Take advice with pinch of salt

A YEAR ago, I quoted the Zacks Investment Research of Chicago finding that of 8,000 analysts recommendations on US stocks, only 29 were sells!

For a year in which profits crumbled and Wall Street fell more than 10%, this says something about brokers' expertise. The assiduous Zacks tells me it has been looking at even more broking recommendations for this year. Only about 1.6% are sell or strong sell. Some 60% are buy or strong buy and 38% are 'hold'.

You might make allowances about many brokers not wanting to upset clients and claim that hold really means sell and sell means run for your life. Maybe. But do private investors understand such hints and why should they endure linguistic distortions anyway?

Zacks also says that there were no sell recommendations for Enron last January! And the recommendations to buy it were five times as many as recommendations to hold. Alarmingly, the now bust company was widely acclaimed by academics and used as a model of good management in business schools. Now, it seems, business schools are using Enron, with all its off balance sheet shenanigans, as a model of how to detect badly-run companies.

So, you not only have to be careful about selecting brokers you can trust, but business schools, too. I would not wish to suggest that no analyst can be trusted. Here in London one tells me he follows 40 tech stocks. He recommends buy for just two.

Son of Railtrack
THE means by which the government will fund Son of Railtrack must tax the most ingenious of financiers.

My own suggestion is that it should be through zero stepped preference shares with a convertible option into indexed bonds under a limited guarantee and utilising a non- open- ended investment trust with a split capital and dividend alternative and optional wind-up, entitling a five year tax-free roll-up on capital gains. But perhaps that is too simple.

IMF
IT is good to know the International Monetary Fund is keeping busy. It has just conducted a full review of the economy of San Marino (population: 26,000).

Travellers to that charming republic near Rimini, in Italy, will be pleased to know that its economy is in generally good order, though its fiscal policy causes some concern owing to poor tax collection.

The largely favourable picture will no doubt be welcome to the governor of the central bank, the mayor of San Marino and the Republic's commander-in-chief (probably the same man in each case).

Gnomic Greenspan
FEDERAL Reserve chairman Alan Greenspan is famous for his gnomic utterances, leading to such simultaneous headlines as 'Greenspan expecting US recovery' and 'Greenspan punctures talk of US recovery'. One wonders what sort of conversations he has at home.

Mrs G: Will you be home early tonight?

Mr G: While there are apparent reasons for expecting that, there is a non-negligible downside risk that expectations cannot be fully met.

Mrs G: I had hoped to have friends in for dinner.

Mr G: This is a scenario that has its attractions and would in the normal course of events lead to a positive result. However...

Mrs G: Can't you say yes or no?

Mr G: It is as yet too early to posit a definite prospect given weak, historically speaking, precedents for a swift designation of the wider outlook one way or the other.

Mrs G: Is that a yes or a no?

Mr G: The overall picture may lead many, perhaps most, observers to conclude that we face a situation in which the outturn will prove satisfactory. On the other hand it would be rash to ignore numerous factors which could upset a satisfactory prognosis.

Mrs G: Will you ring me?

Mr G: Yes. (Mrs G faints).