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Book Review: Confessions of a Wall Street Analyst

Dan Reingold’s Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market (affiliate) is probably best for those interested in stock market history. It tells the story of the telecommunications industry (for about 14 years, Dan shifted between being the top and the second highest-rated telecom analyst according to the Institutional Investor magazine) through the 90s up to the crash.

For younger people like me or those of you who are still wondering just what happened, he’s got a lot of information about who bought out whom and who committed fraud and how it all went down. It’s pretty engaging too, told from his viewpoint in meetings and analysis and confrontations—not your standard history.

Biggest Takeaway

Other than the history involved, I think the biggest takeaway from this book is the sheer amount of work Reingold did to stay on top of his subject. As an analyst, he logged 60-80 hour weeks and did crazy amounts of research.

He only covered one area, too, telecommunications. If I want to be a well-diversified investor and really know what the market is doing in all the sectors—I’m just fooling myself if I decide to spend an hour or two per week studying industries. That’s just not enough.

And besides all that research, he also got to know companies–know what they were capable of or what resources they had. So if Company A suddenly announced a merger with Company B, he had a much better view of the situation than the average investor would.

Yet another argument for index funds.

Plus, even people managing funds get better, faster stock information than most average small investors. While he was researching, he shared his findings with fund managers and such.

Suppose he’s going to upgrade or downgrade a stock. It’s perfectly legitimate for him to tell the firm’s clients before the market opens. Right at the start of trading, they’ll know his opinion and they may be able to anticipate the public’s reaction.

And then there was the time a CEO asked a bunch of analysts: “Hypothetically, what would you say if we decided to remove this particular stock?” Not quite inside information, but enough that most of them either recommended that their companies dump or short the stock right away. Just knowing the CEO was worried about it made them nervous.

Basically, you and I are not stock analysts. Unless you are, but odds are you’re not. So while we can make predictions based on what we do know, there’s just so much that we haven’t looked into, so much information that we don’t have access to and may not even have time to learn.

Reingold didn’t actually say “You’d all just be better off with indexing,” since this wasn’t an advise book on investing. But I sure took that away.

Reingold As Narrator

I’m not quite sure what to make of Reingold as a narrator. Most of the time he comes off as honest, he admits to some real mistakes–some of which he attributes to circumstances he couldn’t have known about and others he says were because he didn’t properly research or made bad judgment calls.

Still, he’s pretty pleased with himself for being a top-ranked analyst for years and years. And he’s bitter about the other top-ranked guy who apparently took a completely opposite approach to analysis (think Wild West). He accuses his rival of using insider information (and apparently he was found guilty of shady dealings and kicked out…so maybe Reingold isn’t really off).

And sometimes he’s very proud of making the right call at different points–though as I said he also admits some huge failures. Anyway sometimes he sort of annoyed me but I think he’s ok in the end.

To Buy or Not to Buy?

I’d say “to borrow from the library” if you like learning more about the stock market and you’re curious about the crash (or to find out what happened to MCI and Bell South and the like). It’s not really a good reference for learning to invest, so I don’t know if I’d bother buying it unless I found that part of history really interesting.

Don’t bother with it if you’re looking for investment advice unless you feel you need to scare yourself out of playing the market.

I enjoyed it as part of my morning commute. It was a nice cross between mystery and history–and it was history in a context I completely understood. For once, a book about “history” in my lifetime!


Money Blue Book January 17, 2008 at 2:41 pm

I have not found a book worth buying in a long time and prefer to just borrow or rent….

But speaking about the part where the analyst will alert his own clients before making the formal announcement to the public – that concerns me greatly since these analysts have the ability to sway public opinion. Pseudo-inside trading on the part of his personal clients in my opinion

Andrew Stevens January 17, 2008 at 3:04 pm

An analyst is not an insider. The fact that people listen to what he says doesn’t make him one.

mrsmicah January 17, 2008 at 3:12 pm

I think his clients are basically saying: Here, I’ll pay you to spend lots of time analyzing stocks for us. (More like they pay the company, who then pays them.)

So it’s only fair that he tells them his findings first.

Now obviously he can sway the opinion when he releases his findings. But the point of his findings is first and foremost to serve the people who paid him to be their researcher.

What investors don’t take into account is that the first reaction to the news has already happened…so the stock’s situation might be different now.

Kyle @ January 17, 2008 at 4:57 pm

60-80 hours a week on 1 segment?? Yikes, say goodbye to your life. I agree with you, I will stick to index funds.

Good Review!

Early Retirement Extreme January 17, 2008 at 8:26 pm

I read the book a couple of years ago and I think it’s an interesting perspective on how it is to be an analyst on Wall Street. I don’t think it is an implicit recommendation of index funds. Index funds try to track the aggregate of the behavior of a lot of investors (think big institutions like pension funds) that react to upgrades and downgrades from analysts or whether reported earnings surprised analyst expectations. This, along with fed announcements, essentially change the composition of the index whether you want to or not. As for spending 60-80 hours a week, it depends on whether you want to be sure about what happens next quarter at all times for a lot of companies. If instead you spend your time picking fundamentally good companies and wait several years for the market to realize that they have been wrong, you don’t have to go with the “I don’t know what to go with, so I’m just going to buy a little bit of everything and bet on the average”.

Chief Family Officer January 17, 2008 at 11:58 pm

Thanks for the review. This book has been on my “library list” (for when I eventually have time to borrow books from the library) but now I’m going to take it off. I don’t need a history of Wall Street!

Lily January 18, 2008 at 12:41 pm

Reingold’s a slacker if he only worked 60-80 hour weeks.

If you liked this book, consider reading Michael Lewis’s Liar’s Poker or I-forget-the-author(s)’s Monkey Business. Nothing makes you distrust Wall Street firms more than reading books by people who work(ed) there. (I have a slightly different perspective, I suppose, since I do work there. But I still don’t take Wall Street research too seriously.)

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