One important statistical difference between in-house research and independent research is that, historically, research from brokerage houses has tended to be more bullish. In other words, analysts who work for these firms are more likely to take more optimistic views of the stocks they examine.

Logically, this makes sense, since the more stocks you buy, the greater the commissions and fees you pay. So it's in the interest of brokerage firms for their analysts to generate enthusiasm for the stocks they cover. In fact, in the past, some firms have issued few if any negative reports and have rarely advised selling. Some firms have even used counterintuitive rating terms — for example, making hold rather than sell the lowest possible rating.

However, today's regulations require firms to use plain English definitions for their ratings. A hold rating must mean to hold, not to sell. And the Financial Industry Regulatory Authority (FINRA) requires that firms provide information about their ratings distribution — in other words, what percentage of the stocks they analyze receive each rating. That way, if a firm's analysis tends to be heavy on the bulls, you'll be able to see it.

Sam Stovall,
Chief Investment Strategist at Standard & Poor’s

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