Market Sense and Sentiment

[PappaJohn]

Consider motivation for public advice.

From Saturday New York Daily News

From: News and Views / BizNews /
Saturday, May 13, 2000

Using Biz TV to Dump the Dogs


I was riding up the elevator the other day with a hedge fund manager, who had just appeared on CNBC. He was not a happy camper.

"Can you believe," he groused, "they spent so much time discussing the market, I didn't have time to push my stocks? I only go on TV to flag a few of my dogs."

This money manager was not kidding, nor was he alone. Some mutual fund managers go on TV to generate publicity for their funds. Others go on for ego reasons, but many do so to push stocks.

Before you follow their advice, think about what stocks they are actually going to push. Most managers do not push the stocks they are currently buying — they usually push stocks they like, but are stuck with.

If a money manager was trying to buy a stock, the last thing he'd want to do is to create more buying interest by talking about it on TV. That would only raise the price the manager would have to pay. Managers are notoriously tight lipped when buying stocks. Even my closest friends will not tell me about a stock when they are buying it. They'll wait until they have a full position before urging me to buy it. (That's what friends are for.)

Every manager has a few big positions that haven't performed well. He may like the stocks, but he does not want to buy more. Instead, he wants them to go up so he can sell or at least improve his fund's performance. These are the perfect candidates for recommending on TV.

A few weeks ago, when Microsoft plunged, a number of managers went on television to support it. "This is still a great company," one said, "We would be buyers at this price. ..."

While this may sound like a pretty clear statement of support, it is anything but. The portfolio manager is not saying he is buying. He is saying, he would be buying. What he probably should have added is "... if I had not bought 5 million shares at $100 and now own all I can afford to."

The same thing happened with Cisco Systems. After the company was trashed in an article in Barron's a week ago, money managers rushed to its defense. I watched a prominent manager extol Cisco's virtues. When the TV interviewer asked if he was buying the stock, the manager said, "We had orders on the desk today."

Give me a break! What kind of an answer is "We had orders on the desk today"? Were they orders to buy or sell? Were they at the market, or limit orders $5 below the market?

"We had order on the desk" is not an answer to "Are you buying the stock?" The question is a simple one — every manager knows whether he bought or sold a stock. The answer is "Yes, we bought 500,000 shares," or "While we still like the stock, we have not bought more," but "We have orders on the desk" is not an answer.

The reality is that the person who is actually trying to buy 2 million shares is not going to go on CNNfn or CNBC and tell you his intentions. The person who is going to go on is the one who is stuck with a big position and is trying to convince others to help him out.

Money managers should not be expected to tip their hands. They have the right to buy and sell stock without generating a lot of additional interest. But people watching them on television should understand their game.

Peter Siris is a New York hedge fund manager and author of "Guerrilla Investing".

http://www.nydailynews.com/2000-05-13/News_and_Views/Media_and_Business/a-66461.asp