The Pied Pipers of Wall Street: How Analysts Sell You Down the River

Rating:
Summary: Okay--But Not Good Enough
Review: "The Pied Pipers of Wall Street" is a blockbuster of a book. Benjamin Cole has produced a searing indictment of an industry whose inherent conflicts have turned it into a deathtrap for unsuspecting investors. Though a tidy 219 pages, this is a thoroughly researched book and is full of stinging and poignant anecdotes about two-timing stock analysts and debunking short sellers. Cole also offers up a crash history lesson on the stock brokerage and investment banking businesses that gives readers a solid appreciation of how those practices evolved and why they became so conflicted.

Besides his sure-handed command of the subject matter, the author lends additional credibility to his book by steering clear of hyperbole and hyperventilation, instead letting his research and shocking case studies raise the decibel level. The book also offers sources of honest stock research and analysis that investors can trust, then concludes by outlining several regulatory strategies being contemplated by the U.S. Securities and Exchange Commission to remedy the problem.

All in all, "The Pied Pipers of Wall Street" is a great work of public service by a journalist who has held the stock houses up to the public humiliation they richly deserve while throwing a life raft to investors.

Rating:
Summary: Wall Street Hype Artists
Review: An excellent book that demonstrates that Wall Street's much touted analysts are basically PR guys for the folks brokerage firms really care about--investment banking clients. Written before th NY attorney general's investigation, the book nonetheless exposes the same corruption that is now making headlines. Before you buy a stock because some analyst recommends it, you really should read this book.

Rating:
Summary: Wall Street Hype Artists
Review: An excellent book that demonstrates that Wall Street's much touted analysts are basically PR guys for the folks brokerage firms really care about--investment banking clients. Written before th NY attorney general's investigation, the book nonetheless exposes the same corruption that is now making headlines. Before you buy a stock because some analyst recommends it, you really should read this book.

Rating:
Summary: Must Read for Investors
Review: Benjamin Mark Cole is an outstanding prize-winning investigative business reporter and it's a pleasure to read his first book. Although sophisticated investors do know about stock analysts' conflict of interests, most business media quote analysts without mentioning their conflicts, so I think many people still may not know about this problem. Everyday on CNBC you hear, XYZ Company's stock went up because so and so analyst upgraded a stock. The timing of this book is great because many investors were snookered by analysts rosy outlooks, even as stocks came tumbling down in the past year and a half. This book sets the record straight.

Rating:
Summary: A cautionary tale of routine [trickery]
Review: In The Pied Pipers Of Wall Street: How Analysts Sell You Down The River, financial journalist Benjamin Cole draws upon his more than twenty years of experience and expertise to give the reader a candid, nitty-gritty, and accurate picture of how the stock market brokers and consultants really work. A cautionary tale of the offhand, everyday, and routine [trickery] that lurks within in too many "buy" recommendations from the analysts, The Pied Pipers Of Wall Street reveals the inherent conflicts of interest that work against the investor. It is also a clarion warning against blindly trusting brokerage analysts as the sole source of "objective" guidance on investing in stocks, bonds, and mutual funds. The critical importance of The Pied Pipers Of Wall Street has been lately underscored by the bursting bubble of the dotcoms and the wild rides provided by the technology stocks. If you have money in the market, or are considering buy and sell advice from market professionals, you need to read what Benjamin Cole has to say!

Rating:
Summary: Sell-Side Analysts Chase the Quick Investment-Banking Buck
Review: Let the investor beware of sell-side analyst recommendations!

This book is a little late in arriving. Ten years ago few reporters and almost no individual investors understood that brokerage firm analysts got a lot of their income for bringing in investment banking business (IPOs, mergers, debt financings, and fair value opinions). Then Wall Street Journal reporter, John Dorfman, broke the story. In the old days, sell-side analysts were supposed to be ignorant of what was going on with investment bankers (the so-called Chinese wall) so that the analysts could write objective reports without being compromised by inside information. That Chinese wall doesn't really exist any more.

More than ten years ago, few institutional portfolio managers and buy-side analysts paid much attention to what sell-side analysts have to say. They pay even less attention now.

As the book points out, a sell-side analyst "is just a banker who writes reports." Those reports usually just regurgitate the latest line from the company.

Mr. Cole embroiders the consequences of this long-past fundamental shift with a history of how investment banking fees came to dominate the securities business relative to trading commissions, scam artists posing in different roles, underwritings of lousy companies that later failed, the nasty tricks of short sellers, and how institutional investors can make a few bucks from flipping IPOs.

Although all of the material is accurate, the book's other problem is that it views what is going on from the outside in, rather than the inside out. A lot of the mistakes that happen occur because everyone relies on the companies to explain what earnings will be (thanks to Regulation FD), analyst coverage is very thin, and many analysts are extremely inexperienced. These "analysts" will become even more investment banker-like in the future. What temporarily resuscitated the role of the sell-side analyst as stock picker was the arrival of the on-line individual trader during the Roaring 90s. A long bear market will continue to undermine any economic role for sell-side analysts other than as advisers to company executives. Most CEOs still think that sell-side analysts are important (mostly because of the short-term momentum reports can temporarily create) and court them. Mr. Cole failed to pick up on this point. That's the reason why Jack Grubman at Solomon Smith Barney made $25 million in one year. Was he worth it? You decide.

I was pleased to see that the book included several studies that showed the weaknesses of both the estimates and recommendations of sell-side analysts.

Will the financial media continue to flock to sell-side analysts? Darn right they will. Everyone else in the industry has real work to do, and there's lots of air time to fill up.

Where else is advice not very helpful? How much do you rely on used car sales people? Vinyl siding sales people? Fortune tellers?

Look straight at the facts . . . and take the right action. Be sure to read John Bogle's book, Common Sense on Mutual Funds, if you want to beat almost all other stock investors.

Rating:
Summary: Sell-Side Analysts Chase the Quick Investment-Banking Buck
Review: Let the investor beware of sell-side analyst recommendations!

This book is a little late in arriving. Ten years ago few reporters and almost no individual investors understood that brokerage firm analysts got a lot of their income for bringing in investment banking business (IPOs, mergers, debt financings, and fair value opinions). Then Wall Street Journal reporter, John Dorfman, broke the story. In the old days, sell-side analysts were supposed to be ignorant of what was going on with investment bankers (the so-called Chinese wall) so that the analysts could write objective reports without being compromised by inside information. That Chinese wall doesn't really exist any more.

More than ten years ago, few institutional portfolio managers and buy-side analysts paid much attention to what sell-side analysts have to say. They pay even less attention now.

As the book points out, a sell-side analyst "is just a banker who writes reports." Those reports usually just regurgitate the latest line from the company.

Mr. Cole embroiders the consequences of this long-past fundamental shift with a history of how investment banking fees came to dominate the securities business relative to trading commissions, scam artists posing in different roles, underwritings of lousy companies that later failed, the nasty tricks of short sellers, and how institutional investors can make a few bucks from flipping IPOs.

Although all of the material is accurate, the book's other problem is that it views what is going on from the outside in, rather than the inside out. A lot of the mistakes that happen occur because everyone relies on the companies to explain what earnings will be (thanks to Regulation FD), analyst coverage is very thin, and many analysts are extremely inexperienced. These "analysts" will become even more investment banker-like in the future. What temporarily resuscitated the role of the sell-side analyst as stock picker was the arrival of the on-line individual trader during the Roaring 90s. A long bear market will continue to undermine any economic role for sell-side analysts other than as advisers to company executives. Most CEOs still think that sell-side analysts are important (mostly because of the short-term momentum reports can temporarily create) and court them. Mr. Cole failed to pick up on this point. That's the reason why Jack Grubman at Solomon Smith Barney made $25 million in one year. Was he worth it? You decide.

I was pleased to see that the book included several studies that showed the weaknesses of both the estimates and recommendations of sell-side analysts.

Will the financial media continue to flock to sell-side analysts? Darn right they will. Everyone else in the industry has real work to do, and there's lots of air time to fill up.

Where else is advice not very helpful? How much do you rely on used car sales people? Vinyl siding sales people? Fortune tellers?

Look straight at the facts . . . and take the right action. Be sure to read John Bogle's book, Common Sense on Mutual Funds, if you want to beat almost all other stock investors.

Rating:
Summary: Entertaining but thin description of analyst bias
Review: Mr. Cole indicts the connection between analytical and investment banking side of large brokerage houses, and the inevitable bias for positive recommendations. The case is convincing, and bolstered by colorful anecdotes of abuse, which are incredible despite being easily recollected. Indeed, they were incredible even while they happened.

Despite the entertaining and convinicing argument, the book suffers from two flaws. The book feels padded, despite its thinness, as the central premise, despite its value, does not provide much scope.

In addition, the book attributes the stock bubble of the late 1990s more to malice than to incompetence. In fact, much of the bubble was due to the classic psychology, composed of greed and self-delusion on the part of analysts, money managers, and the much-defended victim, the individual investor. Despite the justly denounced buy bias on Wall Street, the public had--and ignored--bearish advice for years.

Rating:
Summary: Brilliant Analysis for Investors
Review: This book blows the lid off the 'boy's club' brokerage houses of Wall Street. In a fun to read, anecdotal style, Benjamin Mark Cole tells how and why it is in the best interests of investment advisors to lead "regular guy investors" down the garden path. Mr. Cole gives advice anyone can use to easily find unbiased investment advice. This book is a must-read for anyone who presently invests in the stock market or may do so in the future. Which is everyone.