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April 25, 2000
Fool on the Hill
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[The following is related to the Fool article "Wall Street Opposes Level Playing Field" by By Bill Barker on April 20, 2000. Bill describes how hundreds of people, many of them Fool readers, have written the SEC to comment on a proposed rule to level the playing field regarding company disclosure of information. This is one of those letters.]
In the Fool's spirit of sharing, I thought I'd post what I wrote. Hope it's useful or entertaining or both!
The SIA's filing with you suggests that individual investors don't purchase stock without first consulting the so-called wisdom of analyst reports. In a word: hogwash.
In the short time I've been an investor, I've used several resources to pick stocks. But I've never picked a stock on the basis of an analyst recommendation or report. How insulting is it to tell investors that we're incapable of coming to our own conclusions without Wall Street expertise? I can think for myself, and apparently pretty well too: since December, when I opened a discount brokerage account and the markets first started their current descent, my portfolio is up 38 percent. Not too bad for someone who doesn't employ a full-service broker and a team of analysts.
I'll admit that I'm being sarcastic and perhaps a bit rude. But I take serious offense with the notion that I can't make an intelligent investment choice without first consulting a professional. But there's a separate and equally dangerous notion in the SIA's filing that bears discussion here too -- that is, that analysts are paid to ferret out negative information, and do so to protect investors. Forgive me for repeating myself but, again: hogwash.
To begin with, consider for a moment how often analysts will issue a 'sell' rating on a stock of a company they cover. Such occurrences almost *never* happen. Why? I can only speculate but reports in the Wall Street Journal and other credible publications say that analysts won't tell clients to out and out 'sell' for fear that companies will retaliate by withholding critical information such as earnings estimates, sales figures, time with the CEO and so on. If anything, this kind of practice -- where companies manipulate their stock ratings through selective briefings with weak-kneed analysts -- should be of the utmost concern to the SEC, because it directly impacts analysts' credibility with investors.
That's an important point, and in my opinion it bears more discussion than the SIA's filing. Now here's the bigger picture: it's a new world. Investors are smarter and more empowered than ever. The work securities analysts do -- and some of it is very valuable -- is playing an increasingly smaller role in helping investors formulate opinions and decisions. Investors can and should have access to all the data they can in conducting intelligent investing, and that includes getting the same data securities analysts do, at the same time.
Let analysts make their money as *analysts* -- interpreters of data -- rather than as gatekeepers of it, as they mostly do today.
Thank you for your time and attention,
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