Analysts' short focus spurs bad image

March 10, 1995|By David Conn | David Conn,Sun Staff Writer

To hear Louis Lowenstein tell it, securities analysts are shortsighted to the point of being myopic, always focusing on today's profits, encouraging rapid trading and too often failing to stick by their guns when they know an investment makes sense for the long term.

It may have been a case of biting the hand that feeds you, but the roomful of Baltimore security analysts that paid for Mr. Lowenstein's trip to Baltimore was nonetheless receptive to his criticisms at the Stouffer Harborplace Renaissance Hotel yesterday.

Maybe it was because the Columbia University finance and law professor sweetened his medicine with praise for the analyst profession. Forcing disclosure of all sorts of intrusive financial information, as this country does more than any other, keeps companies honest and efficient, he said, but only if someone actually reads all that information.

"You are the ones that know the companies, flesh out the details, read the annual reports with a detail that nobody else does," Mr. Lowenstein, an advocate for investors' rights, told members of the Baltimore Security Analysts Society. "I congratulate you on your unintended but beneficent role as guardians of corporate management."

The society also played a beneficent role in the lives of three area business students. It awarded $1,500 scholarships yesterday to three college seniors majoring in finance: Stephanie Marra of Towson State University, Deborah Eaves of Loyola College and Thomas Hauck of the University of Baltimore.

The security analysts also may have been cordial to Mr. Lowenstein because he seemed to understand their plight.

"We all know that security analysts are not the main culprits," he said. "The problem is your customers are not exactly Graham & Dodd," he said, referring to the creators of modern value investment theory, which calls for digging for fundamentally sound companies and sticking with them for the long haul.

"Our institutions have forgotten how to sit quietly for even a few minutes," said Mr. Lowenstein, former chief executive of Supermarkets General Holding Corp. in Woodbridge, N.J., and a director of Liz Claiborne Inc. "Their investments are largely driven by pseudo-scientific techniques," such as sector allocations and indexing, which often move money in and out of markets daily, and largely ignore the question of whether any given company is good at making a profit.

That's a question analysts are best equipped to answer, but far too often they ignore their own conclusions and succumb to pressures from their employers, Mr. Lowenstein maintained.

"Analysts are paid to generate commissions, sell new issues, attract corporate finance clients," he said. "Too many companies like Capital Cities, which you could buy in 1975 and still hold in 1995, and stockbrokers and analysts will be driving taxis."

Some agreed those pressures exist, although not across the board. "In the utility industry there isn't the problem of short-term trading," said Ronald S. Tanner, a Legg Mason Inc. analyst who follows utilities, traditionally the ultimate buy and hold investment.

But Jack Ciesielski, of R. G. Associates in Baltimore and a former analyst at a securities firm, said Mr. Lowenstein hit the mark. "The demand from guys like us analysts often tends to be short term," he said. "We ask short-term questions: what's going to happen to the price of paper, or ad rates?"

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