Fool's Eye View

[ October 3, 2000 ]

Brokerbabble

By Alan Oscroft (TMFAlan)

"Sssnnnwhuffffll? Hnwhuffl hhnnwfl hnfl hfl?"
-- Edwin Morgan

Liverpool -- That, believe it or not, is the Loch Ness Monster singing. It's also the kind of noise I make whenever I read brokers' recommendations. I never follow any, of course, as nobody should ever make an investment decision based solely on someone else's opinion -- whether that someone be broker, friend, taxi driver, or Fool. It is sometimes worth reading what brokers are saying, though, if you can understand it, that is. And it can be interesting to ponder the reasoning behind their recommendations -- if only for a laugh.

I'm a frequent reader of Investors Chronicle, and every week it carries lots of these recommendations, though just about all investment publications carry the sort of stuff that I am talking about.

But what do all these recommendations mean, for they are spoken in a mysterious tongue? The first two common types of recommendation are easy to understand -- "Buy" and "Sell". Now, what could be simpler than that? Do we need any more types of recommendations than that? I would have thought not, but apparently we do. Grawff.

Next comes "Hold," which presumably means don't buy any if you don't have any but don't sell any if you do. Why do we need to be told this? Surely this is the same as not publishing any recommendation at all, isn't it? Well, apparently not. It appears that it is very rare to see a "Sell" recommendation from a company's own broker -- they don't like to upset their clients, you see. There is clearly a conflict of interest there, and one might have expected the moral thing for a broker to do in such circumstances would be to keep quiet and simply never publish recommendations for their own clients. But no, it appears common for brokers in these circumstances to publish a "Hold" recommendation instead. So "Hold" might sometimes mean, "I'd sell these if I had any, but I'd better not tell you that or I might get into trouble." Splgraw!

And then I came across a "Firm Hold" recommendation. What's that? Do we still hang on to the shares, but a bit firmer, then? Do we hold the certificates with both hands? Or is it a way of publishing a genuine "Hold" recommendation that might otherwise have been taken as a "Sell?" And if so, what actually is a real "Hold" recommendation anyway? I certainly don't know. And then there's the "Weak Hold" recommendation -- just hold the certificates between two fingers? Gdroblbobhobngbl!

"Accumulate" and "Add." Do these mean buy some more if you already have some, but don't buy any if you don't already have any? If so, that's complete nonsense, surely. The value of a share that has yet to be bought is in no way related to the shares already held -- it isn't worth more simply because we've already got some. If a share is worth buying then it's worth buying, and that's it. And "Reduce" presumably means "Sell", doesn't it? Gombl mbl bl!

Next, on to two of my favourites -- "Outperform" and "Underperform." "Hello, Mr Discount Broker, I'd like to underperform some shares please...." No, I can't see that working, somehow. What on earth are these recommendations supposed to mean? Does the broker think the shares are worth buying, selling, or neither? Why not just say so, then? Drublhaflabhaflubhafgabhaflhafl!

And finally, on to a rather splendid broker's recommendation that Winfried (TMF Berlin) unearthed a little while ago. Perusing the paper one morning, he started chortling uncontrollably and when questioned as to the source of his mirth, could only emit a spluttering "Accumlate Carefully" while rolling about holding his sides. Blm plm blm plm blm plm blp!

That last recommendation has since passed into Foolish folklore, and whenever Winfried tells us that he's off to the Media Club bar to "accumulate carefully", we know exactly what he means.

One final word of warning regarding brokers' recommendations, just in case the above barrage of nonsense isn't enough. A lot of the recommendations published in daily or weekly newspapers or magazines are old, sometimes very old. Recommendations have often already done the rounds, having previously been sold to fee-paying clients, and the final publication in Investors Chronicle, or wherever, just squeezes the last bit of mileage out of them. The smart money takes no notice of them and directs itself instead towards rational, fundamental, Foolish analysis.

Fallen victim to any nonsensical Wisespeak recently? Come and tell us about it on the Fool's Eye View discussion board.