Book Review: Full of Bull
August 19th, 2009 by 
James Cullen
I recently finished reading Stephen McClellan’s revised and updated book Full of Bull: Unscramble Wall Street Doubletalk to Protect and Build Your Portfolio. McClellan spent over 30 years as an analyst of technology stocks, and had a front row seat to the evolution of the modern sell-side analyst.
McClellan covers a diverse set of topics, and although there are occasions when the book doesn’t flow right – he frequently jumps back and forth between advice and sometimes tenuously-connected anecdotes – that’s a minor problem at worst. More glaring - and perhaps a consequence of when it went to press (February 2009) or his personal investment outlook - is the negative undertones and myopic focus on the current bear market. I wonder if recent market events have changed his disposition…
The best lesson this book offers is for the individual investor who believes they can benefit by listening to headline recommendations of upgrades and downgrades – i.e. new “buy” (or equivalent) calls. Wall Street analysts, as McClellan says, aren’t judged by the accuracy of their stockpicking, but instead by client relations and related business they generate. Helping individual investors is at the bottom of their priority list.
By now, that overwhelming urge to be optimistic (at least in public) about stocks should be well-known, even if the situation doesn’t warrant it. Most research disclosures still show that a “sell” rating is used less than 20% of the time, and that’s part of the game played by analysts with the company’s they cover – many of whom McClellan says take petty actions against analysts who aren’t favorable on their shares.
Another important takeaway for emphasis: the short-term is overanalyzed, and individual investors don’t really have a chance of gaming those movements. Particularly in the large-cap space, dozens of analysts will be following a company, and there’s no edge to be had from ratings changes or earnings estimate revisions. Stick to the small-cap space where more inefficiencies can be found, and take a longer-term view of a company’s competitive positioning.
One prominent part of the book that won’t directly help you as an investor, but I nonetheless found to be great reading, was the description of how the analyst’s role has evolved. Research has become entwined with other functions at an investment bank, and most research today is paid for indirectly. McClellan bemoans this, and how it compromises the ideal purpose of research, but no solution to this problem is offered. That’s one idea I’d like to see more thoroughly developed should another edition of Full of Bull ever be published.
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Disclosure: The book publisher provided me with a free copy to review. If you purchase the book using a link from this page, I earn a small commission, but that does not result in you being charged anything extra.
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