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American Morning

Are Analysts On Wall Street Giving Biased Advice To Investors?

Aired June 14, 2001 - 09:40   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DONNA KELLEY, CNN ANCHOR: Lawmakers in Washington want to know whether analysts on Wall Street are giving investors biased advice. That's the focus of a hearing next hour.

Joining us with some tips on getting sound financial advice is Diane Swonk. She's chief economist and a senior vice president for Bank One in Chicago.

Diane, nice to see you. Thanks for coming in.

DIANE SWONK, ECONOMIST, BANK ONE: My pleasure.

KELLEY: I would have thought that maybe there were guidelines already in place for analysts on Wall Street. There are not?

SWONK: Well, there are guidelines for analysts on Wall Street. I think what's happened is, with the explosion of the financial press, many people -- these analysts are used to speaking to very highly informed investors. And the problem is, with the explosion of the financial press, they're now speaking to a much broader audience that doesn't know the lingo, doesn't know the shades and nuances of what they're talking about or their own vested interests, in particular things that they are trying to sell for their particular firm.

And so I think that side of it, it's not necessarily their fault. It's that the industry changed, the media coverage of it changed, and also the access to financial markets all changed at the same time, changing the rules of the game without the players changing. And I think that's a very important issue.

KELLEY: So, to me, that sounds like you're saying is that a lot of folks are out of the loop on the language, that if somebody says, "You know, go ahead and hold it," what that really means is "Sell."

SWONK: That very well could be the case.

KELLEY: To some.

SWONK: Exactly. And so the lingo -- not knowing the lingo for investors is very important.

I know -- I saw a very good interview with someone from one of your competitor financial networks that pointed out: Listen, we'd have people coming in on these dot-com companies saying, "We don't know how to make money; we don't know how to have profits," but just the sheer fact that they are on TV legitimized them. And the stock price would be going up as they were speaking and giving these sort of stories that didn't make any sense.

I mean, I think the rule for investors is, if it sounds too good to be true, come on, it is.

KELLEY: What about self-regulation? Can Wall Street do that? There are some folks who think that legislation is needed or that it could cause a real problem if they're just left to watch the chicken coup? You know, the wolf is there to watch the chicken coup.

SWONK: Well, I think -- I tend to be against regulation. I think there's a real issue here in terms of a learning curve run.

In terms of financial news, also, the explosion to fill air time has opened the whole spectrum to analysts. I'm often on a talking- head show with a stock analyst that try to start talking about the Federal Reserve and the economy when they have no business doing that. They don't know about what's going on. At the same time, I have no business talking about the stock they're talking about or their expertise.

And I think...

KELLEY: So how do you know? How does somebody watching -- maybe if they're watching some financial news or -- how do they know who is legit and who's smart and who's up on this stuff and how you pick through it?

SWONK: Well, I think there's one -- a couple of rules that are easiest. First of all, if it sounds too good to be true, it probably is too good to be true.

The other issue, I think, is -- remember I'm economist, so it always comes down to incentives. What are the incentives of the particular person talking and what company they work for to do what they do? And often, when it's especially someone whose just a -- either a -- some kind of consultant or something like that, what they're trying to do is just get airtime, period. And you should be -- take that with grain of salt.

I also think if you're going to be an individual investor and you, know, have just ridden away of what would have been extraordinary gains in the last several years and now have been burned, well, let's take some responsibility here. You weren't a genius to get extraordinary gains. It takes a little more cross-referencing. So if you just hear one opinion, make sure you're getting more than one opinion.

The Internet has opened up the ability for us to get many opinions on any particular stock. And if you're going to go after picking individual stocks as an individual investor, there is ample opportunity to get ample opinions.

(CROSSTALK) KELLEY: That's right. OK. Do your homework and watch the spin.

Diane Swonk, who's an economist with Bank One, thanks very much.

SWONK: Thank you.

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