FULL OF BULL (Updated Edition) This page intentionally left blank FULL OF BULL (Updated Edition) Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio S t e p h e n T M c C l e l l a n Vice President, Publisher: Tim Moore Associate Publisher and Director of Marketing: Amy Neidlinger Executive Editor: Jim Boyd Editorial Assistant: Myesha Graham Operations Manager: Gina Kanouse Digital Marketing Manager: Julie Phifer Publicity Manager: Laura Czaja Assistant Marketing Manager: Megan Colvin Cover Designer: Alan Clements Managing Editor: Kristy Hart Project Editor: Lori Lyons Copy Editor: Cheri Clark Proofreader: San Dee Phillips Indexer: Erika Millen Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig © 2010 by Stephen T McClellan Publishing as FT Press Upper Saddle River, New Jersey 07458 This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book Each individual situation is unique Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales For more information, please contact U.S Corporate and Government Sales, 1-800-382-3419, corpsales@pearsontechgroup.com For sales outside the U.S., please contact International Sales at international@pearson.com Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners All rights reserved No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher Printed in the United States of America First Printing June 2009 ISBN-10: 0-13-702312-X ISBN-13: 978-0-13-702312-7 Pearson Education LTD Pearson Education Australia PTY, Limited Pearson Education Singapore, Pte Ltd Pearson Education North Asia, Ltd Pearson Education Canada, Ltd Pearson Educación de Mexico, S.A de C.V Pearson Education—Japan Pearson Education Malaysia, Pte Ltd Library of Congress Cataloging-in-Publication Data McClellan, Stephen T Full of bull : unscramble wall street doubletalk to protect and build your portfolio/ Stephen T McClellan — Updated ed p cm Includes index ISBN-13: 978-0-13-702312-7 (pbk : alk paper) ISBN-10: 0-13-702312-X (pbk : alk paper) Stocks—United States Investments—United States Investment analysis Wall Street (New York, N.Y.) I Title HG4910.M3696 2010 332.63’220973—dc22 2009006072 To Elizabeth, my love, my bride, my friend This page intentionally left blank Contents Acknowledgments ……………………………viii About the Author ………………………………x Preface …………………………………………xi Chapter Decoding Wall Street’s Well-Kept Secrets ………………………………1 Chapter Understanding Wall Street’s Misleading Practices …………………………33 Chapter Strategies in Quest of the Ideal Investment ………………………………57 Chapter Investment Strategies to Survive in a Bear Market ……………………………………89 Chapter Evaluating Companies as Investment Candidates ………………………101 Chapter Executive Traits Are a Revealing Investment Gauge ……………………………123 Chapter How Street Analysts Really Operate ………147 Chapter Reforming Research to Level the Playing Field …………………………………175 Afterword ……………………………………191 Glossary ………………………………………197 Index …………………………………………217 Acknowledgments This book was materially enhanced by input from a few trusted Wall Street veterans whom I have known for most of my career They reviewed the manuscript and made worthy suggestions My old friend Peter Anastos spent his career in the mutual fund industry and the past several years before retirement as head portfolio manager of the Alliance Capital technology fund Jim Lee was an institutional salesman at the small firm where I started in 1971 and worked as an investment manager over the years He is an astute observer of the Street as well as investment trends Over the decades, he has seen it all, from the buyside perspective George McDougall, a friend since first grade, helped me find a title and aided in the editing John Korvin, a golf partner who skins me regularly, and Mike Walsh, a comrade involved in technology market research, gave me valuable suggestions Jim Boyd at FT Press guided the publication process WT Blase & Associates and The Hendra Agency assisted in marketing promotion The foremost person assisting in the preparation of this book was Joyce Padua She works with me as my personal assistant We slogged every morning—me buried under copious notes on one side of my desk, she sitting across in front of the computer She did her share of editing, too Now she thinks she is an expert investor Another valuable contributor was my freelance editor, Kathryn Crim, who brought order and clarity to my jumbled prose Then there is my progeny Laurel Almerinda remembers the labors of my first book As an artsy, creative, and driven USC film school alum, she is pursuing a career as a screenwriter and as a chef in Los Angeles Justin McClellan toiled for his engineering degree at Boston University and is now employed in the aerospace field while eagerly working to master the ropes of managing his own portfolio of stocks They constantly offer unsolicited parental advice to keep me in line While the first edition of this book was in midstream, I fell in love with my bride Elizabeth Barlow, an artist who spent her career in the ACKNOWLEDGMENTS ix opera and ballet Her feline, Figaro, came along with her and promptly took over as master of the house Several times Elizabeth overheard me casually giving practical, and what I thought was obvious, investment advice to someone She usually reacted by reminding me that what was intuitive to me as a professional insider was enlightening to outsiders, and would inquire if I had addressed that in my book Amazingly, in many cases, I had not So I immediately jotted the suggestion into the book Elizabeth helped me visualize investing from the eyes of a nonprofessional outsider ... Pte Ltd Library of Congress Cataloging-in-Publication Data McClellan, Stephen T Full of bull : unscramble wall street doubletalk to protect and build your portfolio/ Stephen T McClellan — Updated.. .FULL OF BULL (Updated Edition) This page intentionally left blank FULL OF BULL (Updated Edition) Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio S t e p... function and role of Wall Street investment analysts, you need the rest of the story—the reality and well-kept secrets of Street research To be effective, investors need to comprehend how Wall Street