Industry News

Wall Street's Anachronistic Ways In The Internet Age

Wall Street's largest firms are asked every December by Barron's, a venerable weekly financial newspaper, to predict which industry sectors will outperform in the year ahead. Fritz Meyer Economic Research, an independent economic research publisher, has tracked the strategists' predictions annually since 2007 and his 2014 research report shows why Wall Street is fast-becoming an anachronism.

Every January, Fritz Meyer, an independent economist, publishes a scorecard showing how the Wall Street giants’ picks from a year earlier have performed.

"I'm the only that I know that’s doing this — systematically holding these strategists accountable for their lousy calls," says Meyer, who was an investment strategist at one of the world’s largest mutual fund companies before establishing his own independent economic research firm in 2008.

Meyer has documented Wall Street's calls since Barron’s began annually publishing the strategists' forecasts in 2007 in a mid-December cover story. The respected weekly newspaper, which is widely followed by Wall Street’s army of brokers, is an excellent publication, but its annual "Outlook" cover story exposes why Wall Street is losing market share to independent financial advisors.

According to Meyer, anyone who followed the investment advice from the Wall Street giants in 2014, as published in Barron's December 16, 2013, would have underperformed the Standard & Poor's 500. "There is no single strategist who I can see made consistently winning sector calls," says Meyer, "and I'm not aware of any strategist or money manager who can consistently do any better than this group of 10 representing the highest-profile firms".

Before the Internet age, Wall Street could make predictions without much fear of ever being held accountable. Now, in an age of transparency, TV ads with stampeding bulls don’t mean as much. Truth is viral. In the Internet age, a single independent researcher can document Wall Street's track record of poor performance, Wall Street's brand and TV ads can’t dispute the facts, and transparency prevails.

According to Meyer’s research, the sector "picks and pans" made by Wall Street’s strategists included three good calls, but the four bad calls is what would have really hurt an investor's results. All 10 Wall Street firms had been bullish on technology in December 2013, and that was a good call. The S&P Technology Index, gained 18% in 2014 and returned second-best results of the 12 industry sectors. However, the consensus forecast among the analysts had been bullish on technology in each of the previous four years; this was the first year the consensus was right.

Six of the 10 strategists interviewed by Barron's panned utilities in December 2013 and only one of them picked utilities to outperform the S&P 500 stock index. Utilities engendered the most negative outlook among the strategists, but it was the No. 1 performing sector in 2014, soaring 24%. Along the same lines, six of the Wall Street firms panned Consumer staples and that industry's stock index gained a whopping 13% in 2014 — a gain you would have missed if you had followed Wall Street's advice.

The financial news media lack the wisdom or incentive to hold Wall Street accountable for giving bad financial advice. But Wall Street firms are a dying model for the financial advice profession and are being replaced by independent advisors like our firm, and Meyer's independent research is a clear indication of the reasons why. In the Internet age, transparency is inevitable, and Wall Street's outmoded ways are exposed as a relic of the past. The folly of the notion that big Wall Street firms can offer better financial advice than a small independent firm like ours is laid bare.

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