Wednesday, May 1, 1996
The Games that Analysts Play, Part Two
by TBEllis1

In the years "BMF" (Before Motley Fool), most individual investors felt at a huge disadvantage to large institutional players. These WISE institutions would smugly go to bed each night, confident in the performance of their portfolios. After all, their money was in the hands of even WISER institutional money managers who had access to the WISEST of all-- institutional research.

Now, these institutional portfolios weren't doing all that well. Close to 90% of them lagged the general market over the long-haul. And in most instances, these dismal returns were only generated after the portfolios assumed a much higher level of risk than, say, a plain old index fund. One would think that this peculiar combination of higher risk and lower return would frustrate the portfolio owners. But no, they didn't complain. After all, they were WISE.

Moreover, anytime one of the WISE's constituents had the audacity to gripe, the WISE would point the finger at the WISER---the money managers. If the heat ever got too much to bear for the WISER, they would simply point at the WISEST---the equity analysts. Realizing that they were at the bottom of the food chain, the WISEST would cover their you know-what by simply never being wrong . . . er, never being "optimistically wrong." That is, as befitting their name, the WISEST figured out the game and realized that no harm could ever come from underestimating a company's growth rate. Thus, they programmed their spreadsheets to not accept growth projections greater than 50%, and continued to churn out conservative---but not "wrong"---projections.

In this world, the small individual investor drooled over analysts reports. They were the golden fleece, the oracle at Delphi. After all, analyst reports were the tools of the WISE, and oh . . . how we all wanted to be WISE.

But today, my fellow Fools, a new age has dawned. Thanks to the Motley Fools we have learned how to think for ourselves. We have debunked the meaning of WISE, and have profited quite considerably. (Forget not that the average diversified U.S. stock mutual fund earned 5.66% in 1Q96, while the MF portfolio returned a cool 27.1%!!) Most importantly, we have seen that informed, on-line discussions provide far better info than your average analyst report ever could.

Yesterday I mentioned Datastream Systems. Do I know what DSTM's growth rate will be? Absolutely not. Do the equity analysts? Absolutely not. So at the end of the day, whatcha gonna do? Go with the WISE, "knowing" that you'll never be "wrong"? Or do like the Fools, and use all available historical info to project for yourself?

Fool on!

-- Tom

Transmitted: 5/1/96