Acme Widgets

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By sonnypage
December 12, 2001

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This is a true story.

In my previous life, back in the 1980's, I was a financial consultant with a brokerage firm. Part of my daily routine, each morning at 8:30, was to listen in to the morning conference call on the squawk box on my desk. It was like an in house radio program, complete with a moderator to introduce guests, straight from corporate headquarters in New York. One morning, early on in my career, the moderator introduced an analyst whose name I have long since forgotten, we'll call him Danny, who followed an industry and a stock I have also forgotten. Well, let's call it Acme Widgets.

This was an old economy stock of some kind. Danny explained that because of this or that, Acme was a strong buy at 45. I was busy "building positions" in other stocks in other industries at the time, so I didn't climb on this particular bandwagon. As time passed, I noticed Acme slipping lower, 42-40-38---, finally to 35 or so perhaps 6-8 months after the recommendation. Every few weeks or so, Danny was back on the morning call, offering encouragement, not to worry.

Sure enough, one fine morning, Danny is on the morning call with a rating change. Acme goes from a strong buy to an o.k. to sell!! You need to understand brokerspeak to appreciate what this really means. A strong buy is really a buy, an o.k to buy is really a neutral, a hold really means sell, but an o.k. to sell--- well, you might as well announce that Acme's product line has been discovered to be radioactive.

The brokers I knew who had built positions in Acme dutifully called their clients. "Yes, Mr. Smith, we should sell immediately. Yes sir, I'll take care of it at once". I noticed over the next few weeks Acme did drift a little lower, perhaps to 32 or so. But the disappointing news that caused the drop in the first place was pretty much old news. Then, incredibly, Danny is back on the morning call--- all clear for Acme!! It's a strong buy at 32!! The brokers who followed the widget industry were back on the phones, "Yes, Mr. Smith, a strong buy. Yes sir, I understand, 500 shares at once. I'll take care of it sir".

Slowly, Acme climbs back, month after month. Finally, after six months, back to 45, where it all began, a little over a year before. The morning call, the moderator leads off by introducing Danny with praise and congratulations. The moderator points out that only six months earlier, Danny had recommended Acme at 32, it's at 45. That's a 40% gain for any brokers smart enough to have followed Danny's recommendation. Danny humbly accepts the praise heaped upon him, but quickly points out that based on such quick appreciation Acme is now overpriced. Time to sell!!

The customers were about even, including commissions, for both trades. If the trade was in a taxable account, and they used the 30 day wash rule, they saved a little on the first trade, which they promptly lost in short term cap gains on the second trade. Oh well. The brokerage firm did a little better; four trades in 14 months or so. I remember a cartoon that came out about then, in a business publication. Picture a broker with a couple of friends admiring his yacht out on the water. Nearby, a less well-dressed individual saying, "but where are the customers' yachts"?

There is a better way, of course. This discussion board is a priceless resource for all of us. There are dozens of us, all around the world, different ages, different backgrounds, differing levels of experience and expertise. More importantly, there are no hidden agendas here. If the investment banking division of a brokerage is seeking to underwrite Acme Widget's new bond offering, will their retail side have a sell opinion on Acme's stock if they think that's what it should have? How sure of that are you?

Here, each week, links to articles about Nokia, free give and take discussion about articles, research reports, day-to-day news events, all of it leading to an opinion. At the end of the day, we each must decide, for ourselves, do I buy?---hold?---time to sell? In evaluating Nokia for ourselves, we are forced to learn. If I had a cup of coffee with each of you--at Starbucks--each of you could tell me, one on one, in a few minutes, why you own Nokia, what you expect, and why. I am sure of it.

Danny's clients could never have explained Acme, not in a million years. Acme wasn't a good buy 16 years ago, it doesn't look any better today. Occasionally, someone will imply that a poster here has "an agenda', is trying to move Nokia this way or that. Think about it. It doesn't make sense. No one, or very few, would be moved to buy or sell based on the comments of a single poster. We have a wealth of information here, we each, on our own, sift through it and come to our conclusions. None of us, alone, could do the job nearly as well as all of us together. Collectively, we are the unbiased analysts without an agenda we all seek.


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