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From the Editor:
Welcome, reader. TalkBack is space inside the Welling@Weeden website that is normally reserved for you. Your comments, your questions, your critiques—even, we dare hope, your commendations. No matter how they are conveyed—E-mail, snail mail, fax, phone, carrier pigeon. You get the idea. Our only(?) limitation is that we don’t read minds.
But I am exercising the editor’s prerogative and commandeering your space in this instance to explain what we’re about—and how we plan to earn a place on your must-read list. There’s no shortage of financial information bombarding investors of every stripe in today’s media-saturated and equity-happy world. But much of that news and analysis is as vacuous as its most pervasive source, the aptly named boob tube, or else as jejune—as unformed and immature—as the web sites that spout it. What sets welling@weeden apart is our raison d’etre: Serving professional investors with truly independent, timely and incisive news, research and analysis—leavened with the touch of irreverence, occasional irony and bit of wit needed to bring a semblance of perspective to the investment process.
What will distinguish us even more is our pledge to adhere to the highest standards of journalistic and analytic enterprise and integrity. Thirty-plus years ago, when I started working for Dow Jones, that pledge was unexceptional in journalism and not terribly extraordinary in brokerage house research. But how things have changed. Traditional news organizations are being challenged on every front by drudges who post stories to the net first and ask questions later—if ever. Competitive instincts all too often trump news judgment; the need for speed, almost invariably tramples analysis. Business news, like virtually every other kind of formerly journalistic enterprise, is these days all about entertainment values, produced for the least common denominator, and delivered strictly in sound bites suitable for electronically attenuated attention spans. Rumor, loose talk, banter, chatter, rants and raves are the new received wisdom. Good God, don’t blink, stop to kick the tires, read a balance sheet, check the footnotes, survey competitors, suppliers, customers, as well as managements—you’ll miss the story and the buying opportunity. Yet those are precisely the sort of fundamental queries I cut my journalistic eyeteeth on while working for Barron’s beginning in the mid-‘Seventies, and that’s what I continue to do: Dig, listen. Then report.
Wall Street likewise is today a different place than it was when your editor arrived, fresh from Northwestern University’s Medill School of Journalism, in 1974. Yes, a wicked bear market was then in progress, but that was still the era of fixed, and fat, commissions in Wall Street, and the heyday of the research boutiques. Soon enough, May Day 1976 ushered in the age of negotiated commissions. Research operations had to turn elsewhere to pay their freight as commissions started down the road to what have become fractional pennies-a-share rates while spreads began narrowing to the point of disappearance. Survivors among research analysts, by and large, folded themselves into full-service brokerage firms and found Sugar Daddies in investment banking, where Wall Street’s business, through much of the 1980s and 1990s, boomed--and where inherent conflicts of interest were rife. The entirely predictable scandals emerged with the bear market that followed the popping of the internet bubble in early 2000. The requisite great regulatory hue and cry quickly followed, along with settlements mandating that the big brokers provide “independent research. So why is independent research still an endangered species today? Or, as some argue, an oxymoron? It comes down to money, of course, complicated by the contemporaneous regulatory push to shine a light on the often dubious sorts of things on which fiduciaries more than occasionally squandered their clients’ soft commission dollars in the Naughty Nineties.
None of this (save the imminent coming of the bear) was a secret in Wall Street in March of 1999, when I left a long and rewarding career at Barron’s to create this publication in partnership with Weeden & Co. LP. It just wasn’t mentioned in polite company. That’s why SEC Chairman Arthur Levitt caused a bit of stir down in Boca Raton that April when he complained to a Securities Industry Association gathering that "it is becoming harder and harder to find an analyst whose firm does not have an investment banking or, increasingly, commercial banking relationship…" with the companies he is covering. The SEC chief went on to note that, according to one study, analysts were issuing eight "buy" recommendations for every "sell" recently, versus a one-to-one ratio in the early 1980s. A good bit of that lopsidedness, Mr. Levitt acknowledged, is likely related to the long bull market. But, he also speculated, "part of the explanation could be what more and more studies are showing: a direct correlation between the content of an analyst’s recommendation and the amount of business his firm does with the issuer."
Mr. Levitt added, "I worry that investors are being influenced too much by analysts whose evaluations read like they graduated from the Lake Woebegon School of Securities Analysis–the one that boasts that all its securities are above average. And I worry that investors hear from too many analysts who—whether they realize it or not—may be just a bit too eager to report that what looks like a frog is really a prince. Well, that’s just not the way it is: every investor and every analyst must beware that—to paraphrase a very different type of analyst—sometimes a frog is just a frog."
It must be said that the chairman’s speech was effective in bringing the analysts’ conundrum out of the closet. Conflicted analysts are now headline fodder. And the roots of that conflict still run deep through much of the Street. Not, however, at Weeden & Co., a firm whose focus, since its founding in 1922, has been on serving the trading needs of professional investors. Chairman Don Weeden didn’t lead the charge against Big Board’s fixed commission structure back in the late ‘Sixties and early ‘Seventies out of some amorphous urge to bring down the establishment. His imperative was quite clear: Serving Weeden’s institutional clients, who were demanding commission discounts on large block transactions—and were taking their trades to Weeden’s Third Market to, in effect, get them. Don’s high-profile advocacy of negotiated commissions proved no shield for his firm, to be sure, in the upheaval that hit Wall Street in the aftermath of May Day, 1976. But today’s Weeden is an employee-owned firm all the stronger—and even more sharply focused—for the trials it has endured. An institutional broker and member of the NASD, Weeden is all about value-added service to clients. Its unique listed, OTC and program trading desk creates and executes discreet strategies that provide liquidity even in the most difficult of securities.
The Leuthold Group’s inimitable Steve Leuthold was the first to align his research organization’s fortunes with Weeden & Co., back in 1987, in a deal he’s fond of describing thusly: “I agreed not tell Don how to trade, and he agreed not to tell me what to research.” It’s an agreement that has stood without a breach ever since, and one I was happy to emulate for welling@weeden.
So now there’s welling@weeden, where our research will always focus on separating the investment frogs from the princes—and identifying each as such. Our special advantage is that welling@weeden has no ax to grind. No investment banking clients to appease. No asset management portfolios to defend. We are utterly independent and stand unequivocally on the side of investors. Our goal: to broaden, to deepen and to provide a reality check to perceptions of investment value. And, not coincidentally, to enhance Weeden clients’ ability to profitably negotiate Wall Street’s treacherous terrain.
One other thing: welling@weeden is very much now and will always be a work-in-progress. We are counting on your input. It has been and promises to be quite a rewarding adventure. Please come along.
—Kate Welling
Post comments directly to welling.weedenco.com.
Send e-mail to welling@weedenco.com.
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