The Pied Pipers of Wall Street: How Analysts Sell You Down the River [Hardcover]

Benjamin Mark Cole (Author)

Book Description

Publication Date: May 2001

Today's market watchers have increasingly come to rely on the opinions of brokerage firm analysts. But in this startling and revealing new book, Benjamin Cole explains why relying too heavily on what they say often isn't the best course of action. He demonstrates the economics of the brokerage business and shows why and how securities analysts frequently put the interests of the firm ahead of the interests of regular investors.

Many seasoned investors are already leery of the impersonal giants of the Wall Street brokerage business; they're looking for unbiased guidance and trustworthy sources of information for investment decisions. This book gives the reader solid guidance on separating reliable information from salesmanship. Cole offers a riveting, eye-opening view of the workings of Wall Street, challenges the supposed objectivity of analysts, and concludes by providing balanced, objective information sources the investor can turn to with confidence. To illustrate his points, the author traces the motivation and histories of specific analysts who have harmed or helped investors, with significant moves in the market following key pronouncements.

Carefully researched, documented, and constructed, this book is a fascinating expose of compromise and the unwritten agendas just below the surface of brokerage and underwriting businesses.

Editorial Reviews

From Library Journal

Books like Mark Dempsey's Tricks of the Trade (LJ 1/98) have exposed the ways of brokers. In this new cautionary work, financial writer Cole focuses his attention on financial analysts, who are supposed to evaluate objectively the investment potential of securities. Cole contends that in the best of times analysts were never very successful in making predictions, but in recent years they have become shills for their investment banking departments. He further points out that the 1975 deregulation and consequential reduction of brokerage fees forced brokerages to make most of their money through investment banking. Analysts, while theoretically giving independent opinions, in reality now exist to help their firms' client companies to sell new stock and support their stock prices. Cole argues that this has led to almost incessant optimism among most analysts. His book is easily read, and his points would be useful for all investors to consider. Recommended for all public libraries and to academic libraries where there is interest. Lawrence R. Maxted, Gannon Univ., Erie, PA
Copyright 2001 Reed Business Information, Inc.

Review

Any investor swept up by the swirling currents of today's financial media should read this book. -- Brad Hill, Author and writer, Raging Bull Trading Center

[A] provocative and lively read, reminding all that the pricing system can emit false signals. -- John Lonski, Credit Market Economist, Moody's Investors Service

an unbiased, honest, objective, fresh view of Wall Street research. -- Marshall B. Front, Chairman, Front, Barnett Associates, LLC

See all Editorial Reviews

Product Details

• Hardcover: 240 pages
• Publisher: Bloomberg Press; 1 edition (May 2001)
• Language: English
• ISBN-10: 1576600831
• ISBN-13: 978-1576600832
• Product Dimensions: 9.5 x 6.4 x 0.8 inches
• Shipping Weight: 1.4 pounds
• Average Customer Review: 4.3 out of 5 stars  See all reviews (14 customer reviews)
• Amazon Best Sellers Rank: #2,388,915 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

8 of 8 people found the following review helpful:

5.0 out of 5 stars Packed With Knowledge!, May 2, 2001

By 

Rolf Dobelli "getAbstract" (Switzerland) - See all my reviews
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This review is from: The Pied Pipers of Wall Street: How Analysts Sell You Down the River (Hardcover)

The best proof of Benjamin Mark Cole's premise - that brokerage houses have sold out common investors to curry favor with huge corporate interests - is the ease with which he accumulates examples of analysts hyping stocks that later went bust. Can the combination of self-interest, analyst hype, and subsequent stock price implosion somehow be coincidental? Or is it time to start calling a duck a duck (or, for that matter, a quack a quack)? Cole's indictment of Wall Street's most efficient salesmen comes just in time for investors looking for a culprit in the overnight evaporation of billions of dollars in retirement funds. Of course, analysts can't be blamed for the stock-market downturn, but their behavior during the run up deserves the close scrutiny it receives here. We [...] recommend this book to any investor who suspects that the true talent of the talking heads they see on CNBC might really be turning your money into theirs.

10 of 11 people found the following review helpful:

5.0 out of 5 stars Brilliant Analysis for Investors, May 22, 2001

By A Customer

This review is from: The Pied Pipers of Wall Street: How Analysts Sell You Down the River (Hardcover)

Is Ben Cole the only financial journalist in America who has the guts to tell the truth on how big brokerage firms are selling millions of investors down the river? Cole has done a masterful job in analyzing a major problem on Wall Street; the extinction of analysts on Wall Street who recommend selling stocks regardless of the price-to-earnings ratios of certain publicly traded companies. These experts work at large brokerage firms on Wall Street and play a crucial role in recommending to millions of investors which stocks to buy. Contrary to popular opinion on the television shows, these analysts are not objective because their real job is to bring in big underwriting fees for their firms. Cole outlines that investment banking -- raising money for companies that need cash is where the real money is made on Wall Street. Brokerages make millions on fees from those deals, so analysts will promote stocks that are flagging in the marketplace. Investors are lemmings following the next analysts' "buy" recommendation, as they loose their limited resources while investment banks cash in on those deals. I work in the financial services industry and have advanced degrees, but I find that Ben Cole's book has given me a market analysis I could never get from the "Gurus" on Wall Street. There is an important reason why the prestigious Bloomberg Press published this wonderfully researched and written book, because I am one of 78 million baby-boomers who will keep investing for years and this book will become the reference work of investing for years to come. A must read for investors.

7 of 7 people found the following review helpful:

3.0 out of 5 stars Sell-Side Analysts Chase the Quick Investment-Banking Buck, October 17, 2001

By 

Donald Mitchell "Jesus Loves You!" (Thanks for Providing My Reviews over 109,000 Helpful Votes Globally) - See all my reviews
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This review is from: The Pied Pipers of Wall Street: How Analysts Sell You Down the River (Hardcover)

Let the investor beware of sell-side analyst recommendations!

This book is a little late in arriving. Ten years ago few reporters and almost no individual investors understood that brokerage firm analysts got a lot of their income for bringing in investment banking business (IPOs, mergers, debt financings, and fair value opinions). Then Wall Street Journal reporter, John Dorfman, broke the story. In the old days, sell-side analysts were supposed to be ignorant of what was going on with investment bankers (the so-called Chinese wall) so that the analysts could write objective reports without being compromised by inside information. That Chinese wall doesn't really exist any more.

More than ten years ago, few institutional portfolio managers and buy-side analysts paid much attention to what sell-side analysts have to say. They pay even less attention now.

As the book points out, a sell-side analyst "is just a banker who writes reports." Those reports usually just regurgitate the latest line from the company.

Mr. Cole embroiders the consequences of this long-past fundamental shift with a history of how investment banking fees came to dominate the securities business relative to trading commissions, scam artists posing in different roles, underwritings of lousy companies that later failed, the nasty tricks of short sellers, and how institutional investors can make a few bucks from flipping IPOs.

Although all of the material is accurate, the book's other problem is that it views what is going on from the outside in, rather than the inside out. A lot of the mistakes that happen occur because everyone relies on the companies to explain what earnings will be (thanks to Regulation FD), analyst coverage is very thin, and many analysts are extremely inexperienced. These "analysts" will become even more investment banker-like in the future. What temporarily resuscitated the role of the sell-side analyst as stock picker was the arrival of the on-line individual trader during the Roaring 90s. A long bear market will continue to undermine any economic role for sell-side analysts other than as advisers to company executives. Most CEOs still think that sell-side analysts are important (mostly because of the short-term momentum reports can temporarily create) and court them. Mr. Cole failed to pick up on this point. That's the reason why Jack Grubman at Solomon Smith Barney made $25 million in one year. Was he worth it? You decide.

I was pleased to see that the book included several studies that showed the weaknesses of both the estimates and recommendations of sell-side analysts.

Will the financial media continue to flock to sell-side analysts? Darn right they will. Everyone else in the industry has real work to do, and there's lots of air time to fill up.

Where else is advice not very helpful? How much do you rely on used car sales people? Vinyl siding sales people? Fortune tellers?

Look straight at the facts . . . and take the right action. Be sure to read John Bogle's book, Common Sense on Mutual Funds, if you want to beat almost all other stock investors.