Here is what a general stock market disclosure reads like –
Stock Market Disclosure (as it is said): I, the analyst, do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst about the subject securities or issues, and no part of the compensation of the research analyst was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst in this report. It is important to do your own research and analysis before making any investment.
Well, without much malice, that’s what the regulator requires but that’s also a decent use of jargon to confuse the reader while at the same time cleaning yourself up of any misadventures that may happen with your advice in the future.
In that light, I believe, stock market disclosures should read like what is stated below, because that is what the reality is like in most cases.
Let me make one thing clear here. I am not against people recommending stocks (hmm, okay…I am against most of them!), but how they act is what their incentives lead them to. So, it is largely a problem of incentives and not of people’s intentions or intelligence.
So, without much ado, here is how you should read a stock market disclosure statement whenever they show you what was mentioned at the start of the post.
Stock Market Disclosure (as it really means): This stock recommendation is plain hogwash, but that is not what I, the advisor/analyst must call it for that would hurt my vanity that I have guarded for so long, and from so many people. Calling it a hogwash would also mean disputing my intelligence that I have built up over the years for creating nothing but flowery research reports, most of them out of thin air and for the sake of earning my salary and my company its fee.
You have always craved for a stock tip, and so I am just offering you one. What is wrong in that? You have been greedy, and my advice and predictions just satisfy that need. What is wrong with that? And, by the way, I need not hesitate about the quality of my advice, for I know that you are not really after good stock advice, but after ‘any’ advice. If it makes good, fine! If it does not, you will come back to me for the next.
In fact, I have seen people so likely to listen to hot stock tips from unknown people or someone they met for the first time at a cocktail party, I am still your friendly analyst. So, what is wrong if I ask you to take my advice given that I have at least done some research on the stock I am advising? Of course, I am smart enough to know and have much information that I hide from time to time that tell me that following my advice blindly may set you up for epic ruin.
You see, you have no idea what the basis of my advice is. Most of the time, even I am not able to draw an association. In most cases, the kind of stocks I recommend are dependent on which side of the bed I woke up at that day, how sad or sunny I am feeling while recommending, what I ate for breakfast that morning, and what is my personal portfolio doing at the time of recommendation. At times, I am also prone to talk up my book by advising stocks I have already bought on my account but now find no way to prop up their prices and make myself richer. Regulatory disclosures want me to just tell you whether I own the stock or not, and it means nothing to me or you I believe.
I know this sounds dodgy, and I am generally an honest person, but you know the mind works in a different manner when it comes to the stock market. The incentives are in my favour all the time, never yours. But before I advise you something, I always console myself that my advice is with the best of intentions and for the most of your benefit. It is mostly false, but I had promised my grandmother that I must feel good at heart in everything I do in life.
Well, sometimes, I may not even hold the stock I am recommending but all my biases are still at work when I am doing so. And when I hold a stock I am recommending, I will never tell you when I will unload it.
What do I tell you about the biases I suffer from? The list goes on, and on, and on, even though I keep a steady face when I present myself to you. Right from being overconfident about my intelligence and advisory capabilities, to feeling like an authority when you are impatiently seeking whatever I am selling you, to knowing well how to frame my advice so you are completely sold on it, to the need of advising something to prove how one up on the situations I am, I am full of biases. But you see, I am also a human like you, and thus these and other biases are natural. Just that I will never confess to be suffering from them.
You see, the stock market has come to be a place where you are counted among the few foolish if you try to stay objective, so please do not expect me to be one, very much like I do not expect you to be one. It is a place where “risk” is thrown out of the window, and that is why I almost never talk about risks in my advice to you. It is a place with so many disappointments and reversals that at the end of a few years, you lose the ability to be shocked by anything. I am just preparing you for such times at a faster pace.
Well, if you have gotten scared reading my disclosure, please note that, boss, it is your money and you alone are responsible for what you do with it using the advice you receive from me or anyone else.
All you need to do is become sensible and invest wisely. And please do not blame me for any losses you incur after taking my advice. I am just doing my job. You please do yours, and that is to use your brain independent of whatever I advise you to do.
So, please make your own decisions, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. My analysis is always biased, and often wrong.
Finally, the regulator wants me to tell you that I am registered with it as per some regulations. But that does not add any credibility to my intelligence, or my advice. Hope you understand.