Rules of Tony Golding

1. Don't take broker research recommendations at face value.

Be as sceptical as you would if you were buying a used car. You know that the salesman is likely to be more interested in doing the deal than worrying whether it will run smoothly for the next year, or even two!

2. 'Buy' recommendations are always in the majority.

'Hold' is also common but 'sell' recommendations are virtually in the hens' teeth category. Which is fine in a bull market when a rising tide floats all boats. But this built-in 'buy bias' clearly doesn't make sense when share prices are falling and brokers continue to urge purchase all the way down.

3. Broker recommendations have always had a strong 'buy bias'.

No analyst wants to risk offending the company he is researching as he is heavily reliant on it for information. The problem is that this 'buy bias' has become significantly worse in the last few years. The main reason is the increasing involvement of analysts with investment banking work, mostly new issues and advising on acquisitions.

4. It is an unfortunate fact that investment banking is much, much more profitable than buying and selling shares for investment institutions.

So increasingly research is used by investment banks to make corporate clients - or potential corporate clients - feel warm and cuddly. Institutions have responded to this lack of objectivity by setting up their own internal research. They now use equity analysts primarily for information (on the company and its sector) and not much for advice on whether to buy, hold or sell.

5. What is written and what is said are two very different things.

A fund manager can call an analyst to ask him what he really thinks of a stock. You can't! Often analysts would like to be more objective but - in public at least - have to go along with their employer's 'house view'.

6. The larger the investment bank or stockbroking firm that employs the analyst making the recommendation, the less likely it is to reflect what the analyst really thinks.

In big, integrated investment banks the pressures to toe the line are intense though some - those with a tradition of independent research - give their analysts greater freedom.

7. When judging the objectivity of recommendations, look at where the fees are earned.

Objective recommendations (including a willingness to use the dreaded 'sell' word!) are much more likely to come from firms that rely exclusively or heavily on trading shares for their living and do little or no investment banking.

8. The bottom line is: the private investor needs to take care.

Treat recommendations with due scepticism. For many analysts working in investment banks, getting the share-price right is no longer their primary motivation.