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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Ausdauer who wrote (11175)	5/19/2000 10:29:00 AM
From: Art Bechhoefer	Respond to of 60323

Aus, regarding relationships between analysts and companies under study, the link you provided is useful but doesn't begin to show how cozy the relationships can be. Brokerage firms frequently try to get some feel for a company's prospects before sensitive information is made public via press releases or via communications to shareholders. In particular, a brokerage firm may suggest to a company that some useful information, provided in advance of any other publication, could lead to a favorable recommendation to the buy the company shares. Brokerage firms will do this because they want to buy the shares for their own accounts FIRST, before the general public gets its chance. Often the company will comply and make it possible for the brokerage firm analysts to "understand better" the future prospects. When the news is finally publicized, the brokerage firm has already bought in, and the stock goes up. At this point, the brokerage firm will usually publicize its earlier recommendation, made exclusively for its preferred clients and accounts. Moreover, an ordinary small investor using a full service brokerage firm, which, for the sake of not being sued, I'll title "Firm X," won't know about the recommendation until after the recommendation has gone to the firm's larger, more important clients. The flip side of the issue is what happens if the company refuses to give analysts advance indications of possibly important news (notice I do not suggest the company is giving out inside information, but merely suggesting how analysts might want to adjust their models). Well, companies that don't want to cooperate risk being "downgraded," and anyone who has watched SNDK and other stocks, including QCOM, may infer that the companies have declined to cooperate with the analysts in terms of giving them special treatment. I have been a serious investor for almost 50 years and know that pressures on companies to give analysts information before it is made public is very, very prevalent and hard to refuse. But there have been some great examples of companies that did refuse, notably Polaroid in the 1970's and 1980's, and QUALCOMM more recently. The SEC proposed rules against disclosure to special groups prior to disclosure to the public at large are heading in the right direction because such uniform access ENHANCES the functioning of a free market system. Markets assume a free flow of information, at low cost to anyone interested in entering the market. Confining access to timely information to a privileged few (the way it has been done routinely outside the U.S.) distorts the market system and ultimately weakens it.