Word: grubman
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...long ago, Jack Benjamin Grubman was on top of the world. The Salomon Smith Barney telecommunications analyst was pulling down $20 million a year, and every big investor knew Grubman was the "ax," the one man who could make or break any stock in his industry with a thumbs-up or thumbs-down. Today Grubman is in the gutter. WorldCom was one of his favorite stocks. Investors are livid, and regulators are looking into whether he violated professional ethics by touting telecom stocks for the investment-banking fees they would earn for his firm...
...have a more basic beef with Grubman: I question not his ethics but his analysis. (Since when has anyone seriously expected virtue on Wall Street?) In congressional testimony, Grubman declared that the job of a stock analyst is "to make judgments about the future prospects of companies." In other words, by projecting past growth rates and forecasting future trends, analysts like Grubman seek to figure out what a company will be worth down the road...
Benjamin Graham (who died in 1976) would not have applauded Grubman. Graham--market-stomping money manager, finance professor at Columbia, mentor to Warren Buffett--was the greatest investment mind of the 20th century...
...does this relate to Grubman? His mistake wasn't that he guessed wrong about WorldCom's future; the company was lying about its numbers. His mistake was that he ignored the present...
...Grubman gives the episode a surreal quality. A star telecom analyst, he was paid $20 million a year for covering the stocks of companies like WorldCom that send billions of dollars in investment-banking business to Salomon. He was so tied in at WorldCom that for a time he even advised Ebbers on takeover strategy. Grubman typically avoids the press. Last week a camera crew from financial channel CNBC tracked him down near his New York City residence and tried to interview him on the fly--evoking images of paparazzi stalking a movie star. "Nobody saw this coming," Grubman said...