In a passionate talk at the 65th CFA Institute Annual Conference in Chicago, veteran banking analyst Mike Mayo, CFA, delivered some advice for young analysts thinking of issuing a negative rating on a stock: do your homework, make sure you’re right, and develop a thick skin.
As chronicled in Mayo’s book, Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Themselves, companies that are the subject of less-than-glowing coverage may come after you, and, says Mayo, the managing director of the banks group at CLSA, “they have a lot of ways to humiliate you and make you look stupid.”
This is one reason why — even after the 2008 financial crisis — only 3% of U.S. stocks are rated by analysts as a “sell.”
When first contemplating whether to issue a sell rating on a bank he covered, Mayo said he wrestled with the feeling that he was violating loyalties — to company management, to his employer, and even to his family, which might suffer if he lost his job as a result of the downgrade. “But that’s not what I was taught in the CFA Program,” he said.