With analysts like these, who needs enemies? What bruises less than a mugging but hurts more than losing in Las Vegas? Acting on a stock-brokerage analyst’s “buy” recommendation. During the bull-market mania, these people used back-of-the-cocktail-napkin calculations to place triple-digit price targets on companies with lower revenues than your niece’s lemonade stand and that had to go public simply to stay in business. The ones who are willing to say “sell” risk the pink slip. Who do analysts speak for, anyway–you or their investment-banking pals?
Murder at the margin. Buying stocks on margin–borrowing money from your broker to buy more stocks, using your holdings as collateral–is a pretty bad idea in good times or bad. Just ask WorldCom CEO Bernie Ebbers, who in the year 2000 lost more money on margin calls than most of us will see in several lifetimes. Sure, it looks brilliant when the market looks like an airborne Vince Carter, but even Carter has to come down. That’s when your broker will want the money back–whether you have it or not.
Regrouping in Redmond. Microsoft is still up to something. Despite the hammering it took in federal court, the software giant is extending its tentacles to new fields like interactive TV, home networking and videogaming, where it intends to go head to head against Sony’s PlayStation 2 with a new console called the Xbox, shipping this fall. We’d be loath to bet against Microsoft whenever it has thought its business model through. Our advice: sit back in your new Web-ready Explorer armchair, produced in collaboration with La-Z-Boy, relax and enjoy it, until it crashes.
Do not pass Go, do not collect $200. Losing money in the market is still better than jail. It took the FBI less than a week last year to track down Mark Jakob, the man who pleaded guilty in December to sending out a fake press release with bad news about a networking equipment company called Emulex. According to prosecutors, he sold the company “short”–borrowing the shares from a broker, selling and then repurchasing them after he drove the price down with his “news.” Returning the shares to the broker, he pocketed the difference. He’s now awaiting sentence. Tales like this are growing in frequency. And while we’re at it: if you’re thinking about trading on insider information, don’t. The Securities and Exchange Commission is authorized to pay a bounty for tip-offs. And we’re watching.
