Almost every manager at every large investment firm is compensated on
how much fee income and profit their office makes for the firm, not how
well their financial consultants have performed for their clients. There
is a huge difference between these two goals. It’s the reason why former
Merrill Lynch star internet analyst Henry Blodgett once stated in a
comment that he never believed would be made public, that the stocks
other Merrill analysts were praising on TV as top picks were “crap" and
"junk” (Source: Fort Worth Star Telegram, May 26, 2002).
Even honest financial consultants at big investment firms find it
difficult to find you great opportunities among the pool of stocks that
their firm tracks. Why? Because many firms mandate older age and lots of
experience as prerequisites for their star analysts. They believe that a
head industry analyst with a couple of grey hairs is far more credible
when appearing in front of their top clients and in front of the
American public on television. Personally, if I ran an investment firm,
every one of my analysts would probably be under 30 years of age. Why?
Well, information technology has revolutionized the ability of analysts
to find stocks with spectacular growth prospects before the general
public becomes aware of these stocks. Leads can be found through
internet search engines by searching the right keywords, and also
through other creative methods, including the utilization of blogs. Many
times, the best stock opportunities can be uncovered through
non-traditional sources of information, meaning NOT Reuters, NOT
Bloomberg, and NOT any of the other financial information clearinghouses
that big wall street firms pay thousands of dollars for every month.
Many times, the best information is free and online, but the key is
knowing how to uncover it.
Typically, when you have a problem you wish to solve related to the
internet, whether it is a web design problem, a problem with obtaining
better search engine rankings for your website, setting up a blog, being
able to understand how to search online databases, and so on, would you
turn to a fresh faced kid or someone with grey hair for help? A fresh
faced kid, right? Because typically the younger generation is much more
up-to-date on newer technology, including knowing how to manipulate and
find data. See where I’m going with all this now?
The reason you’ll never hear about the companies that in five years will
be the new Microsofts and the new Dells from the portfolio managers and
financial consultants at large financial services firms is because huge
financial institutions have yet to realize that understanding how to
source information utilizing information technology is what has enabled
the best stock pickers to be right so many times about stocks nobody
else has ever heard of. And don’t be impressed if your financial
consultant recommended IPO plays like Google that skyrocketed because
the whole world knew about Google. Your financial consultant should be
uncovering the tens and tens of other Googles out there that nobody else
has ever heard of.
Frankly, I could care less about how many times the top portfolio
managers of big investment houses visit the companies of stocks they
recommend. I could care less if these top portfolio managers have
“access” to the CEOs and CFOs of these companies because of their
“reputation”. I could care less about the “global reach” of these
investment firms that enables them to research overseas companies. None
of this impresses me as a client.
I could care less because the majority of time, the big financial
services firms are not researching the right companies. By this, I mean
the small and micro cap stocks that nobody has ever heard of. The big
firms will spend tens of thousands of dollars to set up these
conferences at fancy hotels for their biggest clients and parade their
impressive access to big time company CEOs, but still, I’d rather spend
almost nothing continuing to discover stocks that will give me 50%
returns in less than a year versus wasting my time listening to
excessive information about a huge company that will never grow more
than 8% a year. But then again, that’s just my opinion.
