A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Source: Doonesbury © 1998 G. B.
Trudeau. Reprinted by permission
of Universal Uclick. All rights
reserved.
Security Analysts $peak Up
Wall Street’s high-profile securities analysts provided
much of the hot air floating the Internet bubble. Mary
Meeker of Morgan Stanley, Henry Blodgett of Merrill
Lynch, and Jack Grubman of Salomon Smith Barney became
household names and were accorded superstar status. Meeker
was dubbed by 
Barron’s
the “Queen of the ’Net.” Blodgett
was known as “King Henry,” while Grubman acquired the
sobriquet “Telecom Guru.” Like sports heroes, each of them
was earning a multimillion-dollar salary. Their incomes,
however, were based not on the quality of their analysis but
rather on their ability to steer lucrative investment banking
business to their firms by implicitly promising that their
ongoing favorable research coverage would provide continuing

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support for the initial public offerings in the after market.
Traditionally, a “Chinese Wall” was supposed to separate
the research function of Wall Street firms, which is supposed
to work for the benefit of investors, from the very profitable
investment banking function, which works for the benefit of
corporate clients. But during the bubble, that wall became
more like Swiss cheese.
Analysts were the very public cheerleaders for the boom.
Blodgett flatly stated that traditional valuation metrics were
not relevant in “the big-bang stage of an industry.” Meeker
suggested, in a flattering 
New Yorker
profile in 1999, that
“this is a time to be rationally reckless.” Their public
comments on individual stocks made prices soar. And why
not? Stock selections were described in terms of powerful
baseball hits: A stock that would be expected to quadruple
was a “Four Bagger.” More exciting stocks might be “Ten
Baggers.”
Securities analysts always find reasons to be bullish. They
seldom utter the four-letter “sell” word, because they do not
want to endanger current or future investment banking
relationships or to offend corporate chief financial officers.
Traditionally, ten stocks were rated “buys” for each one rated

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“sell.” But during the bubble, the ratio was almost a hundred
to one. And as stocks soared, Americans became convinced
that investing was easy. They watched CNBC’s interviews
with their favorite investment gurus, devouring the fluff the
analysts were peddling. When the bubble burst, the celebrity
analysts faced death threats and lawsuits; and their firms
faced investigations and fines by the SEC and the New York
State Attorney General Eliot Spitzer. Blodgett was renamed
the “clown prince” of the Internet bubble by the 
New York
Post
. Grubman was ridiculed before a congressional
committee for his continuous touting of WorldCom stock and
investigated by Attorney General Spitzer for changing his
stock ratings to help obtain investment banking business.
Both Blodgett and Grubman left their firms. 
Fortune
magazine summed it all up with a picture of Mary Meeker on
the cover and the caption “Can We Ever Trust Wall Street
Again?”