Sunday, April 17, 2005

I've been reading Blood on the Street: The Sensational Inside Story of How Wall Street Analysts Duped a Generation of Investors, written by WSJ reporter Charles Gasparino...

Most of his material I've previously read about, but the chapter he wrote on Mary Meeker breaks new ground in revealing her to be, at the least, a complete hack...

There are a lot of ways to determine the 'value' of stocks. Some people use 'fundamental's, such as EPS, market share and the like. Others go for a subjective decision on the company: 'quality' of management, buzz and the like. And others pretty much look to other investors: if the market is pushing a stock higher, that's an indication of value.

Ad for Meeker, Morgan Stanley investment bankers, upset over lost fee revenue, had pressured her into okaying deals she had been against doing, stocks that she had felt lacked the fundamentals to make it. She acquiesced, and rationalized her actions by pointing to the stock market which, she says, proved there was a market for these companies. After all, would investors be buying if there wasn't 'value' there? This represented a change from one method of valuing companies to another. Such changes don't happen on a regular basis, but there's nothing inherently wrong with someone going to a different model, one that they feel works better.

But when the stocks she had been touting crash, she failed to back off her positive recommendations, saying that she believed in those companies, that their fundamentals were right. She did this even though the market was very clearly sending the signal that investors thought the stocks were wildly overpriced - a reversion of sorts to her original model.

She can't have it both ways... she can't say the market determines value on the way up but fundamentals determine value on the way done. You can change your approach - ONCE! Do it twice and it's real hard for others to avoid concluding that you're just playing games.... not exactly what someone making $20 million a year ought to be doing.