The issue of financial journalists quoting stock analysts has always been problematic. Eliot Spitzer’s high-profile investigation and settlement in 2002 exposed that even research of large brand-name companies by the biggest Wall Street firms was riven with conflicts of interest. Analysts paid indirectly by the firms they were rating frequently put “buy” recommendations on companies they privately derided, and which often crashed. Quoting analysts is even trickier when the discussion turns to small-company stocks, an investment area that is often a magnet for touts, hustlers, and frauds.
The Spitzer settlement separated research from investment banking, undercutting Wall Street research’s business model and sending the entire enterprise into decline. Meanwhile, Wall Street firms have tightened their disclosure, and reporters have cut back on quoting analysts altogether.
Marcial, though, is something of a special case because he relies heavily on analysts and is unusually influential in the small stock arena. A mention by Marcial often sends thinly traded small stocks bouncing up, only to settle back, a predictable volatility that creates an opportunity for mischief. Over the years unscrupulous traders have been caught trying to use Marcial’s columns to cheat. In 1988, traders paid off a worker at the plant worker where BusinessWeek was printed to get an early look at Marcia’s column; in 1999, traders paid off an employee of newsstand operator Hudson News Co. for advance copies of the magazine. A similar thing happened again three years ago, as recounted in this Fortune article.
None of those incidents have anything to do with analysts’ conflicts. Still, Marcial says the disclaimer was added even before the Spitzer settlement, mainly because his picks are so closely scrutinized because of the unrelated wrongdoing.
He says that in recent years new online chores have added to his workload, causing him to make mistakes. Besides the weekly column, which includes one longer item and two recommendations of shorter length, he also posts two online items a week.
“I’m alone in all of this,” he says.
Also the items are short, he says, leaving little space.
I got screwed up. It’s so easy to mention it but costs me a line or two. You see how small my space is. My space is so small. Of course it’s not deliberate The problem here is that because of deadlines, I miss things; I have to admit. There are things that I miss.
“I’m sorry I missed those,” he adds. “Thanks for telling me.”