Jan. 26–Would you take flying lessons from someone who had never been in a plane? How about medical advice from someone who had never seen a patient?

This may seem ridiculous, but you are now receiving advice on stocks from people who have never invested in them.

In their desire to avoid conflicts of interest, most Wall Street firms are banning analysts from owning stocks of companies they follow. This is the wrong solution to the excesses of the last bubble.

Do you think Henry Blodgett had his life savings in Amazon at $400 a share, or that energy analysts all owned Enron at $80? The bubble wasn’t caused by analysts touting stocks they owned. It was caused by analysts touting stocks they didn’t own.

Now, with more restrictions, the problem is getting worse. Wall Street is breeding a generation of analysts who will never own a stock.

When a stock they recommend goes up, they bask in its glory and raise their price target. They don’t care if it is overpriced. They don’t own it.

When a company reports bad news, they rush to downgrade it.

This is of no use to investors who must decide what to do when it opens down $10.

To make matter worse, the litigation in the U.S. has emboldened the fighting French to punish analysts.

Recently, a French court fined Morgan Stanley, because one of its analysts said something negative about Louis Vuitton. Morgan Stanley promptly retaliated by saying it just won’t follow the company any longer.

With the threat of lawsuits and no equity interest, analysts and their bosses will be more cautious about stating critical opinions.

Many business periodicals as well as CNBC are banning their reporters from owning stocks. This, too, is a mistake. I’m not worried that a reporter on CNBC owns 1,000 shares of Citigroup. These holdings can be divulged to viewers. But I want the people who give me the news to understand the process of investing.

I run an investment fund. The advice I give you is based on what I’m buying and selling. My rules to avoid conflicts are simple. I won’t front-run this column by buying a stock shortly before I recommend it. I only recommend stocks I intend to own for months, and won’t sell one I’ve recommended for at least two weeks, unless there is some extraordinary intervening event.

Wall Street would work better if brokers forced their analysts to invest their bonuses in a market basket of stocks they follow and then divulged those positions to all their customers. The same is true for market commentators.

Investing isn’t an intellectual exercise. I want to take my advice from people who have their own skin in the game. Next week, I will give you my picks for 2004.

Peter Siris ([email protected]) is a New York hedge fund manager.

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(c) 2004, Daily News, New York. Distributed by Knight Ridder/Tribune Business News.

MWD, LVMHF, MC, GE, C,

Jan. 5–Last week, I called some of the smartest stock investors I know. Surprisingly, many were still very bullish.

Henry Mehlman has turned around the John Hancock Small Cap and Focused Equity Funds since taking them over during the bear market. Henry still gets excited about smokestack America, and thinks 2004 will be great for the rust belt.

Henry loves Joy Global, a top mining equipment maker, and small oil companies like KCS Energy and Quicksilver Resources, that will benefit from low inventories and high demand. Henry also likes II-VI, which makes lasers for military and industrial uses; and Raven Industries, an industrial conglomerate making electronics, as well as hot air balloons for big parades.

While Henry likes the rust belt, Jonas Gerstl, boss of Jonas Partners, visits his investments in retailers, cruise lines, and gambling companies — aware that there’s no substitute for first-hand research. I was lucky to speak to Jonas as he hurtled through a mall in New Jersey.

Jonas is becoming more bullish on retailers. His top pick, Retail Ventures, owns Value City, DSW Shoe Warehouse, and Filene’s Basement. RVI is selling at 6 cents per dollar of sales. With competitors selling at more than 1 times sales, Jonas figures this stock could be a 10-bagger. Bon-Ton is selling at 12 cents on the dollar of projected sales. With the recent acquisition of a neighboring department store chain, BONT should have over $2 of potential profits per share. Like RVI, Bon-Ton has been overlooked by Wall Street.

Sam Lieberman, who runs Lieberman Market Analytics is also extremely bullish. A contrarian, Sam likes GE, Swift Trucking, oil & gas stocks, and Spectralink. Sam also likes a real estate and Internet company called Starbucks, that he tells me also serves coffee.

Sam has a unique view on trading — that most of the old systems no longer work because too many people use them. Investors who use stop losses should just set their money on fire. Instead of buying stocks when they jump, Sam picks those that have been beaten down, which is why it’s interesting that he’s still very bullish on the Nasdaq.

Finally, I talked to a legendary investor, who prefers not to be named, but who ran one of the two largest funds in the world and who’s been so successful that now he gets to spend time on charity work and harassing his kids. While the easy money has been made, he thinks low interest rates and the bearish stance of hedge funds will continue to push the market up.

His first choice is United Globalcom, a European cable company that is cheaper than its American counterparts and will benefit from the weaker dollar. His second choice is Candies, which has converted to a licensing model. With two strong brands, he thinks Candies could earn 50 cents a share in 2005. Insiders must think the same, because they’ve been buying.

More picks next week. Meanwhile, I’d like to read your choices for 2004. E-mail me.

Peter Siris ([email protected]), a New York hedge fund manager, is a former director of Candies.

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To see more of the Daily News, or to subscribe to the newspaper, go to http://www.NYDailyNews.com

(c) 2004, Daily News, New York. Distributed by Knight Ridder/Tribune Business News.

JHF, JOYG, KCS, KWK, IIVI, RAVN, BONT, RVI, GE, SWFT, SLNK, SBUX, UCOMA, CAND,