Merrill Lynch to require 20% "sell" rate. Thain making it happen.

News today is that John Thain has initiated a new set of requirements for his research analysts at Merrill Lynch ( MER ). The rubric is:

• at least 20% of the companies they cover must have a "sell" rating
• a maximum of 70% of comapnies can have a "buy" rating
• a maximum of 30% of companies can have a "neutral" rating
• "underperform" now means a stock is expected to have a negative return over 1 year
  
• "neutral" means a stock will return between 0 and 10% in 1 year
  
• "buy" means a stock will return over 10% in 1 year

I applaud this move. I really do. It`s about time that Wall St. research analysts start providing genuine ratings. It got to the point where I and many other investors would completely ignore the "rating" and just look at the hard numbers. Wall St. investment banks became notorious for never mentioning the unspeakable "sell." Do you remember the crash of the home builders and the mortgage originators like Countrywide Financial last year? How many research analysts would dare rate them a sell? According to Bloomberg.com:

About 5.5 percent of all stocks covered by Wall Street analysts are currently rated ``sell'' or its equivalent, Bloomberg data show.

while..

About 37 percent of stocks fall every year, Candace Browning, president of Merrill Lynch Global Research, said in a Bloomberg Television interview today.

So why the shift Mr. Thain? Not only will the new ratings be more accurate, but Thain is sensing the shifting forces of the market. This is a market controlled on a daily basis by hedge funds, who are free to short sell, and do so with huge leverage. More leverage? More shares. More shares? More commission.

This is in fact a very small event in the big scheme of Merrill Lynch. But I mention it because, it is the little things that signal shifts in thinking and ultimately direction for a company. This is like seeing someone stop and pick up a dropped pencil for someone else, or waiting the extra three seconds to hold a door open for not an elderly person, not a pretty girl(or guy) but for a regular old Joe. Trivial actions let you see the true character of a person and a company.


What a swell guy.