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A Few Notes on Full of Bull

| | Posted in: Fundamental Valuation, Investing Expertise

In the 2009 edition of his book, Full of Bull, author Stephen McClellan seeks to “expose the puzzling and deceptive behavior of Wall Street that so disadvantages individual investors, tripping them up in their attempts to invest properly and rationally. It unscrambles the confounding practices of the Street in terms a layperson can comprehend. …Once armed with an insider’s understanding of all the Street’s subtleties, you can be your own investment analyst.” Stephen McClellan was a securities analyst for 32 years. The principal messages of the book are:

From the closing summations of various chapters:

“…[T]he Street is not a reliable source for objective stock recommendations.”

“Investors should not be naive regarding how the Street, institutional investors, and corporate executives distort research.”

“The flaws [in companies] are hidden, and there are many interested parties who have a major stake in keeping them covered up.”

“In judging a company, you must gauge management first and foremost.”

…{I}ndividual investors will just have to work around the Street, learn its ways, exploit it, and in the end be responsible for their own investment decisions.”

From the Afterword:

“Do not take Wall Street literally… Use its information and research content, not its conclusions and recommendations. Most professional portfolio managers who run mutual funds have mediocre investment performance records. Street analyst opinions are even worse; analysts cannot pick stocks… Research reports are never complete, forthright, balanced, or objective. They are good for background, but they are not actionable.”

“Conduct your own research… Be skeptical. Avoid being overconfident.”

Some may find the book most interesting as an inside perspective on the evolving role and practices of the Wall Street equity analyst.

Some critiques of the book are:

While concluding that “analysts cannot pick stocks,” the author offers considerable advice on how to pick stocks. Formal research on stock picking is more complex and less conclusive than presented. Also, the book focuses almost exclusively on equities, with little attention to systematic asset class diversification.

The book’s organization may grate on readers who process input linearly.

In summary, Full of Bull makes a good case for skepticism in the evaluation of investment research, advice and recommendations, but is incomplete and less convincing as an investing how-to.

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