Reg. FD has got the analysts into a state of tizzy.. gawd, now they have to think and guess like everyone else, instead of regurgitating privileged information provided by management. Besides having to think independently, analysts are also now deprived of those fancy trips, hotel rooms, and scrumptous meals provided by companies as a "bribe" to write what management wants them to. Throw in the despise of investors from the high-flying recommendations from the likes of Meeker and Bloget during the Internet hey-days, and we understand why analysts now carry the same badge of honour as stock brokers. Say you're a stock broker at a cocktail party and people politely excuse themselves. Say you're an analyst, and people turn red, embarrassed at still holding the now penny stocks of once tech stars of the Internet tulip years.
Andy Kessler (former technology analyst at Morgan Stanley and PaineWebber) wrote an article "Say Good-Bye To Analysts" suggesting that Reg FD has wiped out much of their value. Worse than being of no value, analysts are now a real liability, as witness by the recent Merrill Lynch case where the firm settled with a New York doctor who sued for losing $500,000 investing in Inforspace recommended by Blodget. The settlement has perhaps opened a pandora's box, and stiffled the mouths of many analysts. Not only can they not outwit the market, nor out-think self-reliant investors, they also get sued for cloudy crystal balls.
Kessler wrote that analysts spend most of their time calling institutional money managers rather than analyze companies. Money managers vote in annual polls ranking the analysts, and to be up there high in the polls is the first priority of any analyst. Salaries and bonuses are paid based on poll ranking. The higher up in the poll, the easier it is for the firm to win underwriting and investment banking deals. "Make phone calls, get ranked, do deals, who had time to analyze?" wrote Kessler.
Kessler's suggestion on how to use analysts: care less for analysts buy, hold recommendations and target prices. Instead, read their reports to know why, to get viewpoints that you may have not considered yourself, to take a pulse, to figure out what others are thinking, and to make your own assessment.
Kessler's wrap-up:
"But with or without the SEC's help, analysts are becoming obsolete. Money managers do their own work, and the public will have to as well. With the democratization of financial markets, we are all analysts now. Everyone must take charge of their money, must analyze their employer, heck, even local industry and the neighborhoods they buy into. Perhaps this is disturbing, but it is inevitable." |
