Friday, 24 October 2008 02:00

Blog vs. Broker, whom do you trust!

The Name Brand - that bastion of marketing that the finance and investment industries have come to rely on to convince those who should no better to do things that they shouldn't -has come under attack. "Attack by who?", you may ask. Attack by me, Reggie. "Who the hell is Reggie?" you ask. Well, a quick bio , and a list of writings that have brought use here so we can move on...

In the past week or two I attempted to debunk the "'Name Brand' is the best" mentality of so many individual and INSTITUTIONAL investors enamored by the marketing machine that is the Wall Street banks, brokers and Greenwich/mid-town hedge funds. In attmepting to do so I have released this blog's research model results, provided a glimpse into my proprietary trading, a backgrounder on my investing style, and a comprehensive comparison of both the blog and my results as compared to all major (and minor) hedge fund indices.


Now that we know:

  1. that a man can beat market averages,
  2. we know hedge funds don't necessarily deliver that much absolute alpha,
  3. we know the difference between relative and absolute return,
  4. we know the difference between return and risk adjusted return,
  5. and know who the hell Reggie is...


It's time to move on to what is the actual essence of Wall Street, the big money center banks and brokerages (or at least what's left of them). As representative of Wall Street, I am using the four largest and most representative banks and brokerages - Goldman Sachs, Citibank, JP Morgan, and Morgan Stanley.


I compared the 62 companies' opinions that I have covered in the blog with that of the big Wall Street name brands' analyst buy/sell recommendations. Needless, to say, the results are not even close. I have started the blog in September of 2007, and have been patently negative every day since. Both the blog research and my proprietary trading account have been short, save for one long call - Bear Stearns after going short from the 130's to the JP Morgan announcement to buy the company for two or three dollars per share. I knew this to be unlikely to go through, and announced that strategic calls were totally underpriced. We all know how that story ended.

Since nearly all of my positions were short, I am using a margin account to quantify the blog's research, which I feel is most realistic since you can't short in a cash account.

image007.png



Cash Margin account (most realistic, since shorts often recommended)
Reggie's Blog Research returns 42.4% 81.6%
Citi -30.6%
GS -33.0%
MS -22.4%
JPM -40.2%

Just to be as conservative a possible, I included cash comparisons as well. Same story, different numbers.

image005.png

Below is a table of the 62 stocks that I covered in the blog, with a direct comparison with the guidance of the big boys, stock by stock. For those who want even more proof and meant, I have included all of the numbers and calculations that went into this via pdf download (57 pages of stuff). This document is available to download for free, without registration -  pdf Blog vs. Broker Analysis - supplementary material (1.09 MB 2008-10-24 14:43:34) .

Get Adobe Reader Adobe Reader version9 or higher required.


I literally expect every brokerage and wealth management client of all of these banks to buy a subscription to this blog. All I ask is,

"Who has issued the best
guidance during these turbulent times?"

BoomBustBlog's Holding period return (short, margin account)

Reggie's
HPR without margin and commissions

Brokers
(Holding period return)

Stock

1 month

3 months

Since invested

Citibank

Goldman Sachs

JP Morgan

Morgan Stanley

len

143.4%

52.0%

36.0%

74.7%

-37.9%

69.5%

-93.7%

hov

134.4%

53.8%

47.3%

70.2%

-65.2%

-62.4%

phm

98.4%

46.1%

26.5%

52.2%

-35.0%

-44.6%

-44.2%

ctx

131.8%

43.5%

30.6%

68.9%

-39.2%

-65.1%

63.2%

dhom

130.6%

0.0%

0.0%

68.3%

No coverage

bzh

150.3%

58.2%

50.3%

78.1%

-70.9%

80.0%

rdn

164.5%

44.7%

-32.0%

85.2%

No coverage

mtg

176.2%

65.4%

50.8%

91.1%

-65.4%

dhi

127.5%

61.1%

52.5%

66.7%

98.7%

-61.4%

-65.4%

tol

25.1%

24.9%

4.3%

15.5%

-10.6%

-9.3%

-11.7%

bsc

182.7%

33.2%

94.3%

No coverage

cfc

151.2%

0.0%

0.0%

78.5%

No coverage

mbi

172.4%

45.6%

-24.0%

89.1%

37.4%

-79.6%

abk

187.3%

26.8%

-0.9%

96.6%

4.7%

-90.9%

wm

193.7%

99.8%

99.5%

ryl

62.6%

37.3%

26.0%

33.8%

-26.5%

-28.3%

-56.1%

ms

123.6%

27.1%

51.5%

63.9%

-71.2%

-70.1%

-70.6%

ggp

179.2%

82.3%

90.4%

91.7%

56.5%

-94.6%

-93.7%

bac

78.9%

30.5%

24.9%

41.4%

-52.9%

-29.5%

-54.6%

-55.5%

kbh

84.4%

34.9%

20.8%

44.1%

-25.4%

-47.3%

-70.5%

lehmq

196.3%

99.8%

-99.9%

ago

103.8%

42.8%

10.4%

53.8%

0.0%

-57.8%

-46.0%

key

109.1%

24.0%

10.0%

56.3%

-69.9%

-59.8%

47.7%

ffhs

58.5%

10.8%

10.1%

31.0%

No coverage

c

90.6%

30.9%

31.2%

47.0%

6.6%

-63.5%

-7.1%

wfc

-1.1%

8.6%

-7.5%

1.1%

4.7%

-15.2%

-9.3%

gs

74.2%

18.4%

39.8%

38.8%

-46.8%

-44.3%

-37.9%

mer

132.2%

33.8%

39.7%

67.8%

-72.3%

-67.8%

-76.4%

-44.8%

wb

163.4%

58.3%

63.3%

83.4%

No coverage

kfn

-72.8%

33.2%

-34.9%

-81.2%

-73.4%

jef

147.8%

60.5%

68.0%

75.4%

-45.4%

pnc

53.4%

43.4%

32.2%

27.8%

-80.9%

-80.6%

-83.6%

bpop

33.9%

21.9%

16.3%

18.0%

No coverage

sti

89.2%

33.1%

9.3%

45.7%

-27.1%

-43.9%

-51.1%

-48.3%

snv

65.8%

28.1%

7.8%

34.0%

-28.1%

-31.3%

20.7%

mi

57.3%

20.2%

7.0%

29.7%

-28.6%

28.9%

57.4%

-28.7%

asbc

57.6%

22.7%

-10.1%

29.9%

-46.8%

fctr

62.0%

13.4%

-15.1%

32.1%

No coverage

mtb

-1.0%

0.6%

-60.3%

-48.3%

-50.5%

-66.5%

hban

33.1%

16.2%

-8.1%

17.6%

10.6%

-10.9%

-27.3%

-38.2%

bbt

15.4%

9.5%

-21.0%

8.8%

10.6%

-10.9%

-27.3%

-38.2%

jpm

17.2%

21.6%

-10.6%

9.7%

-18.9%

-11.2%

-19.5%

usb

22.0%

6.5%

3.3%

12.1%

13.4%

-15.6%

-17.0%

-20.4%

cof

25.3%

15.3%

1.2%

13.7%

-24.7%

nara

51.8%

32.0%

10.0%

27.0%

No coverage

sasr

54.9%

35.5%

10.1%

28.5%

No coverage

hnbc

60.4%

19.3%

-16.6%

31.3%

No coverage

cvbf

16.8%

24.0%

9.0%

9.5%

No coverage

gbci

-8.0%

25.2%

1.1%

-2.9%

No coverage

fhn

7.3%

22.0%

-2.4%

4.8%

-54.3%

46.5%

-43.5%

44.8%

ncc

-29.6%

11.2%

-15.2%

-13.7%

-88.1%

-83.5%

-89.5%

-53.9%

cfc

16.6%

0.0%

0.0%

9.4%

No coverage

rf

95.5%

24.8%

3.6%

48.9%

-24.8%

-58.7%

-59.0%

zion

53.2%

21.0%

-15.6%

27.7%

-3.7%

-84.4%

-56.2%

-31.0%

tcbk

-15.5%

13.8%

-28.0%

-6.7%

No coverage

fitb

84.0%

31.5%

16.7%

43.1%

-62.2%

-19.1%

67.6%

59.9%

sov

140.7%

67.7%

69.9%

71.4%

-76.0%

ge

68.5%

23.5%

34.5%

35.1%

-51.8%

-55.0%

-55.0%

axp

68.0%

34.6%

32.6%

34.7%

-44.4%

-47.2%

hbc

42.7%

19.5%

21.5%

22.0%

28.2%

nav

95.7%

50.9%

52.8%

48.3%

-47.8%

wire

33.4%

16.9%

18.3%

17.2%

No
coverage

sfd

70.2%

19.7%

36.5%

35.3%

-45.3%

-14.4%

Reggie's
Returns

81.6%

30.6%

16.7%

42.4%

-30.6%

-33.0%

-40.2%

-22.4%

As compared to ALL of the popularly followed indices...

BoomBustBlog's Holding period return (short, margin account)

Reggie's
HPR without margin and commissions

Brokers
(Holding period return)

Stock

1 month

3 months

Since invested

Citibank

Goldman Sachs

JP Morgan

Morgan Stanley

Reggie's
Returns

81.6%

30.6%

16.7%

42.4%

-30.6%

-33.0%

-40.2%

-22.4%

DJI Index

-21.5%

-26.8%

-36.7%

CCMP INDEX

-25.0%

-30.5%

-38.6%

CTRN Index

-24.7%

-32.2%

-40.9%

UTIL Index

-20.1%

-28.3%

-29.5%

UKX Index

-22.7%

-27.2%

-36.7%

HSI Index

-27.1%

-40.5%

-36.3%

RTY Index

-29.2%

-30.2%

-37.3%

OEX Index

-21.6%

-27.4%

-38.0%

SPX Index

-24.5%

-30.1%

-39.8%

AS30 Index

-20.5%

-23.7%

-37.2%

SPTSX Index

-26.3%

-31.6%

-31.3%

MXWO Index

-27.2%

-34.3%

-41.5%

FTAW11 Index

-33.8%

-42.7%

-48.1%

MXEUG Index

-21.5%

-26.8%

-41.5%

MXWO Index

-27.2%

-34.3%

-41.5%

MXEU Index

-21.3%

-26.6%

-42.1%

DJGT Index

-22.9%

-29.7%

-39.8%

SGX Index

-24.7%

-30.2%

-36.8%

SVX Index

-24.4%

-29.9%

-42.7%


Last modified on Tuesday, 10 August 2010 08:25

8 comments

  • Comment Link Ed Ryan Sunday, 26 October 2008 01:43 posted by Ed Ryan

    Like the moth eaten Chinese Walls between the investment side and the trading side, all Wall Street firms have conflicts of interests that lead to client underperformance.

    1)Fee accounts, where you pay them 1 to 2% of your assets but are not charged commissions nor mutual fund loads – they push mutual funds so that they collect 12b-1 fees and other remuneration.
    2)Regular accounts – they push what they are told to push in the morning. Your broker may have no knowledge of how the firm benefits.
    3)Underwriting fees – the reason big brokers get big fees for underwriting issues is that they have a large supply of suckers (clients) to peddle the shit to. They even make you feel privileged to get in on the offering!
    4)Relative performance – they talk alpha, beta, PEG ratios, R-Squared, “Modern Portfolio Theory”, etc. But never absolute performance.
    5)Finally, THEY NEVER CALL YOU TO SELL UNLESS IT IS A MARGIN CALL.

    If your broker/investment advisor/peddler was really knowledgeable about the market and the economy, they would have called you between May 2007 and September 2007 (the light bulb would have lit at different times for different people) and told you to SELL

    Sure, you would have missed the October 2007 highs, but you would have not suffered the 30% to 40% loss most of their clients did.

    I got out before October 2007 (in steps between June and late August) because the world was awash with debt. It has turned out to be much worse than I feared.

    At least Reggie has found a way to profit from this market.

    Report
  • Comment Link SoldAtTheTop Saturday, 25 October 2008 20:53 posted by SoldAtTheTop

    Reggie,

    Every time I see a puff story about HCBK and "pat on back" appearance by it's CEO I think of you.

    Its a perfect situation for you style of clear thinking analysis. HCBK has been paraded about Wall Street like some pageant queen... yet the story is very fishy.

    They are the poster child for "conservative" non-sub prime investing yet they are a Jumbo lender with a fully developed line of ARM and option ARM products operating in a market (NY and NJ) that is far from immune from financial stress.

    Further, a cursory look at their 10-Qs and 10-Ks reveals that their non-performing loan ratio has been increasing faster than Fannie Mae or the MBA average.

    Its worth a look... its just another Wall Street simpleton story... someone needs to set the record straight.

    Report
  • Comment Link Tony Piggs Friday, 24 October 2008 22:54 posted by Tony Piggs

    Have you provided a report on KFN? Would be great to see. This thing looks to be finished, but shorting something with a 50% dividend seems audacious.

    Report
  • Comment Link Tony Piggs Friday, 24 October 2008 22:48 posted by Tony Piggs

    Regarding don't trust the name brands, do you plan on providing an update or some discussion on AXP? I thought their most recent quarter was awful and only showed signs of getting worse, yet the stock was up based on what seemed like a 15 cent beat to estimates. But provisioning to me still seems too light, given how quickly their credit metrics are deteriorating. If a capital raise is in their future, then the stock will obviously certainly continue to get slammed, but they do have help from V & MA and access to Fed commercial paper, etc. Can AXP make it through this thing without a big dilution?

    Report
  • Comment Link Mark Hankins Friday, 24 October 2008 21:51 posted by Mark Hankins

    "Every American who has to pay for this corny strongarm bailout and hasn't already moved their money offshore to avoid the taxes we will inevitably pay should be outraged."

    As a tax lawyer, I can tell you that it's a common misconception that moving your money offshore will avoid U.S. taxes. In fact it will not. You could conceivably [i]evade[/i] U.S. taxes (rolling the dice as to whether you would get away with it), but avoidance is much more difficult and would require a complex structure of forming a foreign trust that would hold an annuity through a foreign insurance company ... and even then, it's questionable. And if you renounce your U.S. citizenship, they'll tax you for ten more years if they determine that you did so for tax purposes.

    Report
  • Comment Link Dan Fosso Friday, 24 October 2008 20:46 posted by Dan Fosso

    less than 10% of the time! As much as I would like to be mad at my big firm broker for the constant mantra of "stay invested", I know he is just repeating what he is told from the top. Meanwhile, the people at the top have all cashed in already and sold everybody else worthless paper and/or equity positions in companies with essential insolvency due to their depreciated collateral and/or incalcuably complex phony credit derivative instruments. I held Worldcom back when the Smith Barney analyst had to get his kid into the best preschool and phonied up his rating. I held the highly touted but overrated "solid" tech companies in the NASDAQ boom such as EMC and Cisco. I have held all kinds of toxic stocks but still I trusted. This was the last time for me and probably most of middle America. Unless you are investing in the military industrial complex companies which are guaranteed to continue making $$$ with wasteful no bid contracts from our endless "War on Terror", there is not much that is certain over the next decade.

    You, Reggie, have the forgotten trait of honesty and sharp independent analysis that apparently left the Street long ago and is being perpetuated by the refusal of the trapped or crony "regulators" to force the holders to mark the assets at true value. Every American who has to pay for this corny strongarm bailout and hasn't already moved their money offshore to avoid the taxes we will inevitably pay should be outraged.

    Report
  • Comment Link Reggie Middleton Friday, 24 October 2008 20:05 posted by Reggie Middleton

    The blue is supposed to be hyperlinks to the articles, but the links were not preserved. I will need to replace the file.

    Report
  • Comment Link kent maguire Friday, 24 October 2008 19:22 posted by kent maguire

    Reggie,
    Is there any rationale behind the different colored (black vs. blue) fonts of the individual holdings in the portfolio? i.e. are the blue colored stocks still open positions?

    Report
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