Friday, June 25, 2010

Non-Ivy League Observations

Was having an e-mail conversation with a student and noticed this might be worth posting;

"Yes, correct. I tune into CNBC every once in a while and I'm amazed how in general the gurus of Wall Street have horse blinders on. They look at financial statements, they look at balance sheets, they run their little models and they only look at the industry. They never go BEYOND the industry and incorporate the ecnomy.

What is ironic about this is (ESPECIALLY in the past 4 years) the majority of stock price movement has had NOTHING to do with individual companies, but rather the overall economy. Even with the housing bubble, subsequent crash, debt crises in Europe, these Wall Street drones just keep looking at the industry and drone on.

You could also see it in the build up to the housing market bubble. Economists such as Shiller, Roubini, not to mention my humble self, were trying to warn people and banks about the housing bubble, but all the TOP FINANCIAL GENIUSES AT THE TOP FINANCIAL FIRMS DIDN'T SEE IT COMING. I remember the chief risk officer of Merrill Lynch (I think) being interviewed by The Economist about 2007 and he was quoted as saying, "We looked forward, didn't see any risks to the economy." I was sitting there thinking, "How on earth did you NOT see any risks?"

Well, again the reason is they're trained as Ivy league MBA's to just do DCF, look at what they've always done and ignore the larger economic picture.

I'm afraid, given what I see on CNBC, these geniuses are still missing the boat. The larger economic threats are debt, a "perma-retirement" bubble in the stock market, and scloretic eocnomic growth that will impair entitlement programs in the future and undermine the entire retirement planning philosophy (ie-the stock market may not grow by 12.5% per year "like it always has.")

Of course, I don't have enough gray hair and went to just a Big 10 school, but your observations of where their analysis was lacking was indeed spot on."

Again, my services are available for the now failing, taxpayer-bailed-out bulge bracket investment banks who eschew those icky gross Non-Ivy-League commoners - at a premium of course.


Anonymous said...

You have to remember these Wall Street figureheads seen on CNBC, are just a shill to sell you stock. They all say the same candy coated BS.
Your observation regarding not seeing the big picture is correct. None of these "experts" have ever read anything regarding; oppressive debt loads, high taxation, or currency dilution. The media regard central bankers, as some sort of all knowing oracle.
I am cautiously optimistic, we will see more of the same thing.

Hot Sam said...

They're obviously not CFA charterholders.

The CFA curriculum teaches a top-down method of fundamental analysis. You start with the overall economy, then look at the industry/sector and then the firm.

Few firm ratios are meaningful without comparing to industry norms and norms are subject to economic conditions.

Remember that these financial analysts are salesmen first and analysts... perhaps never. Their "analysis" is often only deep enough to justify pre-conceived conclusions and usually those which benefit them in some way.

Buy recommendations still greatly outnumber sell recommendations no matter whether investments are up or down.

Ecclesiastes said...

Due to a quirk of circumstance, I have been aware of the nature of the NYSE, AMEX, and NASDAQ for some 30+ years. ( details on request )

These reported remarks are the emissions of idiots. They have no understanding of the difference between speculation and investment, nor the now-ancient difference between fundamental and technical stock price analysis.

I can't imagine any reason that these nit wits are held forth as 'experts' and 'professionals' save to undermine the knowledge that experts and professionals exist.

Would everyone please stop doing things that result in these idiots getting a paycheck?