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发帖数: 8905 | 1 Public Unaware Of Conflict Of Interest For Stock Analysts
Their Wall Street Firms Often Take Companies Public
And Have Stake In Very Firms They Report On
Jan. 30, 2001
AP
(CBS) If you're like many people you lost a lot of money in the stock market
lately whether you traded yourself or just watched your 401(k) dwindle.
A lot of that money was lost following the advice of Wall Street stock
analysts, the experts who work for big brokerage houses. Think of them as
the prophets of Wall Street. They analyze a company, look into the future
and recommend whether to buy the stock.
So how did so many get it wrong? Many investors don't realize that some high
-profile analysts and their firms stood to make a fortune on stocks they
recommended. A lot of their advice was tailored to make them rich, not you,
as Correspondent Scott Pelley reports.
"I don't know frankly how some of these analysts live with themselves," says
former analyst Tom Brown. "I couldn't get up in the morning and look in the
mirror and know that I just caused somebody to lose 50 percent of their
retirement money because I exaggerated and lied. And that's exactly what I
saw at DLJ."
Forty-two-year-old Brown worked at the Wall Street firm Donaldson, Lufkin &
Jenrette for seven years. He was a top banking analyst with a reputation for
blunt honesty. Brown says he recalls a DLJ meeting where an analyst
explained their job was to make the stocks they represented look good.
"The line was, 'You have to understand; forgive me, Father, for I have
sinned,'" Brown says. "You were going to have to go back to the sales force
after having lied to them and tell them that you were wrong."
If there is pressure to lie, it stems from a very simple conflict of
interest. Wall Street's brokerage houses make 70 percent of their profits
from what's called investment banking: raising money for companies that need
cash.
For example, when Amazon needs money, it goes to its broker, Merrill Lynch.
And Merrill Lynch offers Amazon stock for sale.
The higher the price, the more the brokerage makes. Now imagine what the
analyst is going to tell the public about stock his or her firm wants to
sell.
"They really are cheerleaders," Brown says, noting even if analysts cover a
company that's not a client of the firm, it could be a potential client. "So
the investment banking group wants you to be wildly bullish about everybody
."
So if there's bad news about a stock, you're not likely to hear it from the
analysts. A 1999 study from Dartmouth College and Cornell University says
analysts showed "significant evidence of bias" when they recommend stocks
handled by their firm. The study points to an internal company memo from
brokerage house Morgan Stanley that tells analysts, "We do not make negative
or controversial comments about our clients." Morgan has disavowed that
memo.
Recently, though, Morgan Stanley made millions in fees raising money for
Priceline. Morgan's analyst, Mary Meeker, recommended buying Priceline's
stock at $134 a share.
When it fell to $78, she repeated her buy recommendation. And she kept
recommending Priceline as it fell to less than $3.
Priceline Today
What's Priceline stock worth today? Check its price at CBS Marketwatch.com.
Are analysts free to be critical of clients of their firms?
"I don't think analysts are so free since I was fired for being critical of,
not only clients, but potential clients," Brown says.
Brown was very critical "in the 1995 to 1998 time frame of the mergers and
acquisitions activity that was taking place among the largest banks," he
says.
"I frankly thought they were paying too much and that they were using
unrealistic assumptions and that shareholders were going to be hurt," he
declares.
Brown says he was fired because those banks he criticized stopped doing
business with DLJ. The company told 60 Minutes II that Brown was fired
because of "his persistent inability to operate effectively within a team
infrastructure." DLJ insisted there is a separation between investment
banking and analysts, and said its analysts are encouraged to be candid.
Brokerage firms say analysts disclose their conflicts of interest in every
research report they write. (It's those paragraphs of small print, at the
bottom of the page.) Disclosures like these are not good enough for Arthur
Levitt, chairman of the Securities and Exchange Commission, in charge of
enforcing the law on Wall Street.
"I think the analyst has a responsibility to reveal a conflict of interest.
And that's something that the commission is urging upon the stock exchange..
.to see to it that their rules are changed in a way which will force the
analysts to reveal conflicts," Levitt says.
"There's got to be much greater disclosure of the kinds of conflicts that
are part of today's market." Adds Levitt: "I'd say it's less than moral."
Discuss Disclosure
Should the federal government require more disclosure by stock analysts of
conflicts of interest? Express your view on 60 Minutes II's message boards.
One result of these conflicts was the inflation of so-called target prices,
analysts' predictions of how high a stock would go. In the wildly
speculative Internet market, analysts set inflated targets with no
connection to a company's real worth.
The setting of target prices has "been a practice as long as we've had
analysts," Levitt says. "If investors are prepared to take that at face
value, they have to be prepared for the consequences," Levitt says.
For example Amazon was selling for about $275 a share when a little-known
analyst, Henry Blodgett, predicted it would go to $400 - even though Amazon
had never made a profit. Amazon did go to $400 and beyond.
Amazon's backer, Merrill Lynch, responded by replacing its pessimistic
Amazon analyst. His replacement? Henry Blodgett. While this was great for
Blodgett, it proved not so good for investors, many of whom got soaked when
Amazon's value fell 75 percent.
Blodgett has said his prediction was based on sound analysis using new ways
to measure a company's performance. Wall Street coined a new verb: to "
blodgett" a stock.
Former Internet analyst Lise Buyer says experienced hands on Wall Street
couldn't make sense of soaring target prices.
"Those of us who've been in the business for a while looked at the wild
targets that people were putting out there, and our jaws dropped," says
Buyer. "And then we watched the stocks follow suit."
Tracking Amazon
Read how Amazon to Slash 1,300 Jobs and CBS MarketWatch's report.
Check Amazon's stock price at CBS Marketwatch.com.
"The market that we had over the past couple of years: Amazon went to 400
because Henry said it would," Buyer says. "It was analysts proclaiming what
the stock would do, not analyzing what the businesses said they would do."
One of the differences during the latest stock market frenzy was the success
of cable business channels. The shows needed guests; so the analysts became
TV stars.
Many appear on CNBC's Squawk Box, hosted by Mark Haines. After a stock was
recommended by a guest, he says, "I'd look down at the quote machine, and
all of a sudden it had jumped five bucks or 10 bucks."
Thousands, new to investing, were watching the analysts with no idea that a
conflict of interest might exist on the stocks they were recommending. CNBC
now requires its guests reveal conflicts of interest before they appear.
"When CNBC started 10 years ago, it had a relatively small audience that was
almost entirely professional," Haines says. "There was no need to point out
these relationships because our viewers knew about them."
"As the audience broadened, more and more and more people were coming to
this not knowing the rules," he says.
One of the rules that many analysts live by is never say "sell," because
that would drive down the price of the stock. Currently there are about 8,
000 analyst stock recommendations, according to Zacks Investment Research,
and only 29 sells. That's less than one half of 1 percent.
Ratings Changes
Visit CBS MarketWatch.com's column on the latest analyst ratings changes.
And see its regular column, The Ratings Game
"You rarely see sell," Buyer says. "It angers management; it doesn't help
institutional investing clients....So what you say is, 'We're downgrading
this to a 'hold' and believe it promising for those with a three- to five-
year investment horizon,' which, for those in the know, means, 'See ya.'"
Not even a company's imminent collapse could force analysts to say sell.
Much of Pets.com's financing was raised by Merrill Lynch. Merrill made
millions. Merrill's analyst Henry Blodgett made a buy recommendation at $16.
When it fell to $7, Blodgett said "buy" again. Again a "buy" at $2 and
again at $1.69. When it hit $1.43 a share, Blodgett told investors to "
accumulate." Pets.com was recently kicked off the stock exchange.
Investors may have lost a fortune, but last year Blodgett and Meeker were
paid about $15 million each. Both analysts declined requests for interviews.
Merrill Lynch, Blodgett's firm, did send 60 Minutes II an email saying its
analysts "make independent recommendations based upon their best judgments."
Mary Meeker at Morgan Stanley sent a statement saying, in part, "We maintain
a strict separation of the (investment) banking and research functions
within the firm. Our research is objective and has a long-term focus."
Buyer, the former Internet analyst, defends most of her former colleagues.
She says some analysts work for firms without investment banking clients,
and others can take the heat.
Haines notes, however, that investors ignored warnings before the Nasdaq's
dramatic drop, even when there were clear indications a company was
vulnerable.
"We would invite on the CEOs, and we would interview them, and we would say,
'Do you have any patents?' And they would say 'No.' 'Well, would it be hard
for me to go into business to compete with you?' And they'd say 'no,'"
Haines says.
"'Do you have any cash?' 'No.' And I'd look down, and the stock would be up
$40," observes Haines.
"You would point out the risks; you would point out how crazy it was. There
was a mania going on out there where people were just throwing money,"
Haines adds.
And Haines says investors didn't seem to listen when he pointed out analysts
' conflicts of interest on the air. "It was put in their face, and they
pulled the lever on the slot machine anyway."
Last year Tom Brown started his own investment company. He decided to leave
the analyst game because there's too much pressure to be dishonest, he says.
DLJ offered him the usual severance deal, but he rejected it because it
required him to keep quiet.
"DLJ offered me $400,000 to not say anything," Brown says. "And I decided in
August of '98 that it was worth more for my pride to be able to shout it
from the mountaintop that something was wrong, and tell them to keep the $
400,000."
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发帖数: 1193 | 2 "Recently, though, Morgan Stanley made millions in fees raising money for
Priceline. Morgan's analyst, Mary Meeker, recommended buying Priceline's
stock at $134 a share.
When it fell to $78, she repeated her buy recommendation. And she kept
recommending Priceline as it fell to less than $3. "
priceline is $700 now as 4/25/2013 | j*****h
发帖数: 3292 | 3 Mary Meeker 是个名器
你要是读了, 就知道上面文章谈的是什么了
她的职场mentor 写的
【在 T********e 的大作中提到】
: "Recently, though, Morgan Stanley made millions in fees raising money for
: Priceline. Morgan's analyst, Mary Meeker, recommended buying Priceline's
: stock at $134 a share.
: When it fell to $78, she repeated her buy recommendation. And she kept
: recommending Priceline as it fell to less than $3. "
: priceline is $700 now as 4/25/2013
| u**********n
发帖数: 8905 | 4 很多年前的写的。
【在 T********e 的大作中提到】
: "Recently, though, Morgan Stanley made millions in fees raising money for
: Priceline. Morgan's analyst, Mary Meeker, recommended buying Priceline's
: stock at $134 a share.
: When it fell to $78, she repeated her buy recommendation. And she kept
: recommending Priceline as it fell to less than $3. "
: priceline is $700 now as 4/25/2013
| l*****t
发帖数: 8319 | 5 信analyst不如信班上的大牛。。。
【在 T********e 的大作中提到】
: "Recently, though, Morgan Stanley made millions in fees raising money for
: Priceline. Morgan's analyst, Mary Meeker, recommended buying Priceline's
: stock at $134 a share.
: When it fell to $78, she repeated her buy recommendation. And she kept
: recommending Priceline as it fell to less than $3. "
: priceline is $700 now as 4/25/2013
| b*****p
发帖数: 9649 | 6 信班上的大牛不如信老李
信老李不如信自己
LOL | u**********n
发帖数: 8905 | 7 我不认为应该一直跟analyst反着做。但几乎可以确定2点：
1. Analyst调高target price并说strong buy时，差不多可以卖了或者做空了。
2.Analyst调低target price并说strong sell时，差不多可以买了。
有人能举出反例吗？ | b*****p
发帖数: 9649 | |
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