Clowngrades: Welcome to Wall Street’s Three-Ring Circus

Students, Please Report To Your Home Rooms

Let’s pause for a vocabulary lesson.

In analyst-ese:

• Upgrade means an “expert” slapped an optimistic label (usually “buy”)
• Downgrade correlates to a less-positive perspective (often a “hold” or “sell”)

Markets react to this stuff like it is gospel. But at Blueprint Investment Partners, we take a different view. We think of all of these as synonyms: upgrade, downgrade, clowngrade. To us, the whole rating system is like finding a series of Yelp reviews from the same person: on Monday it’s 1 star for Joe’s Diner but by Friday it’s a 5-star write-up that rambles about how the hot dogs pair well with ice cream.

Said another way, if Wall Street analysts signed up that middle-school talent show, we’re convinced there would be a preponderance of entries from the supposed-greatest magician on earth – because now you see buy, now you don’t!”

Using that Microsoft and Snap article as an example: Microsoft got the analyst equivalent of a shrug as it was downgraded from buy to hold, which moved price targets down. Meanwhile, Snap got an upgrade, but the price target didn’t budge. Clowngrades. You feel me?

An example of clowngrades occurred during the 2008 Financial Crisis when multiple big names received downgrades AFTER massive stock price declines. For example, Citigroup was downgraded at almost the exact bottom of the equity market decline in March 2009. Similarly, GE was amidst an 80% decline when investors were alerted by talent show participants – er, I mean analysts – that caution was needed.

Reading Horoscopes & Price Targets In The Cafeteria

Price targets are essentially guesses. Well-educated guesses, sure, but guesses nonetheless. Analysts consider future revenue, growth rates, sentiment, cosmic alignment of the markets, the smell of the coffee in the break room — nobody really knows — pick a number…and then adjust it based on other firm’s guess.

Then — plot twist — when the stock doesn’t obediently saunter to their target, analysts revise it. Presto changeo! Clowngrading strikes again.

This scenario feels like a weather forecaster announcing “sunny skies” during the morning news and changing to “clouds and possible regret” after lunch. Yet, the market can react as if these analysts are superheroes with x-ray vision into future stock prices.

Nerd Alert: Systematic Trend Following Enters from Stage Left

Now, let’s contrast this analyst circus with a far more serious and disciplined approach: systematic trend following.

If price targets are the whims of personality and hunch, trend following is pure rhythm and pattern. It’s less “I feel this stock’s going to go up!” and more “The market is giving me observable evidence that it is going up — so I’m going with it.”

In trend following, you don’t care what some moustache-twirling analyst predicted for next quarter’s earnings per share. Instead, you look at actual price trends: is the stock going up? If yes, stay in. Is the stock going down? If yes, get out. Rinse and repeat with mathematical precision. No personalities, no emotional swings, just following the rules.

Trend followers like Blueprint Investment Partners don’t dance to the analysts’ music. They watch prices, wait for trends to establish, and then ride them like a surfer on a good swell. If the trend fades, they exit.

Case in point: In the earlier-mentioned headline, depending on the timeframes chosen, many trend-following systems would have already made their move on Microsoft before the clowngrade occurred. Imagine how many hours and how much manpower was spent to develop a conclusion that a systematic trend-following system could formulate automatically.

In a way, trend followers are like the kid with an early interest in becoming a mentalist. She stood in the corner and observed everyone’s non-verbal cues, then shocked the crowd with her ability to seemingly read minds. Similarly, trend followers turn down the analyst noise and stick to the data. Using the case in point above, as trend followers, Blueprint Investment Partners wouldn’t care if Microsoft got another clowngrade today; we only care if the trend line moves in a meaningful direction.

Your Turn to Pick a Talent – Prediction or Process?

Next time you see headlines like “Microsoft Downgraded, Snap Upgraded,” beware that you may be witnessing the Wall Street version of fortunetelling, with lots of colorful language but surprisingly few useful insights, in my opinion.

If you want to enjoy the spectacle of analysts clambering over each other with price targets — like teenagers racing to befriend the popular kids — that’s fine. But if you want an investing framework based on rules, not rumors; price, not predictions; reality, not hunches — then systematic trend following might just be your zen garden in the middle of Wall Street’s circus.

Sourcing: Barchart.com, Snap Inc (SNAP), 3/2/2017 to 2/6/2026; New York Post, “Citi’s First Quarter Results Top Expectations,” 4/17/2009; Barchart.com, GE Aerospace (GE), 1/1/2008 to 4/30/2029; and Reuters, “Moody’s cuts GE rating to ‘Aa2’, outlook stable,” 3/23/2009