New York – An interesting part of performance is the concept of batting average. A batting average indicates the percentage of times a research providers’ recommendations resulted in the stock moving in the intended direction. For example, if a buy recommendation is put into effect and the stock moves up this can be considered a hit. Then the number of hits on buy recommendations compared to the total number of buy recommendations over the year is the buy batting average.
The sell batting average is completely analogous to the buy batting average, except a sell recommendation followed by a decline in the stock price represents a hit. To summarize those firms that have solid batting averages across all recommendations, we average the batting buy and the batting sell for each of the firms.
| Company | Batting Buy | Batting Sell | Average BA | At Bats |
| Trading Central |
0.2824 |
0.8859 |
0.58415 |
298 |
| Channel Trend Inc. |
0.4292 |
0.7334 |
0.5813 |
4746 |
| Rochdale |
0.2938 |
0.8084 |
0.5511 |
3080 |
| Ford Equity Research |
0.4187 |
0.6736 |
0.54615 |
6478 |
| MDB Capital Group |
0.0655 |
1 |
0.53275 |
34 |
| Keefe Bruyette & Woods |
0.1923 |
0.849 |
0.52065 |
106 |
| Caris & Company |
0.1111 |
0.9285 |
0.5198 |
52 |
| Oppenheimer & Company |
0.0877 |
0.9487 |
0.5182 |
78 |
| Hilliard Lyons |
0.1609 |
0.8666 |
0.51375 |
30 |
| Janney Montgomery Scott LLC |
0.1685 |
0.8571 |
0.5128 |
42 |
| Sterne, Agee & Leach |
0.175 |
0.8484 |
0.5117 |
132 |
| Independent II Research |
0.2903 |
0.7327 |
0.5115 |
232 |
| First Albany Capital |
0.1135 |
0.909 |
0.51125 |
42 |
| UBS |
0.1305 |
0.8853 |
0.5079 |
304 |
| Columbine Capital Services, Inc. |
0.3478 |
0.6669 |
0.50735 |
14406 |
| Standard & Poor`s |
0.2126 |
0.7991 |
0.50585 |
1252 |
| BB&T Corp |
0.1367 |
0.875 |
0.50585 |
32 |
| KeyBanc Capital Markets |
0.1035 |
0.9 |
0.50175 |
40 |
| Sandler O`Neill |
0.0519 |
0.9444 |
0.49815 |
36 |
As always when we simplify our data to draw out an interesting point, we also lose some of the detail. One the key area where the batting average loses information is that a firm can have an excellent batting average and mediocre performance. This could result if all of the correct calls resulted in very small increases and the incorrect calls resulted in large losses.
As well, just like early in the baseball season, if there are only a few at bats, a high batting average may not reflect a level of consistency. Rather it could simply reflect a few lucky swings. It is clear that batting average alone is not sufficient to demonstrate performance. However, there are ways to improve the odds that batting averages are reflective of a research provider having a consistent record. The best way to limit the anomalies is to consider firms that have enough at bats to accurately demonstrate a solid track record.
We screened the data set and removed all contestants that had less than 30 recommendations over the time period. Once this is done, we feel that the firms with the highest average batting averages are indeed indicative of the best selection of direction.
The top five in batting average by this process were Trading Central, Channel Trend, Rochdale, Ford and MDB Capital Group. Perhaps somewhat indicative of the current market environment, only 19 firms had batting averages above 50%. In baseball a batting average of 500 is great; in stock recommendations mmm..not so great.