Thursday, September 11, 2008

Is It Any Wonder?!

I have no illusions that "guessing" the next market move is easy. Lord knows, I've been wrong often enough to have earned the gray hair. But sometimes I wonder what the collective geniuses on Wall Street are thinking. In my time at one of the major investment houses I saw some things that made me furious. Analysts going silent when clearly a sell recommendation was in order, the trading desk working the other side of a recommended BUY. I shall remember forever the words of the New York exec who told me, "we wear a lot of hats," when I asked why the company was going massively short a stock the retail side was recommending highly to clients.

Yesterday Argus Research downgraded Lehman Brothers to "HOLD" after elevating it to "BUY" on March 27, 2008. It was a buy at $40/share. It is now a "HOLD" at 9. (I give them some credit as it now trades at $4/sh since the downgrade yesterday.)

The past years are littered with BUY recommendations on Worldcom, Tyco, Countrywide, Lehman Bros and many others. The point is much like I wrote a couple weeks ago, "don't tell me what you think, tell me what you see". The analysts who make these recommendations are among the brightest people in the land and frankly often don't have a clue. So diversify, diversify, diversify. If you got Microsoft right one day years ago, or made a fortune in Pfizer once upon a time, get over it. There is another Freemarkets with your name on it out there.

Try to watch the interest rate developments and diversify across low correlation assets classes and leave the individual stock picking to other geniuses unless, you just love to roll the dice. And don't forget, if you got it wrong, don't average down. You're probably didn't get smarter and you're probably still wrong. Even the Morgan Stanley analyst who said, "I liked it at 50, I really liked it at 30 and you have to love it at 20" needs a dope slap sometimes. He gave up at about $2/sh on a stock now in the bin of history.

John Barnyak