The stock analysts; the Wall Streeters who tell you when and what to buy and sell

Washington Monthly, Oct, 1987 by John Rothchild

Mr. Glass was so informative that I almost forgot my purpose. It wasn't until dessert and coffee that I remembered to ask him about the stock. If the analysts tell their biggest clients what's what, and Mr. Glass tells the analysts, then I was sitting with the horse's mouth. Trying not to be obvious, I leaned over my coffee cup and whispered, "Maybe you can't say anything due to your position, but do you think I made a good deal at 79 1/4?'

"I don't know,' he said rather loudly. "I sold all my shares a couple of months ago at 60.' That pretty much closed out our conversation.

Back at Prudential-Bache in New York, I revisited Ms. Hall, informed her of all the above, and spent an afternoon plus an evening hanging around her office and following her around the building. She took me upstairs to a fancy buffet party where new stockbrokers were initiated to the rigors of New York. There was plenty of caviar and little pate sandwiches and as much liquor as we could drink. After that, she let me sit in her cubicle while she made telephone calls.

Like Ms. Longley, Ms. Hall seemed to do nothing but work 15 hours a day. In the morning, she prepared her presentation on the squawk box, plus she helped plan the upcoming "road show' for Munsingwear. "Road shows' are whirlwind trips around the country where analysts meet local brokers and drum up support for their favorite shares.

To say the primary duty of an analyst is to analyze a stock couldn't be farther from the truth. After spending a few hours with them, I realized that an analyst is first and foremost a salesman. Certainly, sales was the major part of Ms. Hall's preoccupation. Her recommending of Gillette was the easy part of the job. Then she had to go out and stir up demand so the price would increase and fulfill the prophecy.

(Apparently, the analyst has not always been a salesman. Once, the analyst was more like an accountant, but this all changed on May 1, 1975, when fixed commission rates on stocks were abolished. For reasons I'll explain in a minute, the profession was revolutionized. From what I hear, the analysts were turned from introverts into extroverts almost overnight.)

For instance, you may have noticed that it's rare for a brokerage firm to use the word "sell' in any of its recommendations. The word "sell' is very troublesome for the analyst, especially in the role of salesman. "I don't think you'll hear too many sells',' Mr. Raj admitted to me. "If we say "sell' at Merrill Lynch, people accuse us of pulling the plug on the stock.'

I read somewhere that the ratio of buy recommendations to sell recommendations is 50 to 1 in favor of the former, and after my research I wasn't surprised. If an analyst cries "sell,' he's likely to lose favor with the company and be bumped from a favorable position in the string of phone calls. The various rating systems used by brokerage firms are a form of diplomatic language, similar to the flatteries employed by courtiers to disguise direct criticism. Instead of saying "sell,' a brokerage firm is better off saying "hold.' "Hold' may be a polite way of advising clients to get out of a stock, without offending corporate bankers and other principals. Some firms use "positive/neutral,' in which "neutral' takes the place of "sell,' or a numerical ranking system like the one employed at Prudential-Bache.