Individual Investor Magazine | Dec. 2000 excerpt (by Michael Hirson)

Stock Rage

Today, traders are getting mad when they can't get even.

...The investment world buzzed with the revelation that a simple downgrade by a Wall Street analyst could provoke such a violent reaction. But other analysts have been bashed, bad-mouthed, and threatened with physical violence after making critical comments about a stock. CNET news reported that Lazard Freres analyst Luke Fichthorn received death threats after downgrading tiny Internet firm, and Lehman Brothers' Daniel Niles told Reuters that he had been threatened after lowering his ratings on such companies as Dell Computer and Rambus.


If unexpected stock drops are to stock rage what an L.A. freeway at rush hour is to road rage, it's also logical that the angriest investors seem to be those holding the most volatile stocks -- mostly the shares of small-cap technology companies. Not only are these stocks particularly vulnerable to an analyst's downgrade, says George Nichols, an analyst at, "they tend to generate a lot of passion." He should know. Like Lazard Freres analyst Luke Fichthorn, he had raised questions about's business model in a news report, and was immediately inundated by e-mail from furious investors. "I hope you don't cross my path ever, I won't be fun," read a typical missive. investors seem more testy than most, perhaps because of its shares' wild ride. After rising about 4,000% in just six months, they've dropped 86% to a recent $15.75.

Most investors understand that analysts who downgrade stocks or journalists who investigate companies are not only doing their job but also performing a useful service by warning people away from potentially bad investments. "If this were just about financial loss, these people would be looking at what they themselves did wrong by investing in the company," says Dr. Richard Geist, a psychiatrist and co-editor of _The Psychology of Investing_...


The irony is that analysts themselves, who are often reluctant to criticize companies, may be partially to blame for this condition. In recent years, with analysts under increasing pressure not to offend firms that may one day become investment-banking clients, sell and neutral recommendations have become alien concepts. According to First Call, roughly 75% of analysts' ratings are buys or strong buys, whereas 24% are holds, and fewer than 1% are sells. Says David Tice, editor of _Behind the Numbers_, a newsletter for institutional investors that identifies overpriced stocks, "the system has become so discolored that people may think any sell recommendation has got to come from a secret short seller." If more analysts had the backbone to speak their opinions, Tice says, calls like the one made by [Salomon Smith Barney analyst Jonathan J.] Joseph wouldn't seem so bizarre.