No. of Recommendations: 20
Good day to all.

Firstly, I'd just like to express my thanks to the many intelligent posters who have contributed to the discussion here over the past few days- some I have agreed with, some I haven't, but it's great to see solid discussion of issues here without everyone resorting to insults and threats as is so often seen on other sites message boards.

Secondly, i'd like to try and highlight if I may, a point made by jumpinjoe4 in post 4453 and also the last post by LA_Broker which looked at a different angle on the same issue. LA_Broker has already made a very good defense of his angle, so I will concentrate for now, on part 1. The issue to which i'm referring is 'What constitutes "spinning misleading statements to fool uninformed investors"'?

The two paragraphs below will no doubt be recognised by many, they are taken from Bill's original Fool On The Hill article about the case...

<<To make a long story short, Elan message board posters took umbrage to Maris's maintenance of a "hold" rating on their favorite stock. As any investor knows, since actual "sell" ratings are about as welcome in Wall Street brokerage firms as rats in a dark elevator, a "hold" rating is universally interpreted as a thinly disguised code for a sell declaration. This, the holders of Elan, do not appreciate.

In the opinion of CS First Boston, some of the posters apparently went a bit overboard in the method they chose to express their disagreements with Mr. Maris. According to today's Wall Street Journal article, the defendants posted statements saying Mr. Maris was "spinning misleading statements to fool uninformed investors" and was "lying" and "evil even to his customers." >>

Even before you go on to look at the specific contents of the statements of Mr Maris and this particular case, something stands out to me, from your article, which would appear to have much wider implications across the entire brokerage industry. I would like for you to picture the following imaginary scenario for a moment...

(disclaimer, this passage is entirley fictitious, is not to be read as referring specifically to the csfb or any other case and is for theoretical discussion and entertainment purposes only).

Bob is a 25 year old manual labourer from middle America. Unhappily for him, his father has just died. As part of his father's will, Bob has inherited his fathers portfolio of individual stocks. These stocks were not managed by any firm, they were his fathers own personal self managed portfolio.

Bob has no interest in the stockmarket and has never invested before. He doesn't want to have to pay the money for someone to be looking after the portfolio full time on his behalf- he is interested in administering the portfolio himself but is looking to learn on the job as an amateur in his spare time. Feeling it would be prudent to get some views on the stocks he has inherited, Bob decides to sign up with a well known Wall Street brokerage which offer investment opinions on stocks. He is hoping to find out whether the firm is advising clients what they should do with the particular stocks he has inherited, as a starting base for deciding which stocks he should keep, and which he should unload.

Bob checks with the firm what their near term investment rating is on *Stock X*. They have a 'hold' rating out on the stock. Using his limited knowledge of the English Language, without being aware of any 'secrets of the market', Bob sees the analyst note and interprets that as he is already 'holding' the stock, then he is being given the advice that near term he should continue to hold it. He has paid the brokerage firm, which he understands has a good reputation, for this recommendation. Therefore, perhaps it is reasonable to suggest that he would have reason to assume, not being party to conventional market wisdom, that the best advice this company is offering to their clients and which it is staking its reputation on is that people who own this stock such as himself should continue to 'Hold' it. So that's what he does. The stock price when he obtained this firms research was 30 dollars per share in our imaginary scenario.

We return to the land of Bob a few months later...

Bob has got back from a hard days logging out in the woods, and settles down with a cold beer to relax. He decides that it has been a fair while since he checked how his stocks are performing, so he decides to try checking the latest prices over the internet through an interesting sounding site called 'the Motley Fool'. He uses the quotes page to check on his stocks and the market. He finds that the stockmarket has gone up nicely since he last looked at it- an encouraging sign. Then he looks at his own stocks, and happens upon 'Stock X'. He finds to his dismay, that the stock price has dropped to 20. *shock, horror!!*. Obviously Bob is concerned about this, and he hasn't heard of any new reports from the brokerage firm changing their advice on the company, so he decides to ring them.

He finds out that the firm continue to maintain a 'hold' rating near term on this stock, and have not changed their opinion since he last checked. He therefore thinks, oh well I guess they did their best for me, gave me their best advice and it obviously didn't come off this time. He also reads through their report again and notes that the report contains many points or suggestions that could be perceived as 'negative' sounding, (sounding familiar to anyone?).

BUT Bill, did they necessarily give him their best advice, or what should have been their best advice? I take you back to the comment in your article...

'a "hold" rating is universally interpreted as a thinly disguised code for a sell declaration.'

...Bob goes back to the Motley Fool site, which he has found most helpful. He stumbles upon an article by a 'Bill Barker' which relates to an internet lawsuit- he doesn't know much about the internet- this is one of the few times he's used it for anything, but he thinks the article might be worth a read. He runs down the column, and then he reads something... He reads that in the opinion of many people, (and I largely agree with you on this Bill), 'a hold rating is universally interpreted as a thinly disguised code for a sell declaration'. Bob didn't know that. He then gets in contact with a few other people and reads a few more messages which tell him that a large number of other investors took the hold advice exactly the same way as you did. Bob paid for that advice thinking the opinion of 'hold' was how one should react when one got the advice- that you should hang onto the stock. If you were in his situation, then you found out that the majority of people 'know' (disclaimer- 'know' = interpret, think they know, sarcastic form of 'know') that a 'hold' recommendation means 'sell' how would you react ?? Would you think that you'd been spun a "misleading statement(s) to fool uninformed investors" like Bob? Would you think you'd been lied to? Would you think the company were being 'evil' even to their own customers?

Conclusion- Brokerage firms in general have enjoyed rising levels of profitablity for years- analysts and fund managers have enjoyed bumper bonuses- Analysts and corporate deal makers work within the same buildings in many cases for the same bosses, and companies have to consider the overall profitability of their busineses and not 'upsetting' the wrong people who give them big deals. Yet who are the people who are really paying for this orgy of wealth? Could it be... the people who pay into their pension funds, the people who rely on brokerages for advice, the people who buy the IPOs of the companies coming to market and thus help to determine their success? the small time investors who trade or who buy and hold while other people make profits driving the prices of the stocks they hold higher or lower? the people who entrust their money to banks and brokerages in deposit accounts expecting it to be used responsibly? In other words, the small time investor who relies on The Motley Fool amongst other sources to look after their interests and provide sound, researched commentary and views which challenge the orthodox wisdom and often dubious (in my opinion) practises of the 'wise'?

All I am trying to get across with this, is that you need to ensure you stay in touch with the people who subscribe to your services and remember what the purpose of The Motley Fool is. In your article, you seemed, in my opinion and others, to be matter of factly skipping over some extremely topical and important issues, having done little research into the case and the potential issues involved in it, to come out with the opinion that 'I wish CS First Boston luck on its pursuit.' and 'CS First Boston has a claim I wouldn't mind seeing recognized.'

Please don't think i'm being critical of all that you have said, and I do think that your basic intentions were right and your willingness to debate has been much appreciated, but May I suggest that you bear in mind some of the points that have been raised, next time you rush to pass judgement and label people (in my opinion) unfairly in an article that will be read by a large number of people.

Have a good day, and thanks for your time.


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