inquiry, one is smart to follow the recommendations of the experts. If five doctors tell you to have your appendix removed, you really should consider doing just that. So why should you ignore, or even contradict, the Wall Street experts?? It is because the nature of the problem is so different. Every stock price reflects the best estimates of what that price should be by the best experts controlling the most money invested in the stock. So it is more like getting an estimate from 100 geologists of how large a petroleum deposit is, and then having to make a decision about whether the average of those 100 estimates is high or low. If you ask 10 more geologists for their opinion, and all 10 say that the combined estimate from the 100 geologists was low, then that would be a very strange outcome. Why do these 10 disagree with the combined wisdom of the 100??
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