Sorry Fortune, Meredith Whitney Is Just An Average Analyst (You Even Said It Yourself!)

Remember when Henry Blodget made his $400 call on Amazon stock back in the late 1990’s? He will be known forever for that call more than all the other ones he made combined. Fast forward nearly a decade and Oppenheimer banking analyst Meredith Whitney has achieved similar rock star status. The August 18th issue of Fortune Magazine has her on the cover.

Now, I like Fortune a lot. In fact, aside from an online subscription to the Wall Street Journal, my subscription to Fortune is the only periodical I actually pay for. But this Meredith Whitney hoopla is really getting old, and quite frankly, it’s too much.

Like Blodget, whose $400 price target came to fruition despite the controversy surrounding it, Whitney’s early warning on Citigroup (C) stock last year definitely deserves kudos. She got death threats after suggesting the banking giant would be forced to cut their dividend and raise capital. At the time it was a minority opinion, but she was right and deserves credit for a very bold and correct call.

That said, let’s not get carried away. Investors and the media should not judge an analyst on a single call, but rather the entirety of their work. There are great analysts out there, but the track records of most are mediocre at best. When I have the chance to guest lecture undergraduate and MBA students, I often refer to a study that showed the stock picks of sell-side analysts, like Whitney, consistently underperform the market and do so with more volatility.

So, does Meredith Whitney deserve all the attention she has been getting lately from investors and the media (she is on CNBC all the time)? I have nothing against her, but I doubt it. She should be commended for the Citigroup call, but treating her as the “go-to” analyst on banks would only be reasonable if her track record beyond that one call was overly impressive. Unfortunately for investors, it isn’t.

In the Fortune cover story, in fact, it is mentioned that according to Starmine (a company that tracks the performance of analyst recommendations against their industry peers), Whitney’s stock picking ranked 1,205th out of 1,919 analysts in 2007 (the year of the Citi call). During the first half of 2008, Whitney’s picks ranked 919th out of 1,917 analysts.

The only conclusion I can draw from those numbers is that Whitney is no better than an average bank analyst. In the world of sell-side research, “average” is hardly something to get excited about.

Does this mean you should completely ignore what Whitney and other analysts say? No. They put in long hours and often can provide a lot of information that is helpful in conducting stock research. Still, we should not drop everything and hang on every word whenever Whitney is on CNBC or lands on the cover story of a magazine. She just isn’t going to make us rich.

Need proof? Consider her recent downgrade of Wachovia (WB). Whitney downgraded the stock on July 15th from “market perform” to “underperform.” For those who prefer to translate Wall Street lingo, that means she went from a “hold” to a “sell.” Good call? Umm, hardly.

Wachovia stock actually bottomed that same day at $7.80 and closed at $9.08 per share. It never traded lower than that, completely reversed course, and traded as high as $19.48 on August 1st. That is a gain of 150%, peak to trough, in just 13 trading sessions! Just imagine if you shorted Wachovia because Whitney put a sell on it!

Just as we should not judge Whitney solely on her Citigroup call, we also should not judge her solely on the terrible Wachovia downgrade. Still, since her stock picks rank her as an “average” analyst within a mediocre group of stock pickers, I can safely say the attention she is getting these days is a little over the top.

I still love Fortune and CNBC and all the other outlets going gaga over Meredith Whitney. I just think she’s pretty overrated and want people to understand the facts along with the hype. People just love a good story on Wall Street and right now, she’s it.

Full Disclosure: No position in Citigroup or Wachovia, long a subscription to Fortune at the time of writing

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12 Thoughts on “Sorry Fortune, Meredith Whitney Is Just An Average Analyst (You Even Said It Yourself!)

  1. Anonymous on August 13, 2008 at 8:08 PM said:

    Chad, as long as we’re data mining a few of her calls (instead of all of them), let’s compare Whitney’s *relative* performance vs. other scaredy-cat Street analysts that cover the financials. Yahoo Finance shows more than 5 analysts that have kept a BUY on Citigroup, for instance, during this entire past year.

    So if Whitney is an average analyst, then what are her “peers” covering the same industry?

    Disclosure: I think “pro” wrestling is fake, and Whitney’s husband, John Bradshaw Layfield, is a WWE personality. Oh, and am long SRS, UltraShort Real Estate ETF.

  2. Anonymous on August 13, 2008 at 11:37 PM said:

    The relative performance is already done and it places Whitney exactly in the middle of the group.

    If you predict negatives all the time you’re bound to eventually be right, but that still doesn’t make you an analyst.

    Kudos to Chad for keeping his feet on the ground.

  3. Chad Brand on August 14, 2008 at 5:20 AM said:

    Just to clarify, the Starmine ranks mentioned in the post (and the magazine) are just that, the relative rankings among Whitney’s peers. The Citi call gets all the attention, but I also gave the Wachovia example to show readers how she could only be “average” in her peer group.

  4. Anonymous on August 14, 2008 at 8:20 AM said:

    Chad, When an analyst makes an upgrade or downgrade, what’s the usual time horizon? Is that typically specified in the research note that accompanies the upgrade? I just mention it because with the Wachovia call, you talked about shorting on an analyst’s recommendation.

  5. Chad Brand on August 14, 2008 at 8:40 AM said:

    The time horizon of an analyst’s call will vary. Typically, the analyst will spell out their view in detail in the report, so you have a good idea of what their time horizon is.

    Usually analyst ratings are intermediate term in nature. On average, you will see most time horizons of 3-6 months up to 6-12 months. Rarely are they more than one year out, but sometimes analysts try to make calls for 1-3 months.

    Personally, I would never trade based on an analyst call, but I’m sure many people think Whitney has a hot hand and mimic her calls as a result.

  6. Anonymous on August 14, 2008 at 10:44 AM said:

    Chad – Don’t be so quick to write her off. Her WB call isnt necessarily a loser just yet. History is a good indicator for future events. BSC was trading 72 bucks early Jan ’08 and spiked to 92ish in Feb ’08…i mean come on.

  7. Chad Brand on August 14, 2008 at 10:51 AM said:

    I’m pretty sure anyone who sold WB at $8 or $9 per her recommendation would argue otherwise.

  8. shepherd on August 15, 2008 at 3:54 AM said:


    Thanks as usual for the prompt reply to questions.

  9. Anand Sanwal on August 16, 2008 at 6:10 PM said:


    Great post and I couldn’t agree more. She’s undoubtedly made some prescient calls and hasn’t been shy in making them aggressively and in an outspoken manner (hence the media attention), but the question really is whether Meredith Whitney is more sizzle than steak?

    When you look at her performance as reported in Fortune which you mention, you get some perspective into this. The author’s article writes:

    “Whitney’s insights haven’t always translated into lucrative investment picks…That said, evaluating Whitney solely on the timing of her buys and sells misses the point. It’s not just that she’s bearish on the entire banking industry. What makes Whitney so interesting is the brutality of her arguments and the evidence she summons in making them.”

    Based on the statistics aka something we call the facts as you point out, Meredith Whitney isn’t that great a stockpicker. And if I’m a client or investor, I’m guessing that the correctness of stock picks is what makes me money and not the “brutality of her arguments and the evidence she summons in making them.” Looking at her stock picks as a metric for measurement doesn’t “miss the point”. It is the point.

    However, the media love a story and Meredith Whitney provides it. She is married to a WWE wrestler. And more importantly, she makes swing for the fences calls which attract attention. If she was wrong and once she is, she will fade into obscurity. But because she has been right on some of these big, hairy prognostications, she’s been appointed a guru and CEOs and CFOs spend time with her.

    Unfortunately, it seems the frequency of being right which I presume the folks who are ranked highly in the equity analyst crowd are is being drowned out by the magnitude of correctness no matter how frequent.

    Let’s remember the primary objective of an equity analyst should be to make good calls that inform clients’ investment actions and enable their success. As a result of this, they should be rewarded. Somehow, being 919 out of 1917 equity analysts doesn’t seem worthy of much praise, but once again, style sells.

    The question now is if Meredith Whitney’s stock picking skills don’t improve, how long will the hype last?

    Anand Sanwal
    Investile Dysfunction blog

  10. If you think stocks move for rational reasons, you are probably not doing very well. She just downgraded Wachovia for the numbers–they are terrible and Wachovia is in serious trouble. That doesn’t mean some people won’t call a bottom (don’t they do that every week?) and buy because they think Uncle Sam is going to bail them out soon? That is the driver in financials–not actual forward earnings potential. She does her homework and reports on the facts–not which way she thinks the herd might move.

  11. Chad Brand on September 14, 2008 at 6:50 AM said:

    Everybody knows the numbers are terrible and the banks are in trouble. Basing investment recommendations solely on the headlines (and not based in part to where the stock is trading) is one of the biggest mistakes sell side analysts make that leads them to not make for good stock pickers. So far her WB call has been horrible. If they eventually go under of hover around 2-3 per share for a long time, I will give her credit, but she downgraded at the exact bottom… we can’t give her credit for that just because she said things were bad for WB. That is just stating the obvious.

  12. Hmmmmm.... on December 25, 2010 at 10:54 PM said:

    This type of writer, one who slams an analyst based on short-term market moves of a single call, should be required to post updates. Meredith Whitney was dead on about Wachovia. The company ended up plunging about 33% from Meredith Whitney’s downgrade date price of $7.80 before Wachovia was acquired by Wells Fargo in 2009. From the August 1, 2008 price of $19.48 cited by the writer Wachovia lost more than 70% of its value.

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