Let’s say you’re an analyst that issues buy/sell recommendations. One of the stock you hold in your client’s portfolio, ABC Company, was just in the Wall Street Journal stating that ABC had inflated its earnings.
You immediately issue a sell recommendation.
Did you violate CFA standard, Reasonable and Adequate Basis by issuing the sell recommendation without conducting your own research?
I’m gonna go out on a limb here and say that something you read in the journal this morning is not Reasonable and Adequate Basis.
It would probably be prudent to verify that the WSJ article is factually correct before taking action.
Yes, WSJ alone does not provide ground to make decisions on a reasonable and adequate basis. If your analyst was simply making recommendations based on what WSJ says, then you’re better off buying the WSJ than hiring the analyst.
I agree with alanfung and that’s what I was thinking as well.
If any of you guys are using the Allen Resources testbank app, they state that this is not a violation of any CFA standard. …my opinion… BS!
Their explanation is that, WSJ is reputable and provide investors factual information, therefore if it’s published on WSJ, then there’s no violation on Diligence and Adequate Basis.
My thought is, wouldn’t we as an analyst still need to provide our due diligence before we make that sell recommendation, that’s a big call when analysts provide their justification on paper.
Unless he’s an upaid intern and he’s paying for the WSJ himself. Then you’re getting a free WSJ.
Was that the exact question or could they be talking about using data taken out of the WSJ like closing prices or something?
Exact question was what I initially wrote. I think it’s just a debatable answer.