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The Almighty Buck Books Media Book Reviews

Wall Street Meat 86

Posted by timothy from the root-of-all-evil dept.
Max Tardiveau writes "I had the pleasure of reading Andy Kessler's Wall Street Meat, which has just come out in print. Despite the title, this book is not just for those familiar with Wall Street -- it is in fact very readable, and even enjoyable, by complete financial boobs (like yours truly), and provides some great insights into the world of investment and the stock market, especially as they relate to technology companies."
Wall Street Meat
author Andy Kessler
pages 208
publisher Escape Velocity Press
rating Very good
reviewer Max Tardiveau
ISBN 0972783210
summary An candid insider's view of Wall Street

Wall Street Meat is Kessler's story over the past fifteen years, from starting as a junior stock analyst at Paine Webber, to becoming a well-known technology analyst, to leaving Wall Street and going off on his own. Along the line, Kessler has bumped into many famous and infamous people, and he is very candid about what he thinks of these people (hint : it's usually not good).
In fact, one of the main characters is Frank Quattrone, who was just arrested last week for obstruction of justice and destroying evidence -- making this book rather timely.

Kessler spends a lot of time illustrating the fact that stock analysts are often clueless (and he should know, having been one for a number of years). To me, that was perhaps the most enlightening aspect of the book : I learned that even (very) highly paid analysts can be stupid, lazy, negligent, incompetent, greedy, and even sometimes dishonest (I know how shocking that might be to most of you, hopefully you can recover from that).

I found it interesting to get a behind-the-scene look at the life of analysts : the trips, the meetings with management, the lies and half-truths, etc... Also the bullshit that goes around, the phony rankings, the uninformed guesses. And of course these people get paid to be confident, so even when you don't know, you have to act like you do know.

If you really make it, you can even become a market-maker : someone whose recommendations actually affect your segment of the market. But Kessler makes it clear that this is a trap, and that many analysts have overestimated their power. After all, these stocks represent real companies, and whether these companies make money or not does eventually affect their stock price. Ah, the painful sting of reality.

Kessler follows the evolution of the profession of analyst from 1985 to the late 1990's, and comments at length on how that role has changed. Back in the old days, the commissions were high, research was a serious business. Interestingly, the Internet changed a lot of that, mostly because it made the commissions practically disappear, going from $0.25/share to less than a penny per share in just over a decade.

Kessler makes some interesting points about the unintended consequences of some of the regulations. For instance, during the 1987 crash, a lot of small investors could not get their trades executed because the traders stopped answering their phones. So the SEC put in a regulation to put a system in place that would execute small trades automatically.

That was the first step towards what we now know is inevitable -- a fully automated marketplace where human traders are used only for large or unusual deals. Therefore, in just 15 years, the world of investment and securities trading has undergone a complete transformation.

Another dramatic change during these years was simply the staggering amount of money that became invested in the market. In 1980, there was about $40 billion invested in professionally managed mutual funds. In 1996, that figure was over $1 trillion.

We are all more or less aware of these changes -- this book brings it all to life.

I found the first third of the book to be absolutely spellbinding, and I would heartily recommend the book just for that. The book opens with a few anecdotes that just made me guffaw aloud as I was reading them. The middle of the book was less exciting. There are lots of names being thrown around, which meant nothing to me. The final part of the book makes up for this, however, with a lot of good stories and observations about the late 90's dotcom boom and bust.

Kessler's style is direct, sometimes almost abrupt. No flourishes for this guy. I particularly appreciated the, how shall I put it, frank and honest evaluation of the many people mentioned in the book. It sometimes feels like target practice, but it's a refreshing break from the mutual admiration society.

The book is often funny, mostly fast-paced. There are a few uninteresting passages, and (much to my surprise) even two pages (1-2) repeated almost verbatim at pages 172-173. At $26, it is a bit steep (it comes out at 12.5 cents/page).

Kessler has written a number of columns for the Wall Street Journal. They are very readable, although some of them are now dated. If you want to get a feel for his style, I recommend reading a couple of these columns before you splurge for the book.

Having read it, I feel a bit more cynical about Wall Street, which is probably a good thing. I also feel like I have gotten a good peek into that universe, and it's not pretty -- no wonder so many things have been hitting the fan over the past couple of years.

Overall, I warmly recommend this book. Unless you're allergic to the world of investment, you should enjoy it and learn quite a bit from it.

You can purchase Wall Street Meat from bn.com. Slashdot welcomes readers' book reviews -- to see your own review here, read the book review guidelines, then visit the submission page.
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Wall Street Meat More

Wall Street Meat

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  • Wall Street Meat (Score:5, Funny)

    by grub ( 11606 ) <slashdot@grub.net> on Thursday May 08, 2003 @12:17PM (#5910909) Homepage Journal

    Bah, I was hoping for pictures of high priced New York whores, not a story about boring stock trading.

  • Financial Boobs (Score:2, Funny)

    by Anonymous Coward
    That's what keeps Hugh Hefner in a very nice lifestyle.

  • I'm putting my money somewhere safe: (Score:4, Funny)

    by burgburgburg ( 574866 ) <splisken06@@@email...com> on Thursday May 08, 2003 @12:23PM (#5910950)
    professional wrestling sports book.

    At least now, I'll have a fighting chance.


  • Wall Street Meat = SPAM??

  • Analysts aren't paid to help you... (Score:5, Insightful)

    by Anonymous Coward on Thursday May 08, 2003 @12:34PM (#5911056)
    Always remember: analysts are paid by the bank, not by you. If they're giving out "free information", it's because it helps them. It may or may not help you...
    • There is a large sector out there of independent analysts, but you have to pay for their research. As always, you have to consider the financial interest of whoever is providing the research. If their entire business model is based around attracting customers to their even-handed and reliable research reports, then you're going to be much better off than the bank's shill...
      • Of course, traditionally analysts attatched to banks are also independent. The conflicts of interest were always apparent, and up until the dotcom boom procedures were in place to keep their research indpendent. These firm's have never been in equity research to make money - they took a hit on it to provide the service for their clients.

        Then came the boom. Maybe these standards fell, but it was heady times where most of the long-held laws of the markets were seemingly going out of the window. Many an

    • most of the time you're not getting the bank's research ... those guys are really more for the institutional/reallyreallyreally investors.

      as with anythign you spend money on, you should always do your own research. Any company that's public must file a form 10k to the SEC which gives you the financial information of a company. (unless the company lies.. :))

      you also have rating agency's that give you a somewhat more fair view (at least to the private investor)... so basically if a company has a resea
      • Any institution that is exposed, say more than a few hundred million is going to have their own analysts, who work for them, and are unbiased. They generally laugh at the "used stock salespeople" and their recomendations. Street analysts are useful for doing basic fact checking, and things that don't require an opinion, but the smart ones always leave to work as a portfolio manager or investment banker pretty quickly.
        I've found that it doesn't matter a whole lot anymore if the researched company is a ban

  • Sorry to be pedantic, but.. (Score:5, Informative)

    by Anonymous Coward on Thursday May 08, 2003 @12:35PM (#5911065)
    If you really make it, you can even become a

    market-maker : someone whose recommendations
    actually affect your segment of the market.
    You mean market-mover, not market-maker. A market-maker is a specialist on auction exchanges like the NYSE who matches buying and selling offers for a specific stock.
    • Bullshit. A market maker is someone who pays for a seat in the pits and has a ton of cash to throw around. They are enabled by their securities company to make trades. When you see folks in weird cotton jackets on the trading floor, odds are they:

      1) Are a broker
      2) Are a market maker
      3) Support the brokers
      4) Support the market makers

      The difference between you and a market maker is that you can't afford a security company, you can't afford a seat on the floor, you don't do drugs, and you aren't a compulsive
      • Not so bullshit :)

        A specialist on the NYSE is a market maker. He is also paid my NYSE to keep an orderly market in addition to his market making duties since he must give a bid and ask price for the market that he is guaranteed to trade at.

        Market makers function in the market to provide liquidity (ie, you can buy and sell even if currently no or very few sellers or buyers) for ther market they operate on. They make a profit off the bid-ask spread (they buy at a low price and sell at a higher price).

        Mar
      • Firstly, the term "market maker" is a very generic term applied to anyone who makes a market. BUT, as a rule the market maker won't be able to take positions. They are provided by the exchange to provide bid/ask prices, improving liqudity. They make their money through the bid/ask spread. If they were allowed ot hold a position, then they would be able to manipulate the price, for instance upping the ask price in an illiquid market.
        • Um... when I worked at the PSE Options Floor, many people refered to themselves as market makers that did not seem to do what you describe. Each symbol had a lead market maker that may have had special responsibilities (and definitely had certain advantages), but most market makers held long or short positions. Perhaps things were different for symbols with very low volume, but I do not believe so.

          Market makers could certainly manipulate the price, but only because they had access to large amounts of capit
    • You're not quite as good as you think at being pedantic. A market-maker stands ready to make a market; that is, quote a 2-sided price (up to a limited volume) without a matching order in hand.
  • .. on the top-rated European technology research team. And while I haven't (yet) read the book, the criticisms ring true.

    Lets not forget, if an investment bank is hiring someone to analyse - say - the enterprise software sector, they can choose someone just our of business school with an MBA or a seasoned manager from a s/ware company. Because the MBA demands $175,000 starting package against $100,000 for manager, he must be the better analyst.

    I've covered software for almost ten years as an analyst. I've worked in a software company. I've produced some really bad code. But at least I have some idea of how a software company works, and why people buy software.

    Anyway: why did the investment banks churn out such sh*t for so long? How come they got away with lying to investors? How come they knew little to nothing about the industries they covered?

    1. Knowing your industry could be a real downer for the bank. If you took what CEOs said at face value, and repeated it, with lovely phrases such as "management assured us...", "a recovery looks imminent", "margins are set to improve", and worst of all "top-quality management" the companies would be happy. If companies were happy, then they might use your bank for corporate finance work, where the fees were astronomical. (A small tech IPO could net $7 of fees. According to the Spitzer papers on Grubman, he generated $400m of fees in one year alone.) Good research, on the other hand, doesn't generate much in commissions.

    2. Investors weren't much better than brokers. They bought crap knowing it was crap. Many just wanted access to "hot" IPOs - 'cause getting access to these means you outperformed the index. Too many mutual funds were run by "momentum players" who believed in "efficient markets" - if a stock was going up, then business must be good (someone must know something I don't!) therefore the stock must be bought. The more people played this momentum game, the more a rising stock caused a rising stock. Until the end, of course.

    3. Most research wasn't worthy of the name. Companies told analysts what their earnings estimates should be through "guidance". They the companies used accounting trickery (see Enron, WorldCom, Lernout & Hauspie, etc.) to beat these estimates "by a penny." Rarely did "analysts" analyse the rising number of obvious red-flags on company balance sheets: rising recievables, intangibles, use of "EBITDA" numbers, and the dread pro-forma etc. On conference calls following results those analysts who were bullish (i.e. most of them) would say - and I kid you not - "great quarter guys". The most insightful question would be "can you give us some guidance on the margins going forward." As recently as last week, an investor told me that I was still practically the only analyst she talked to who read 10Qs!

    Anyway. In Dec '99, myself and my colleagues got sick of being asked to do dumb IPOs for shitty companies. We left, and started our own independent research company. We're profitable and having a great time!

    Regards,

    Robert
    • Do you like CPWR? IBM? or MAPS?

      Do you like anyone Medium to Big in software? How about MSFT. Are they a good investment. What about Oracle?
    • Any hot tips/systematic methods to share with the slashdot crowd?

    • Re:I was a stock analyst at Goldman Sachs for year (Score:1, Insightful)

      by Anonymous Coward
      They're predators, setting out their traps.

      Investment banks, like other sectors, have found it profitable to lead people to false conclusions.

      The banks use analysts, other places use PR firms, institutes, and other fronts that can be passed off as a credible authority. And the false information is distributed throughout a media that's always hungry for information, any information.

      "Medicine X might prevent cancer!"

      "There's a worker shortage!"

      "Jessica Lynch was shot, stabbed, and mutilated!"

      "Stocks ar

    • Re:I was a stock analyst at Goldman Sachs for year (Score:2, Insightful)

      by Anonymous Coward
      Hey folks, it wasn't only the "Bad" companies that played the earnings game by beating estimates by a penny. So called "Good" companies do this too, like GE and Cisco. Some truly large US corporations routinely beat estimates by a penny, for several quarters in a row. Now, think about this for a second...GE is larger than many third-world countries and they can beat estimates by a penny over and over? It was pure BS. GE told the analysts what to expect, analysts told GE what they would be looking for,
      • Absolutely. This is something you learn when you read Warren Buffet -- businesses, by their very nature, have 'lumpy' earnings. Given the choice between a 'smooth' 12% return and a 'lumpy' 15%, he'll go for 15% every time.

        The stock market prefers 'smooth', predictable earnings, but they don't often exist in the real business world. A company that has books that are very smooth and predictable, like Cisco, GE, or IBM, is probably doing some serious monkeying with the numbers behind the scenes, and you sh
    • A lot of people are furious about losing so much money, and are looking for scapegoats. Everyone is conveniently forgetting just how thoroughly almost everyone believed this stuff, how the Internet was going to change everything, how the New Economy was going to make everyone wealthy overnight.

      Thanks to sites like itulip.com (not really being updated any more) and prudentbear.com, I've been highly skeptical of the whole stock market thing since about 1999. (The dotcom I was working for at the time went
    • Does your company sell derivative securities or need someone to optimize portfolios? If so, I'll be graduating in a year. Check our my resume [pitt.edu]

  • Only on Slashdot (Score:5, Funny)

    by mental_telepathy ( 564156 ) on Thursday May 08, 2003 @12:38PM (#5911095)
    would you get the cost per page for a book. I also buy my art by the pound.
    • The book's called Wall Street Meat.

      The reviewer's cost per page calculation is just there to help you work out exactly how much a pound of Wall Street flesh costs.
    • Well, that's because Slashdot is full of young people who don't understand the difference between cost and benefit, or price and value.

      -Thomas
    • Actually it's funny they should mention that. I'm reading "The Millionaire Next Door" right now and by far the oddest statistic I've seen in the book is the dollar/pound measurement of the cars that millionaires tend to buy. It tends to be the around $5-8 of an American clunker rather than the $14-20 of a foreign luxury car.

      Weird statistic... but it gets you thinking about value even if neither weight nor page count contribute directly to quality.
  • is an AI that analyzes the market, predicts the best /safest investments, and buys the shares. Then Sells when it thinks their at their peak, and donates the money it makes to the FSF to fund it's own development.

    Theoretically, it could even be reprogrammed to ruin MS share prices... hmmm
    • GeniusTrader [geniustrader.org] could be a starting point for building such a system.
    • recursion and determinism are your downfall however

      So the AI machine somehow predicts stock prices? Does it predict against 'fundamentals' (published details of the company, expected news, etc?) to get a long term value or does it try to bet against other's expectations?

      Then, closed or open source, why not use another AI program to bet against that, which in turn manipulates stock prices which the first bets against thus manipulating them more.

      It seems a bit chaotic. Maybe you'll get a nash equilibrium
    • Been there, done that.

      Automatic trade machines are common place. It may have caused the early 90s slump in the UK.

      All the broking houses had them. So when a stock tripped everybody sold and the stock plummeted. Vicous circle. There's no upside because if a stock did well machines bought until the price went up.

      I worked in the markets in London, I wrote some of the back office systems in the mid 80s to mid 90s. The market is as good or bad as Vegas or the horses. To think any different is to be blin

  • Q. What is Wall Street Meat (Score:4, Funny)

    by Malicious ( 567158 ) on Thursday May 08, 2003 @12:42PM (#5911136)
    A. What you get when traders jump.

  • Sounds like... (Score:1, Troll)

    by tmark ( 230091 )
    the name of a gay porn movie.

  • In other news... (Score:3, Funny)

    by p3d0 ( 42270 ) on Thursday May 08, 2003 @01:18PM (#5911419)
    Here's a timely article from The Onion [onion.com].
  • The mere idea of a "stock broker" peddling stocks to suck^h^h^h^h clients to make a living screams of illogicity. If the "stock broker" was any really "competent", why would he do that for others? He only needs to sit in his corner and do it for himself!

    It's exactly like somebody selling a formula for winning the lottery: why doesn't he keeps it for himself????

    • Umm a broker is not a trader.. the job of a broker is just that peddling stocks to investors he then passes the info to the trader who does the buying and selling.

      Plus like in any market it's about volume. I believe you make alot more money when 1000000 people are buying from you then if you were buying yourself

      look at how stock works... the company goes out and gets investors because it doesn't have enough money on it's own to do what it wants. So the same logic applies. A company on it's own may be
    • I'm no expert, but it seems to me that advice is only one part of a stock broker's job. The other part is actually getting a trader to buy and sell the stock.

      Your lottery analogy doesn't really apply. It's more like someone who knows how to get an edge on the house at a casino. Sure, he could go in there with his $100 and try to turn it into $1000, but suppose he gets clients with $1M, turns it into $10M, and then takes a 1% commission? Your way, he makes $900. My way, he makes $90k.

      • Your lottery analogy doesn't really apply. It's more like someone who knows how to get an edge on the house at a casino. Sure, he could go in there with his $100 and try to turn it into $1000, but suppose he gets clients with $1M, turns it into $10M, and then takes a 1% commission? Your way, he makes $900. My way, he makes $90k.

        Actually, he'll make his commission regardless if his clients profit from the investment or not.
    • The mere idea of a "travel agent" peddling tickets to clients ... screams of illogicity. If the "travel agent" was really "competent", why wouldn't he travel there himself?

      Clue: your broker wants you to buy or sell something because he charges you a fee for the privilege.

  • Jumpin on the bandwagon (Score:4, Insightful)

    by milo_Gwalthny ( 203233 ) on Thursday May 08, 2003 @01:29PM (#5911527)
    Yet another book about the scapegoat du jour. We all lost money because Jack Grubman and Henry Blodget gave us bad advice. Widows and orphans losing millions of dollars because of corrupt analysts!

    What was it everybody was thinking? Oh, look, the nice analysts are giving us something worth millions of dollars for free! Why are they doing that? I guess investment bankers are just nice guys. You'd have to be stupider than Elliot Spitzer to believe that.

    Come on. Analysts were sales shills for IPOs. Anybody who was there knew that... it was admitted in every major business news outlet there is or was, at the time. What is this stupid settlement anyway? Let's call a shovel a shovel, people, It's a shakedown.

    The shame of it is, there is good research out there, especially if you ignore the rating and price target and just read the copy. The analyst has the time and opportunity to talk to management, customers and competitors and tell you what they found. It may not be great info, but it's a darn sight better than what you read in friggin Business Week two months later. Read the bond analyst research if you want to see quality (what, you can't get it? That's because you didn't pay for it.) After the settlement this will all disappear. So instead of having something marginally useful for free and let the emptor caveat, we get nothing. A victory for the small investor. Right.

    Thanks Elliot. Like Guiliani, maybe we can make you Mayor so you can stop making things worse just to satisfy your ego.
    • What a lode of crap. So basically you are saying, yes they were thieves, but anyone that was taken in by their fraud was STUPID for believing the shills instead of the newspapers that were warning them about the fraud?

      Being stupid does not give others the right to defraud.

      • Fraud is often defined as "an intentional misrepresentation of a matter of fact." Analysts inflating their opinion of a stock is not fraud. If it were fraud, I am sure that Spitzer would have indicted analysts for fraud, not just fined them in a settlement. After all, he is a government employee tasked with protecting us, not a private litigant looking for some easy dough.

        You are responsible for your own money. The fact that you lost it all buying Amazon at $400 makes you stupid, yes.

        In any case, the
  • The book opens with a few anecdotes that just made me guffaw aloud...

    GOL (Guffawing Out Loud)!

    And how, pray tell, does one go about the silent guffaw?

  • $26 too steep? Just wait... :-) (Score:3, Informative)

    by mlinksva ( 1755 ) on Thursday May 08, 2003 @07:49PM (#5915046) Homepage Journal
    At $26, it is a bit steep (it comes out at 12.5 cents/page).

    In 14 or 28 years it'll fall into the public domain. WSM is one of the first books [creativecommons.org] under the Creative Commons Founders' Copyrght.

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