Arthur Levitt, the chairman of the Securities and Exchange Commission, is clearly a man on many missions. One of his grand themes is a riff on something that I have been proselytizing about for years: requiring companies to disseminate material information in a timely and simultaneous fashion to all those who are interested.
From the enlightened height of my own self-interest, my attention has been primarily focused on getting companies not to spill their guts to the megafirms like
and the sell-side analyst community before talking to the merely billion-dollars-or-so peanut guys like me.
Now it appears I am about to get a taste of my own medicine.
The SEC is in the midst of a major missive, to be announced in the next few months, which would more sharply define how companies disclose information. There appears to be a major emphasis on the Internet and the elimination of the early mover "advantage" that, on the surface at least, has benefited institutional investors over individual investors. But not only is the issue more multifaceted than it appears, it involves
-like shadings of gray that this column will be exploring for years to come.
What Levitt is essentially saying is that in the Internet age, we have the technology to eliminate the cost and "bother" issues that companies have whined about in the past when protesting universal dissemination. What he is also saying is that the SEC's fear that the individual investor is too stupid and unsophisticated to understand big finance issues -- and therefore needs miles of distance in the form of both boilerplate legalese and brokerage advice -- is hopelessly outdated, if not simply wrong on premise.
Let's start with a point of information: Do institutional investors have an unfair advantage over unaffiliated individual investors that is material enough to give them an unfair advantage in the marketplace? In the very short run, the answer is probably yes. Breaking news on a conference call that is only available to a select group of institutional investors and sell-side analysts will obviously provide them a clear advantage, at the expense of those not on the call. If information is released at a
technology conference, whose attendees represent only Goldman clients, those in attendance have the short-term advantage. In other words, if you are trading for a living, you can bet there's a lot that goes on that you aren't party to as an individual investor.
But let's look a bit further than six months. If it were so special to be an institutional investor, wouldn't we as a group be whipping all the relevant indices -- and wouldn't index-fund salespeople be bartending at night to support their families? Are all the conferences, conference calls and management soirees really an advantage? And if so, why isn't it in the numbers?
Because, as we all know, there are many ways to skin the cat in the investment business. As a longer-term, fundamental investor, I am interested in the
esprit de corps
of a company and who is running it and how. So I do think access to management via conference calls and company visits is an important part of my information mosaic -- although sometimes it's been a great help and sometimes it's buried me.
And if an individual investor feels the same way, he or she should also have access via broadband alternatives. But let's face facts here -- life isn't fair, and the 80/20 rule still applies. My phone didn't ring when
wanted to sound out investors as to whether it made sense to buy
, even though Time Warner was my largest position; Gordon Crawford at
, with tens of billions behind him, got the call. (I've also never been invited to
ranch to fly-fish, but I keep a spiffy Sage rod in my closet just in case).
are calling their top-10 holders regarding strategy on their deals. He who has the money makes the rules, within the confines of legality, and I don't think that can practically change. So am I just kicking the dog by complaining that huge institutional investors get access to management and information that midsize firms don't get, and that individual investors get the short end of the stick relative to me?
For the answer, check back tomorrow for Part 2.
Jeffrey Bronchick is chief investment officer of Reed Conner & Birdwell, a Los Angeles-based money management firm with $1.2 billion of assets under management for institutions and taxable individuals. Bronchick also manages the RCB Small Cap Value fund. At time of publication, RCB held positions in Vodafone AirTouch and Time Warner, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Bronchick appreciates your feedback at