Harry, Excellent Forbes piece. I have a theory I call my Information Pricing Theory. It goes like this. If we had next week's Wall Street Journal, would we tell anyone about it? Of course not. We could make money hand over fist with next week's Journal so we'd act on the information rather than tell people about it. Let's say the copy of next week's Journal was a little smudged so that only 80% of it was useable. We could still make a lot of money and wouldn't tell anyone about it. Say the paper is 50% smudged. We might use limit orders but we could still make money acting on the information. As the paper gets more and more smudged--40%, 30%, 20% useable--the information in it becomes less and less valuable until the only way we can make money is by selling the paper itself rather than acting on the content, a novelty item with next week's date.
Information from brokerages and newsletters has the same logical problem: if the information's so good, why are they telling me about it? Why not just use the information and make a lot of money? JP Morgan, for example, which has one of the best trading departments on Wall Street, doesn't tell anyone about trades until AFTERWARD.
The question also comes up why there's a demand for such "research." I think most of the demand comes from emotional insecurity, strange as it sounds. Most people feel out of their depth trying to make a judgment on whether a company will or will not make money, what that means for the company's future, etc., etc. Thinking is always difficult. Fortunately for us, nowadays the same information the so-called analysts use is readily available in cyberspace and it's possible for individual investors to do the same kind of critical thinking as the analyst in the Forbes piece did on Oxford.
Best,
Steve |
