Last week it was widely reported that regulators slapped a $43.5 million fine on multiple investment banks for passing off overly positive research analysis on the now private retailer Toys R Us. They did this hoping to curry favor with the current owners of Toys so that the company might pick those Wall Street firms as bookrunners for a possible Toys initial public offering.
I was shocked to hear this. Not shocked because news broke that some purportedly objective research from Wall Street turned out to be bogus, but because that is news at all. By now, I figured everyone–and I mean everyone–knew that recommendations from Wall Street always have been and always will be skewed at best and flat-out misleading at worst.
I’ve been visiting companies in Silicon Valley for more than a quarter century. In that time, I’ve met with hundreds of entrepreneurs, executives and management teams there. To a person, they’ve all been bright and ambitious. The Valley has earned its reputation as a hotbed of creativity, innovation, and economic vitality. But let’s be frank, it’s also earned its reputation for building just as many manias and pipe dreams as viable products and services–and I think the time has come to rain on the region’s latest parade of groupthink, self-congratulation and irrational exuberance.
[Note: this post originally appeared on the CFA Institute’s Enterprising Investor blog.]
Recently, Barron’s ran a short item on New York City’s plan to convert more than 6,000 remaining pay phones in the city into “digital kiosks” that emit Wi-Fi signals and contain charging stations for mobile devices. I’m sure most readers had a similar reaction to mine: “Wow, there are still 6,000 pay phones left in New York City?!” But that’s not what made the article interesting — and potentially valuable to novice and professional investors alike.
Unless you’ve been living under a rock or on a commune somewhere, you know the big news in the markets over the past few weeks has been the plummeting price of oil. With domestic production at record levels thanks to the fracking revolution and OPEC stubbornly refusing to cut production, oil is getting cheaper and cheaper. Investors have predictably responded by selling off energy company stocks in a big way. That makes sense. Lower prices mean lower profits and, especially for smaller producers, possible bankruptcy.
But there are two related stories to the drop in oil that don’t make sense, in my opinion–and they could signal potential opportunities on the long and short side.