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Review: Full of Bull by Stephen T. McClellan

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Full of Bull by Stephen T. McClellanWhen can a stock rating of Buy be a bad thing? When the stock market analyst’s firm has a rating higher than a Buy. Analyst don’t like rating things a sell, which is essentially the kiss of death, and so oftentimes you’ll see a Hold or a Neutral rating when the analyst really means sell. Have you heard of this before? Yeah me too, it’s like some big joke. Analysts are just like you and me, many of them are terrible at picking stocks, like their jobs, and don’t want their boss or their customers breathing down their throat. They don’t rate stocks a hold because the company will start hassling them and institutional investors will start asking why, they can easily just put down a Hold or Neutral, indicate the negative outlook, and no one gets all hot and bothered. That’s just one nugget in Stephen McClellan’s Full of Bull.

Who is Stephen T. McClellan? He is a CFA and former Wall Street investment analyst with thirty-two years of experience covering technology stocks. He wasn’t just any old investment analyst, he spent 18 years as First VP at Merrill Lynch and eight years as VP at Solomon Brothers, two huge names in the investment banking industry. The man knows his stuff and has distilled much of it in this book.

This book cuts through the hand waving, smoke, and other financial hocus pocus and explains how things really work. Some of the ideas in this book aren’t huge surprises (Wall Street is extremely short term, Analysts with a lot of flair are all show, Wall Street has a big company bias – all those are gems in Chapter 1 alone) but many of them really start getting your brain going. When you couple it with some of the insights of other “behind the scenes” books (I like Trading with the Enemy), you start the realize that it’s just like any other business.

After a few chapters on how things really work, McClellan starts putting on his CFA hat and offers up some advice that I would’ve done well to know several years ago. Here are a few section headings from Chapter 3: Strategies in Quest of the Ideal Investment:

  • Turnarounds Almost Never Work
  • Don’t Try to Catch a Falling Safe
  • Avoid Participating in Initial Public Offerings
  • Don’t Buy or Sell in Reaction to Press Articles or Media Information
  • Give Stock to Your Kids

One of the best gems in the book appears in the Afterword: “You should use the Street the same way you would employ The Wall Street Journal, a friend’s investment suggestion, or any investment idea that comes to mind. That is, view the Street as just one among many sources of information pertaining to potential investment strategies and opportunities. Like any input, the information it offers is only a starting point – not a final conclusion.” That’s right, those hundred thousand dollar and million dollar suits in the Ivory Towers of Wall Street aren’t soothsayers… they’re just like you, me, and Bob in Accounting. It’s just information.

Finally, and I’ve said it in book reviews in the past, I’m a sucker for books that give you an inside look at an industry. This is one of those types of books so I thoroughly enjoyed reading it, definitely a more entertaining read than your standard investment advice book (this isn’t really an investment advice book, persay).

Here’s a video clip from Fox Business News:

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2 Responses to “Review: Full of Bull by Stephen T. McClellan”

  1. Rick Blaine says:

    The last thing (start at 4:00) McClellan says is that index funds and ETFs miss 40% of the market return because you don’t get the dividends. Am I missing something? Almost all ETFs pay some kind of dividend which corresponds to the type of benchmark. (Vanguard’s value ETF pays 3% now; its growth pays 1%; financial pays 4% etc.) Its mutual funds do the same.

    Are those “dividends” somehow not linked to earnings dividends?

  2. jim says:

    Rick – I saw that too and have been trying to find some sort of corroborating evidence but haven’t been able to. You’re right about Vanguard funds paying out dividends, I checked Vanguard’s index funds (mutual fund versions) and they appear to.

    I don’t know what McClellan was talking about in that bit, I think he might have misspoken?


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