At the end of last week I wrote a bit about one of my pet peeves, the inconsistent way in which the SEC treats inside information. As one of my former colleagues, an SEC investigator hired by my employer at that time to advise analysts and portfolio managers how to stay on the right side of the law, once told me, “Inside information is whatever the SEC decides it is on a given day. The cardinal rule is never to do anything that catches the SEC’s attention.”
Not very helpful counsel, is it? …although it does accurately describe the Eliot Spitzer school of law enforcement.
Don’t get me wrong. Honest professional investors don’t want inside information. It taints their own research efforts and prevents them from trading on hard-won insights. And I applaud the SEC’s efforts to shut down peddlers of stolen company information and the people who buy it from them. What I don’t like–and what may be changing now–is the inability by the SEC so far to separate legitimate research from theft.
a second peeve
On now to my second pet peeve…selective release of information by publicly traded companies. Yes, it still goes on, despite the fact that Regulation FD is supposed to have made this practice illegal.
Again, I’m all for a level playing field. And I’ll admit that when I was a large shareholder by virtue of representing my money management clients I didn’t worry too much about how companies treated the average individual investor.
Even in those days, however, I saw the tremendous preference that long-established companies gave to brokerage house analysts. Many held private meetings for sell-side analysts only (owners of the company’s stock excluded) in which they provided detailed descriptions of their operations and offered informal access between sessions and over lunch/dinner to top technical and management employees. This still occurs (Adobe has a similar kind of get-together that everyone can come to. It costs $1,500 or so, however, which is probably what it costs ADM+BE to host the function and which is fine with me.).
Waht bothers me is that the firms in question givelots of important information to brokers, that brokers turn around and charge me to get. So I’m an owner and the only way I can obtain data about my company is to be forced to pay for it from a third party. That’s crazy. Sometimes, too, the message gets garbled in the retelling. At least have a broadcast of the proceedings on the company website.
Since I’ve retired I’ve also found that the Investor Relations and Public Relations departments of older, stodgier firms are much less responsive to my requests for information than they were when I ran large portfolios. Now they sometimes ignore my repeated phone calls or emails, whether I identify myself as a shareholder, an analyst in a (small) money management firm, or a financial blogger. Either that or they respond with a big time lag.
In a way, this lack of response is valuable information in itself. Big, stodgy, unresponsive to owners = stay away. In cases when new management comes in to shake up the walking dead, this is a sure sign that the turnaround hasn’t gotten as far as top management thinks.
On the other hand, I’ve also had many enjoyable conversation with CFOs or CEOs of mid-sized companies who, to my mind, get it that the idea of responsibility to their owners isn’t simply a legal fiction. My experience is that firms of this sort tend to do better in a fast-changing world.