Hey Tony,
Today in the New York Times, an article by Gretchen Morgensen covers the idea of a particular portfolio manager, Bob Olstein, who has some ideas about reforming the sellside analysts' practices via a number of initiatives. I comment alot on SI about trading practices and such, but haven't had anything to say about what analysts do or how they do it - it's not an area I know much about outside of personally ignoring most, if not all, of their output.
But, I have paraphrased the initiatives he proposes below, and think they're spectacular. Regulators would be well advised to take note of them.
Would you add anything to these?
1. A stock should be valued only based upon its’ ability to generate cash flow now and in the future; not on the promise of other measures that may or may not translate into profits (i.e., not eyeballs, clicks, etc.)
2. A balance sheet should be included in every analyst’s report, in particular to bring attention to debt levels and debt-to-equity capitalization.
3. There can no longer be numerous grades of recommendation. There are only two: buy or sell. (I’d add “short” as a third, or change sell to “sell/sell short”).
4. All reports should incorporate a discussion of the company’s accounting practices and an assessment of how well, or if, they accurately reflect a company’s operations (i.e., the choice of LIFO vs. FIFO, etc.)
5. Company management must not be permitted to edit an analyst’s report.
6. Eliminate the use of EBIDTA; it's meaningless. No one can run a business without taking into account interest payments, debt service, taxes, and the amortization of items requiring such.
7. Eliminate price targets. Analysts' jobs are to value companies, not predict crowd behavior or market dynamics.
LPS5 |
