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Today I\u2019m reading\u00a0a news article in *Expansi\u00f3n*<\/a>\u00a0which I\u2019d rather laugh off, but which is actually enough to make you burst into tears \u2013 or rather, to make you foam at the mouth with sheer indignation. The news report reads as follows: \u00abUBS withdraws its board recommendation just one day later\u2019\u00a0to sell<\/em>\u00a0\u00bbRed El\u00e9ctrica\u2019. This story is yet another example (the umpteenth) of the mediocrity of the analyses produced by the research departments of banks as high-profile as UBS itself. But the saddest thing is that this can be extrapolated to virtually the entire banking sector.<\/p>\n The sequence of events is as follows: Last Friday, the Government implemented a\u00a0electricity reform<\/a>\u00a0which, unsurprisingly, is having a negative impact on the financial results of companies in the sector. And the brand-new \u00abanalysts\u00bb at UBS have spent (or should have spent) the weekend racking their brains and recalculating the impact that this reform will have on the financial results of companies in the sector. These are extremely complex calculations and valuations which, after a whole weekend of painstaking effort (sic), lead them to the conclusion that they must revise all their target prices for the shares of these companies (target prices for what timeframe? That\u2019s another matter entirely\u2026). This task is carried out, naturally, by the \u00abspecialists\u00bb in analysing companies in the energy sector, who are supposed to know these businesses inside out. They also reformulate the usual recommendations for\u00a0buy, sell or hold<\/em>, which most mediocre investors regard as if it were an oracle.<\/p>\n Well, in the case of Red El\u00e9ctrica, the new recommendation issued yesterday (Monday) by the brilliant analysts at UBS was \u00absell\u00bb, and the new target price was set at 36.5 euros per share, whereas before the weekend they had set it at 38. One would assume that this \u00absell\u00bb recommendation and the target price of 36.5 published on Monday were the result of painstaking calculations and valuations feverishly carried out since last Friday by the bank\u2019s leading specialists in analysing electricity companies. But that doesn\u2019t seem to be the case. Because just 24 hours later, as soon as Mr Market proved them wrong and the company itself quantified the impact of the reform on its accounts at just \u20ac100 million, the UBS analysts saw the ground vanish from under their feet, melted like ice cubes in hot tea, and immediately redid their \u2018calculations\u2019 so as not to look out of place in the photo.<\/p>\n Today, Tuesday, these same analysts\u00ab recommendation is \u00bbhold\u2019, and their target price is yesterday\u2019s closing price, i.e. 40 euros (today it is once again the top performer on the Ibex and is already at 40.66). Could it be any more mediocre? In light of the market\u2019s reaction, the analysts are accepting as valid the calculations of the impact on the accounts published by the company itself, and are even adjusting their forecast to the current share price! What a load of rubbish\u2026 They\u2019re taking their clients for fools! Anyone who listens to that bunch of good-for-nothings is, at the very least, being very poorly advised.<\/p>\n The bottom line is that these analysts have absolutely no understanding of the business they are attempting to value. They haven\u2019t the faintest idea of the impact the reform might have on the company\u2019s accounts (they may not even have a clear understanding of the company\u2019s accounts), and they simply go along with the analysis departments of other banks so as not to be caught out. Their mantra is: If we get it wrong, we\u2019ll all get it wrong (UBS, Credit Suisse, Citi, BBVA, Santander, LaCaixa, Deutsche, etc.). He wouldn\u2019t want to be singled out, as this could harm his sales figures, which would be fatal to his job security. It doesn\u2019t matter if we give up on analysing things properly just to go against the market. The only important thing is not to stand out in the group photo of bank analysts and the financial sector\u2019s consensus. The\u00a0The Criterion of Mediocrity<\/strong><\/a>\u00a0Unfortunately, this is the direction the banking system continues to take, both in the management of its funds and in the sale of its products.<\/p>\n The worst thing is that everyone does the same. There isn\u2019t a single bank willing to take the risk of being wrong on its own, in the hope of getting it right. When what is reasonable clashes with the consensus, the\u00a0analysts<\/em>\u00a0They abandon, without a moment\u2019s hesitation, reason in favour of aligning themselves with the consensus. Because analysts can take the risk of getting it wrong (they often do, and their bosses tolerate it quite well), provided that the error is collective and widespread. They will never dare to defend a valuation or a point of view that is radically different from what that schizophrenic Mr Market has to say. Why? Well, basically because their analyses are, at best, superficial. And so they will never dare to stand firmly by their recommendations or price forecasts<\/strong>. What\u2019s more, their bosses put pressure on them to feed the bank\u2019s eager customers a daily diet of forecasts. And these clients, whether out of naivety or sheer gambling addiction, indiscriminately stake their money on the \u00abwell-thought-out\u00bb recommendations of their banks\u00ab \u00bbelitist research departments\u2019. These recommendations pass through (and are ultimately prostituted by) the sales department, which acts as a conduit between analysts and clients. That\u2019s how things are for them, and that\u2019s how they\u2019ll continue to be.<\/p>\n Although I would prefer to think that the\u00a0analysts<\/em>\u00a0The analysts at UBS (and elsewhere) spent the whole weekend calculating Red El\u00e9ctrica\u2019s depreciation ratios resulting from the reform, the forecasts for the coming financial years, and so on and so forth. I can just imagine the discussion amongst them when they realised yesterday that their predictions had accidentally and recklessly strayed from the consensus:<\/p>\n -Hey, Red El\u00e9ctrica has said that the reform will only cost them 100 million\u2026 and today the share price is skyrocketing.<\/em><\/p>\n -Ugh, what do we do now? Look, change the \u00absell\u00bb recommendation we\u2019ve put out, and do it straight away!<\/em><\/p>\n -But why do we say \u00abbuy\u00bb?<\/em><\/p>\n -Come on, don\u2019t go overboard \u2013 set it to \u00abneutral\u00bb just in case.<\/em><\/p>\n -And what target price should we set? Because at 36.5 we\u2019re making fools of ourselves \u2013 it\u2019s already at 40 and rising.<\/em><\/p>\n -Well, just use today\u2019s closing price with a \u00abneutral\u00bb recommendation, and that way we won\u2019t get it wrong. And next time, don\u2019t commit yourself by giving prices and recommendations until you\u2019ve seen what the other banks are saying, or until the company itself publishes its own valuation. Agreed?<\/em><\/p>\n -OK, sorry, it won\u2019t happen again.<\/em><\/p>\n -This is what I get for delegating\u2026 I just have to keep a close eye on everything myself, because the moment I take my eye off the ball, these kids make a right mess of things!<\/em><\/p>","protected":false},"excerpt":{"rendered":" Hoy leo\u00a0una noticia en Expansi\u00f3n\u00a0que prefiero tom\u00e1rmela a risa, pero que en realidad es para echarse a llorar, o mejor, para sacar espuma por la boca de pura indignaci\u00f3n. La not\u00edcia dice as\u00ed: \u00abUBS retira s\u00f3lo un d\u00eda despu\u00e9s su consejo de\u00a0vender\u00a0Red El\u00e9ctrica\u00bb. La historia no es m\u00e1s que una muestra (la en\u00e9sima) de la […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[38,51,39,40,37,55],"tags":[],"class_list":["post-3192","post","type-post","status-publish","format-standard","hentry","category-actualidad","category-banca","category-crear-mi-propio-family-offices","category-gestion-financiera","category-reflexion","category-necesito-un-family-office"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3192","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=3192"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3192\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=3192"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=3192"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=3192"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}