Read the fine print first

Your success as a market investor could depend on it

Knight Ridder Newspapers

Truly independent research is not yet available at a reasonable cost to the average investor.

In the interim, what an ordinary Joe or Jane still tends to see is what's called sell-side research from the major brokerage houses.

There are new rules governing research, aimed primarily at ending conflicts of interest between investment banking and the brokerage's other clients, you and me.


The rules also will force anyone who relies on Wall Street reports to change their approach to that information.

For example, the way to read a report from Wall Street today is fine print first, research second. You should examine some newly mandated disclosures before you decide whether to believe the analysis.

But be forewarned. The process of sorting through Wall Street research is better for individual investors than it used to be, but it's still not easy to make your way through all the hype and hoopla.

Here's why:

Wall Street has always been good at shouting buy signals. In this New Era, you can sometimes hear the word sell.

At the peak of the bull market in March 2000, 0.7 percent of all recommendations on stocks issued by Wall Street brokerages and investment banks were to sell.

Today, at the top brokerages, about half have 15 percent or more of their recommendations at sell. The other half have 5 percent or less.

Knowing the new prevalence of sell recommendations means that "you don't need to send your box top in to get the secret decoder," he said.


If your brokerage has the courage to utter the word sell, then you can pay attention to it when it says buy or hold.

The rules governing the publication of Wall Street research changed for the better, in a process that began last July. The final rule was in force Sept. 9.

When you get a report today from your broker, it generally must tell you what percent of the firm's entire set of recommendations are buy, hold or sell.

And, it must disclose the percent of the firm's investment banking clients that fall into each category.

What's more, you'll see a graph of the stock's price movements. On it, you'll find the points at which the firm began covering a stock or changed its ratings.

And, the firm has to show what its price targets were for the stock at those points.

Take a look and you can learn how well the picks of your brokerage panned out.

You can also see whether the brokerage has backbone enough to ever recommend selling the stock of its investment banking clients. Or to issue sells at all.


Read the disclosures first.

You generally will not find those disclosures on the home pages or free sections of popular Internet investing sites such as Yahoo Finance, and

You will find it, if you bother to get the entire research report. Yahoo charges a small fee, an average of $15.

Of course, you have to know to look for this at the start.

And one of the difficulties is being assured, if you use the Internet to do your research, that you have the latest available research.

If you're watching a stock for a few months, too, checking the reports often could add up.

But if all you are doing to select a stock is to check an Internet list that says it has five buy recommendations, then you're missing out on what you need to put that information into context.

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