Byrne's Eye View

1. Did any major investor or investment manager start to show worse results after Reg. FD? I have heard countless anecdotes -- usually starring Drexel Burnham Lambert -- about how in week one, the analyst plays golf with the CEO, in week two, the mutual fund manager talks to the analyst and buys the stock, and in week three, the company announces record earnings. But surely if some fat cat had actually gone from beating the market by 5% a year to trailing it by the same amount, somebody in the media would notice. Among the investors that I admire and the ones I don't I haven't seen any decrease in performance since 2000.
2. How many companies that go public before they have a real business end up being legitimate?

The price decline of thinkorswim Group (SWIM -- InvestTools until a few months ago; they're in the "Investor Education" -- high-priced trading seminars -- business) convinced me to look over the company's history, and the first thing I did was examine their earliest available annual report, and the first thing I noticed there was that InvestTools traded over the counter, and was the product of a merger between two other OTC stocks, each of which had declined about 95% in the prior year. So it looks like the usual OTC hocus-pocus (with which I'm familiar only because about 1% of OTC stocks are legitimate companies run by people too ornery for Sarbanes-Oxley). The difference: less than a decade later, this company was worth over $1 billion.

Like many OTC companies, InvestTools' new subsidiaries were also involved in some kind of penny-stock scam, in this case involving a brokerage (known as "World Trade Financial" until some time in 2001, when it hastily turned into "Amber Securities"). This company lives on only in the old SEC filings of InvestTools (unless this is the same group under the old name), but it should worry investors that within the last decade, the company they still value at half a billion dollars was involved in such behavior. Perhaps there's a simple misunderstanding. But I don't see that kind of history with firms of a similar size, even those that were once traded OTC. In fact, a company like Ash Grove Cement (one of the aforementioned 1%) has about the same market cap as SWIM, but doesn't have any of the reputation issues even though it trades on the least-regulated exchange there is.

Investors considering thinkorswim due to the low P/E, high ROE, amazing growth rate, etc., are advised to read over the company's first annual report. It definitely tells you where they're coming from, and probably tells you where they're going.