Colliding interests at times by the media, banks and brokers.
Two economist from Sweden and USA have scientifically analyzed the correlation between biased media reporting and election results. The conclusion: media can increase revenues as well as decide major political elections.
So reports a most credible book called "Economics 2.0" written by 2 well respected economist and journalist Mr. Norber Harin and Mr. Olaf Stobeck.(2009).
The book explains how the Murdoch owned "Fox News’station exerted massive influence on the US electorates’ behavior. It explains how Fox news shifted approximately 200,000 votes in the state of Florida which was critical when Bush won. (see page 213). Media scientists in several studies have solid evidence that the broadcaster reporting is biased.
In some parts of the media it is no longer possible to know what is advertising or genuine objective content? What is editorial content vs. what is "contribution" paid for by advertisers. American investment magazines for example often write what important advertisers want to hear.
This is the conclusion of Ojantha Reuter, University of Oregon, and Eric Zitzewitz from Stanford University. Contrary to most other products the quality of an equity fund can be objectively judged, both before and after. The authors analyzed newspapers in the New York Times (NYT) and the Wall Street Journal (WSJ) together with investor magazines like "Kiplinger’ Personal Finance" and "Smart Money". Just about ½ of all advertising dollars came from those 5 magazines.
As the book writes: "The results were astonishing". The authors found "a close interrelation between a company’s ad volume and the likelihood of its [investor] products being recommended to investors". In the magazine "Money" for example, 84% of those advertising clients, got listed in tables somewhere, vs. only 7 of those which did not. Kiplinger’s and "Smart Money’showed similar trends.
But the authors could not detect any kind of favouritism at NYT or the WSJ. Perhaps their more subtle partiality is in the kind of topics they chose to cover? From my point of view for example, they should report more on how, in many Asian developing countries’, smaller stocks perform well above the averages. Realize that reporting on this, is not in their large advertisers’ interest! But it is of high interest to most of their readers which are mostly individual investors.
Or, how for example Bloomberg news service (and most such others), have never reported on so called Swiss bank retro-commissions. These are substantial funds paid to individual money managers, which is in direct conflict with their own clients -and may well be even illegal. Switzerland. That country has only a very few large banks -and these by far dominate globally huge advertising budgets.
Since the internet is well over 10 years old -and going ever stronger. One so wonders why not more IPO’s (new initial public offerings listing on a stock exchange) are not simply so, auctioned off? That question came into light when in 2004, much to the surprise of investors, Google the internet company, chose an auction to float their new shares. Auctions, through the internet, in fact, are an excellent pricing tool in free markets. In theory these should be much more appealing to the company going public -as underwriting fees are lower and the IPO price likely higher. Why then one could ask: are almost all IPO’s still done via the book building method? According to Francois Degeorge, Francois Derrien and Ken Womack, (and include me), its simply a matter of investment bank interest.
Banks and brokers are essentially free to allocate the new IPO shares as they see fit, surely a fine privilege. American courts have long found that some US brokers take much advantage of this. For example, in return for new lucrative IPO share allocations these received lucrative investment banking services or they collected excessive commissions and fees. No wonder brokers and banks are biased to the old, pre internet, way of book building.
Why are there not more Google type of IPO’s? You guessed it, because banks and brokers "reciprocate the advantages derived from book building with voluminous and positive analyst reporting and then media coverage" (page 209, of the same book mentioned above).
There was a period in France, in the 1990’s, where book building and auctioning were used in equal frequency. The analysis (by the authors above) revealed, underwriters issued clearly more favorable analyst reports and recommendations on stocks they brought public via the book building method, then on those just auctioned off.
By the way, Google’s new IPO, after back then announcing they selected the auction, was so greeted with deprecating comments from the analyst community, yet the shares quintupled from their issue price shortly thereafter.
Another odd practice is by so called self acclaimed "wealth advisors". These tout how very risky stocks always are and then proceed, through that instilled fear, selling savers high commissioned annuities or worse, disguised life insurance contracts. These often are illiquid in the sense that if you need your money before years are past, heavy penalties are levied. Stocks are risky and yes they fluctuate in value, yet over the past century they have beat just about any other investments, by a long shot, as I showed in the previous article.
I could go on and retreat into more and more such examples, both from literature, books, and my own long experience. The point is clear, in the investment business like so many others, you the investors, must be very careful and mindful in getting objective & unbiased reports, as far too often they are simply, well biased.
The amazing thing however is how relatively few investors here as elsewhere realize this, and so continue with the same way on making investment decisions with their hard earned money. This while refusing "on principal" to pay some member fee to professionals which have a long reputation in not biasing their reports or analysis, nor deriving any benefit from doing so. :)
Best Regards,
Paul Renaud.
