"Lock Up the Analysts and Throw Away the Key"

By Damien Cave


Salon Staff
May 23, 2002 11:11PM (UTC)

Read the story:

I agree that crooked analysts should be punished for misrepresenting securities. But where in the article does Sunil admit any responsibility for the loss? His family made at least three mistakes: (1) retiring in Hawaii (the highest cost-of-living state) with only $400K, (2) trusting their investments to an inexperienced 22-year-old, and (3) staying invested even after seeing the evidence of sell-side shenanigans. I also think Sunil's don't-blame-me attitude is well illustrated by his resentment of Stanford and Harvard graduates, while he himself is a graduate of Carnegie Mellon, a fine school by any measure. His class resentment looks silly in light of his own opportunities and the wealth he and his family controlled.

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-- Kerry Tatlow

Everything you say may be true, but it is axiomatic that you can only be defrauded if you have been actually deceived. You would have to be living in a much more remote place than Hawaii not to have read warnings from every kind of person -- including a few who work for large investment firms -- that the market was overheated, that individual Internet stocks were overhyped, and that it was imprudent to focus on such stocks as "core" holdings, especially in a retirement account. Most of these stocks were accompanied by as many naysayers as cheerleaders. There are stock chat boards where wags insisted routinely that one should act in opposition to analysts -- sell on the upgrade, etc. Surely there was enough information to clue in the careful. The availability of warnings does not excuse wrongdoers who intentionally mislead investors, and there should be additional enforcement of the field. Still, when the guy calls to sell you a great piece of land in Florida, is your primary goal to put him in jail or just to hang up the phone and not lose your money?

-- B. Ryland

Sunils right, "something has to happen," but nothing will until the worlds corporate and governmental leaders empower the SEC to start dealing with the financial industrys sins. Im not holding my breath and hope Sunil doesnt either.

-- Jim Pflaum

This article states that securities analysts, like most white-collar criminals, will never face jail time, because those cases are difficult to prosecute and the judicial system is skewed toward financial settlements by the offending companies, not criminal sentences by the guilty individuals.

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You forget one lesson of history: when so many people are victimized, an ambitious prosecutor can use a few exemplary cases as a springboard to elected office. Just look at the prosecutor who put Michael Milken behind bars, a certain Rudy Giuliani ...

-- Fazal Majid

While analysts may very well engage in inappropriate behavior, I can foster little sympathy for the investors (like Mr. Sunil) who follow their advice in such a blind manner. The couple in the article entrusted their life savings to a 22-year-old? That just defies common sense. Mr. Sunil then goes and invests heavily in a stock with an exceptionally high PE ratio. This violated the basic financial principles that investors should utilize a well-diversified portfolio and that the price of a stock should reflect its earning potential. Reform will not cure stupidity. Put all the analysts in jail if you want. As long as there are people with money to invest who are as irresponsible as Mr. Sunil, there will be people losing large amounts of money on their investments.

-- Matt Rowell

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No attention was paid to the investor's incompetence. Any investment guide will tell you to diversify between stocks, bonds, and other investments. It should tell you not to put more than 10 percent of your money in one stock. It should also tell you to be much more conservative in your investing if you are older and have less time to make up for any losses. What did the couple do? They let their 22-year-old son put 25 percent of their retirement money in one stock!! And they want to blame somebody else???

-- Bill Sundling

While I certainly agree that financial criminals should be prosecuted, it is a mistake to lump bad advice and criminal intent together. Sometimes bad analysts are criminals, but sometimes they are just bad analysts. Sometimes even good analysts make bad decisions. No matter how good or how much training an analyst has, they are not God, they cannot read a crystal ball, and they cannot always predict how world events are going to affect the economy. The service that they are offering, notwithstanding their education, experience and training, is, after all, advice. And, as with any advice, you must take it with a grain of salt. Stay alert to what's happening in the world and with your money. Get educated, stay informed, don't put all (or a huge chunk) of your assets in one basket, question things when they don't sound right, get other informed opinions, and get out of the game if playing the game is too volatile.

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-- K. Trevette

I'm sure that you will receive a number of letters supporting the premise that those greedy Wall St. crooks should be made to pay. If Salon has no other purpose than to jump on a bandwagon with no original thought, then the article was a success. However, let's look at the case of "Sunil." Sunil took $150,000 of his parents' savings and invested it in one stock. Putting aside that this was obviously too large a percentage of their earnings to place in one stock, and the fact that Sunil apparently did not take into account his parents' age and risk tolerance, why did Sunil choose this stock? Simply because he wanted to make a huge amount of money, and he made his investment decision based on the stock's volatility. The fact that it had increased rapidly in price is exactly why Sunil purchased the stock. Like most investors, Sunil overlooked the fact that volatility works both ways. Sunil now wants to blame his decision on Henry Blodget, but that is absurd. Neither Blodget nor any other analyst can make a stock's price increase; only investors can. A stock is worth what people will pay for it, and while it may be ludicrous that people once paid hundreds of dollars a share for many Internet companies, the fault -- absent any direct attempt to defraud investors (e.g., Enron) -- lies not in the analyst stars but in ourselves.

-- Chris O'Malley

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