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Ever wondered why books such as Security Analysis and The Intelligent Investor never go out of “style”? The examples used in analyzing individual securities change, but the concepts are timeless. But one factor no one ever looks at is Wall Street and the culture around it. You see, most of the individuals on Wall Street usually are individuals with MBA’s from prestigious schools such as Harvard, Yale, Princeton, etc. These MBA’s usually becomes analysts at some major firm and soon will be in competition with other MBA’s. Now comes the fun part. By competition, we mean looking at the same stocks as every analysts. For example, IBM currently has 15 analysts, while magic formula veteran Vaalco Energy (EGY) currently has 2. So what happens when our analyst “Lola” gets it right? She becomes a smarty pants.
What happens if IBM misses analysts expectations? Nothing, it’s simply a “bad quarter”. Can you imagine someone like me who goes to a public university go up against one of these Ivy League analyst on CNBC and try to make a case for some small cap? They would never take me seriously because in their eyes, they are never wrong as they attended Harvard, and thus are smarter than me. For example, remember when good ol’ Peter Schiff tried to explain what’s going on in the economy…. THEY LAUGHED.
So what to do? Stick with your own research. Ben Graham told us so a long time ago….
“Wall Street people learn nothing and forget everything.”
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
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Alex.
You hit the NAIL on the head!
I have recommended the book The Intelligent Investor to many friends and none have read it. So many people want the fish handed to them but do not want to learn how to catch the fish-including Wall Streets little club.I think history will keep repeating itself.
In fairness, Peter Schiff may have been right on the economy but even he wasn’t able to position clients to benefit. Also, his idea of “decoupling” has been proven laughable.
Agree MW, the Wall Street Journal did a piece on how certain Schiff investors has lost as much as 50%. This shocked me considering Pete saw the hurricane. I guess its safe to say its one thing to see a hurricane coming and another thing to prepare for the hurricane. My point in bringing up the video is to show how if your not part of the “herd”, you basically are not taken seriously.
The evening news is the best source of information, forecating of anaylist is out in my books; Harold Wilson said that “A week is a long time in politics.” Commenting on Ben Bernanke’s latest forecast – (see here) — the Stock Research Portal Blog says something similar: “I do have difficulty with any prediction made by anyone that is longer than about one week in this current highly volatile, ‘every day is a new important news day’, economic environment the U.S. (and hence the rest of the world) currently is in.”