Monday, April 16, 2007

No Log-Rolling Here

One of the dangers of writing as frankly as we do in these pages is the risk of annoying not only the Bob Nardellis and Pactrick Byrnes of the world, but also friends and acquaintances, not to mention those who speak well of this blog.

And that includes Barron’s, which carried a favorable mention of Not Making This Up in its Electronic Investor column a year or two back.

However, we’d be making it up if we didn’t highlight a howler simply because it came in Barron’s, rather than, say, this morning’s research emails.

And Alan Abelson’s “attaboy” note about Fred Hickey’s supposedly spectacularly great call on Research in Motion was nothing if not a howler.

Says Abelson:

The stock started off the week at 145 and change, got as high as $148.3l and closed the week at $132.74, taking almost a 12-point walloping on Thursday after the company reported operating results that failed to meet its fervent fans' great expectations, and also disclosed it was under SEC scrutiny for alleged stock-options tomfoolery.

Score one for our favorite tech man and Roundtable member, Fred Hickey, who has been unshakably bearish on Research in Motion.

Now, let’s look at Hickey’s "unshakably" negative case on the stock, made in an earlier Barron’s; January 2005, to be precise:

Hickey: Research in Motion makes BlackBerry hand-held devices. This momentum stock appears to be breaking down. Portfolio managers drove it up to 100 at year end, though it has come down to 74. People who work in financial services are the primary users of BlackBerries. Also, venture capitalists and Silicon Valley types. A lot of people are now addicted to what they call the CrackBerry, but there are cracks in the CrackBerry story.

The BlackBerry will end up competing with the whole cell-phone world. It sells for a few hundred dollars, but is now being discounted because of a possible glut. I see a recession, and this is a product companies may cut back on.

That “74” mentioned by Hickey was not a typo: RIMM’s share price at the time was indeed 74 bucks.

Now, we all make bad calls in this business.

But if you’re wondering what, precisely, is so spectacular about Hickey’s "unshakeably bearish" call on a stock that went from $74 to $148 and back to $133 that it deserves a column in Barron's…well, all I can say is, I am not making this up.

And I’m not log-rolling, either.

Jeff Matthews
I Am Not Making This Up

© 2007 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Sam E. Antar said...


Let me start this post by saying “I am not making this up” too.

In my day, most retail analysts did very little original research. They would call me for “guidance” a code word for “whisper numbers.” Since, I was “making up” Crazy Eddie’s numbers, I was hardly ever wrong for almost 2 1/2 years. I was a reliable source of information for those analysts.

Today, I see too many analysts vying for “access” to gain an inside tract into management. They need the status of being present at quarterly earnings conferences held by management. It helps that management will attend events sponsored by Wall Street firms on behalf of their clients.

They hope that by asking “softball questions” it may gain them management’s favor and perhaps management will oblige them with “whisper numbers” too.

However after reading many earnings transcripts I conclude that analyst’s "close access" yields very little useful information. They ask too many "leading" questions. They throw too many “softball” questions directed at management. Far too few analysts ask important follow up questions, too.

However, most analysts do not understand that it is management’s job to accentuate and positive and deflect from the negative. It can get even worse. They may end up with a CFO like I was, whispering numbers in their ears.

Until the Crazy Eddie “party” was over, they got what they wanted. We always surprised them on the upside by adding a penny or two to our quarterly EPS.

However when the “party” was over and our company imploded as a result of our frauds these same analysts received the following lesson:

Do not trust and verify. Verify, verify, verify. The only bad question is the question you won’t ask or inquiry you will not consider out of fear of management’s reaction.


Sam E. Antar (former Crazy Eddie CFO, convicted felon, and provider of excellent earnings guidance

I was making up the numbers anyway.

JeffM1817 said...

Jeff --

Like the Wall Street Journal, Barron's has a wide sweep of editorial discretion. I hope and believe that you will continue to receive the recognition you deserve.

Please continue to report "without making it up"!!

Lee_D said...

Your candor in calling them as you see them is what keeps your readers reading.

Me, It's been a year and still no Cease and Desist letters.

Regarding Mr Hickey's bearish outlook on RIM, maybe like the storied broken clock, he figures that if he holds the same call long enough, eventually he'll be right!

Steve said...

This is a good point and illustrates that all trading/investing must be taken in the context of time intervals. If he shorted then and "held" since now, of course this trade is a big loser. But did he short, cover at a loss, reshort, etc.? We do not know. I do know this. He is wrong, so far on RIMM, but all in all, he is a good analyst. Blame Barron's for selectively citing his research. (as I think you are doing, at least partially)