Here’s what you can expect from stock analysts, according to a study by finance researchers:

The Good News for Ever-Hopeful Stock-Pickers: On average, stocks recommended by analysts slightly outperform other stocks.

The Bad News for Stock-Pickers: The potential returns to be gained by following analysts' recommendations would be eaten up by fees paid in the course of all the buying and selling that's needed to keep up with analysts' advice.

In brief, professional stock analysts provide valid insights, but there's no way to profit from them unless you're a major investment house with low transaction costs.

(Well, there is a semi-valid way to convince yourself that you're profiting: If you're already a stock-trading junkie who's committed to spending a mint on brokerage costs, you're likely to improve your returns by following analysts' recommendations. You just have to keep yourself from the realization that you'd do better sticking your money in a broad-based index fund and leaving it there.)

For details, check out the mid-1999 study "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns" by Professors Brad Barber, Graduate School of Management, UC-Davis; Reuven Lehavy and Brett Trueman, Haas School of Business, UC-Berkeley; and Maureen McNichols, Graduate School of Business, Stanford University. An abstract of the research is on the second page of the full 38-page Adobe Acrobat document. (January 2000)

Can you spot a skilled mutual fund manager?

Here’s another academic study showing it might be possible to beat the market -- but only in theory, not in practice. In the research paper "Should investors avoid all actively managed mutual funds?" academics at Brown University, Penn and Harvard focused on the slim 6 percent of fund managers who succeeded in outperforming the S&P 500 over the previous five years.

Their question: Can an investor identify in advance who the talented managers are, invest accordingly, and beat the market?

Their conclusion: In theory, perhaps. In practice, no.

They analyzed the returns achieved by 1,437 fund managers over five years, but that wasn't enough data for the researchers to conclude with certainty that the 6% weren't simply lucky. What would be needed for a definite finding on whether active fund managers have demonstrable skills? The data would have to be extended to include "hundreds of thousands of managers over many decades."

Even that slim possibility of profiting from a smart fund manager vanishes when exposed to the light of the real world. The study did not include the higher loads and taxes that are typical of actively managed mutual funds.

The research paper, published last year by the Wharton School, can be downloaded from the school’s site. (March 2000)