The ANZ Bank (ASX: ANZ) share price is down 1.5% to $26.21 today despite the broader S&P/ ASX200 (ASX: XJO) index of leading companies trading marginally higher on the back of a modest uptick from U.S. markets overnight.
The bank's shares are reportedly falling as investors hit the sell button on the back of a "downgrade" from sell side broker Morgan Stanley that is related to the bank facing rising regulatory costs on the back of recent scandals to hit the sector.
I've covered before how following sell side broker calls is not a sound investing strategy as it often leads to sell low, buy high returns.
Last July for example Morgan Stanley cut it valuation of Magellan shares to just $20 (it sells for $36.80) today on the back of just a couple of months of weaker retail FUM flows for Magellan. Everybody following Morgan Stanley's call to sell Magellan in July 2018 would have sold at a probable loss and missed out on a 70% gain plus significant dividends in the period since.
This shows how analysts can misunderstand a business and are often focused on the short term in constantly adjusting their price targets that encourage trading and generate brokerage fees for sell side brokers.
Indeed, research functions at sell side operations or brokers only really exist to encourage institutional or retail investors to trade and generate brokerage fees. While a 'one-year share price target' doesn't really mean anything in itself other than acting as a psychological inducement to encourage investors to trade more.
As such if I owned ANZ shares today, I wouldn't want to sell low based on the short term reasoning of analysts paid to constantly adjust valuations or ratings higher or lower.
Morgan Stanley has also reportedly issued a new "$140 share price target" on Macquarie Group Ltd (ASX: MQG) today in a move also likely to see higher trading volume in the stock.
