Investing Tools for Investors Looking to Excel
10/21/02  

What's Wrong With Wall Street?

• First, is the cost of executions. Supposedly, you are getting hand holding, advice, cutting edge research, and ideas that are ahead of the curve of changing technology and new themes. Because of this edge, you expect to outperform the averages and do not mind paying a premium for performance. Unfortunately, you are paying more for less. 

• Second, number one is not happening. Simply stated, Wall Street can not add enough competent analysts to cover all the new businesses and ideas. The reason? Expense and the speed the market is moving.  By the time Wall Street tells you about it, the stock is selling over $200.00. You are more likely to buy high and sell low based on the evidence.

• Wall Street is capable of adding staff to do underwritings, but not the staff to analyze and present these ideas. Is it that the research staff can not understand or recommend these unprecedented valuations? An underwriting is not a  recommendation, it is a profit opportunity for the underwriter. Caveat Emptor. Read the prospectus and you'll know why.

• Third, the research coverage, while narrow, is somewhat beholden to corporate finance, a huge source of revenue to the brokerage firms, and bonuses to research analysts who introduce the business? Can you completely trust the objectivity of their research, if they think they have a secondary offering around the corner, as well as a huge number of imminent 144(b) sales (insider sales of common stock released from lock out periods).

• In times past, institutional money was the smart money, and a whole bevy of technical tools were developed to track the public vs the institutions. In the last three years, this has reversed. By the time the under-performing institutions have loaded up, it is time for the nimble individual investors to vacate the premises.

• Have you noticed that Wall Street is fighting to stay ahead, get coverage and retain analysts? Have you noticed that the amount of free information allows you to outflank the old-line brokerage community and get in place before they can?

• The speed of change does not favor the large battleship institutions, it favors the nimble.

I understand the problems of the large institution, but I also understand the prospects of doing your own work. If you use the internet, you can see first hand some of the new companies and products.  Peter Lynch always instructed investors to look at companies that have products you use. The same is true of the internet, tech, and telcom stocks. Be independent and do your homework. And avoid the pitfalls common to investors.

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