Indeed, Whitney's pronouncements stand out because analysts rarely issue negative recommendations, and because-so far, at least-she's been right. Although it shouldn't come as a surprise to any serious investor, analysts' buy recommendations still outnumber sells-or whatever euphemisms they use-by about 9 to 1.

Back in 2002, it looked like the profession might change, when then-New York attorney general Eliot Spitzer went after analysts hard. His whipping boy: Henry Blodget, star tech analyst at Merrill Lynch during the dot-com bubble (see "Look who's back"). In 2003, 10 leading firms agreed to pay $1.4 billion to settle conflict-of-interest charges, and Blodget accepted a lifetime ban from the securities industry without admitting or denying civil fraud charges.

Yet, today, the scandal is water long under the bridge. Sure, Chinese walls are higher now than at the turn of the decade, but most analysts still wear soft gloves when it comes to the companies they cover. But the intriguing question isn't why analysts don't tell the literal truth; it's why retail investors continue to believe analysts' recommendations.

In a study published last August ("Are small investors naive about incentives?"), University of California assistant professor of economics Ulrike Malmendier and Harvard Business School assistant professor Devin Shanthikumar looked at analysts' recommendations from 1993 to 2002. What they discovered proves what we already guessed: Small traders tend to follow recommendations literally, exerting upward pressure on prices after "strong buy" and "buy" recommendations, and no pressure following "hold" recommendations.

But large traders are savvier. They tend to buy after strong buy recommendations, hold after buy, and sell after hold. Why is the split so clear? Malmendier and Shanthikumar couldn't find a definite explanation in the data, although they say the reason could begullibility, er, "investor naivete."

It's doubtful such a study would produce different results if 2008 trading activity was used, especially in light of the upsurge in websites such as newratings.com that are dedicated to tracking analysts' upgrades and downgrades.

But reading analysts' reports isn't rocket science, or at least it shouldn't be. Just ask Blodget, who has risen from the ashes and now publishes the Silicon Alley Insider, a popular online newsletter that concentrates on tech investments.

So how should individual investors read these reports? "Almost all analysts are going to be flat-out wrong at least 40% of the time," says Blodget. "As long as you understand that, the reports are very reliable. I think the quality of Wall Street research has gone up in the past 10 years, but that doesn't mean analysts are right about stocks more often."

In 1998, Henry Blodget was the boy-wonder analyst at Merrill Lynch who set a target price of $400 (all currency in U.S. dollars) for Amazon.com when it was trading at $242. After splitting, Amazon soared to the equivalent of $500. But four years later, he was the fall guy in Eliot Spitzer's offensive against tainted Wall Street analysts who had hyped stocks to help secure fat investment banking fees for their firms. No one received more scorn than Blodget, who was on record publicly recommending a stock like Excite@ Home, while describing it in an e-mail to a colleague as "such a piece of crap!" By 2003, he had quit Merrill Lynch under a cloud and agreed to a lifetime ban from direct involvement in the securities business. Though only in his mid-30s, he appeared to be washed up. Notoriety often isn't fatal in America, however. Since his downfall, he's written an online column for Slate, and contributed to Fortune, Newsweek and The New York Times. Last July, he co-founded the Silicon Alley Insider, a New York City-based online news service that's garnered a big audience among do-it-yourself investors. In March, the website Wall Street 24/7 valued the Insider at $5.4 million, and ranked it No. 12 in its list of the "25 most valuable blogs," not far behind such Internet veterans as The Drudge Report (No. 8). Blodget is also a regular contributor to Yahoo! Finance's tech ticker, a news and video site.-J.D.