As if double-glazing salesmen and timeshare (sorry, “free” holiday) touts weren’t bad enough. Now I’m being cold called by New York stockbrokers peddling their latest hot tips: as sure a sign as youcould find that American retail investors must have rediscovered their credulity.
If you have yet to experience a peppy Bronx twang at the other end of your telephone just when you’re settling down to watch Coronation Street, consider yourself lucky. Somehow my name and number have found their way on to a list – probably entitled “Likely Brit Mugs” – that must be changing hands for a few nickels in Manhattan right now.
The sales pitch is simple. The broker, who works for what he describes as an investment bank, whose garbled name bears no relation to any institution I have ever stumbled across, would love to send me research on a fabulously attractive stock. When told I’ve no interest he proceeds to ask me whether I’m interested in investment, and if I am why do I have no interest in the biggest market in the world.
Unfortunately, the Bronx broker is a type, not an individual. If there were only one, it might be possible to file a suit against him for stalking. Perhaps a class action against the lot of them for stalking might interest a “no win, no fee” attorney?
They are not all identical, however. So far, only one has told me I am patently stoopid for declining the opportunity waiting on his fax machine for despatch. I refrained from pointing out he would have more credibility if he could offer email delivery, because my inbox is already clogged with breast- and penis-enlargement opportunities.
One can only assume that this new wave of telephone stock hustling is fulfilling a market need. For every stack of frosty responses, there must be some sliver of interest from someone. And for every slew of slivers, there must be one punter who parts with his money.
What he or she ends up buying is a mystery to me – and not one I care to risk engagement with a Bronx hustler to unravel. It may be that what is on offer are shares in genuine businesses. However, pricing, liquidity and commissions are all factors that must be assumed to be loaded in the broker’s favour.
Even with the cost of off-peak transatlantic calls at such low levels, there must be an American dream to fund behind every phone call. Prospecting for in vestors overseas might afford unscrupulous brokers a degree of regulatory protection unavailable in their home market. Not because US regulators would care any less about foreigners being fleeced, but because those foreigners are far less likely to be able to pick their way through the regulatory process from a distance and with the informational disadvantages of an outsider.
Joe Sixpack will be receiving broker calls, nonetheless. Just as he will be getting investment tips from his buddies in the office and passing them on to cabbies and bartenders. The US stock market is now a long way up from its lows last spring. The technology stocks, as measured by the Nasdaq index, have bounced hardest of all. Companies are floating on the exchange once more, and major league takeovers are making a comeback. Everyone’s gotta have a ticket for this ball game.
The revival in the market, and private investors’ sentiment with it, has occurred in spite of the holes blown in the reputations of the investment banking and mutual fund industries. Research from the banks has been shown to have been riddled with conflicts of interest, the flotations they handled in the boom years to have been managed for the benefit of the few.
In recent months it has been the turn of the fund management groups. Loopholes in the pricing of the mutual funds they managed have been exploited by hedge funds to the disadvantage of Joe Sixpack. It appears that in some cases the fund managers turned a blind eye, enjoying the boost to the quantum of their funds under management, or even participated in the profits of the sharp-eyed hedge funds.
It is a wonder, then, that there is any trust left in the retail investment system. “Caveat emptor” is all very well, but the abuses of the system have been deep-seated and often impossible for the little man to identify or even, when publicised, to comprehend.
A clean-up process is now in train on both sides of the investment industry. Maybe individuals are now placing a touching faith in Eliot Spitzer’s reforming zeal, or of the capitalist system to purge itself of those practices that, once revealed, threatened its future health.
Or maybe their read of history is that if you want to get rich, you’ve just got to be prepared to take the phone calls.
Edmond Warner is chief executive of IFX Group
