Street Level: The Long, The Short, and the Ugly

The bills for the excesses of the late great bull market keep coming due. Every month, more ugly news flows in, like the bills for a deadbeat who skipped town ages ago. Enron and Global Crossing are only the most obvious examples. The story of the two brokers on our cover is another. Back when the bull was still charging, Phil Spartis and Amy Elias built a tremendous book by handling the options business

The bills for the excesses of the late great bull market keep coming due. Every month, more ugly news flows in, like the bills for a deadbeat who skipped town ages ago. Enron and Global Crossing are only the most obvious examples.

The story of the two brokers on our cover is another. Back when the bull was still charging, Phil Spartis and Amy Elias built a tremendous book by handling the options business of WorldCom employees. The two Salomon Smith Barney brokers, who told their tale to Senior Editor David A. Gaffen, say that irrational exuberance trumped sound advice among WorldCom's new paper millionaires, because their firm's telecom analyst, Jack Grubman, convinced them there was every reason to believe WCOM shares would continue to rise. Wrong. As we go to press, WorldCom is roughly 90 percent off its all-time highs, and clients have sued the brokers and the firm.

The brokers, who thought the firm should defend the claims, rather than settle, are now on the outs. They have lost their jobs and their $1 billion-plus book. They fear they'll never work in the business again, given what's on their U-4 forms because of the complaints. They're getting ready to fight back and every broker who has ever handled an options exercise — or feared that management would not go to the mat for them — should read this instructive lesson, starting on page 22.

A money manager I know has a saying: In bull markets, individual investors seek relative returns (they want their broker to pick investments that beat the averages). In down markets, he adds, the same investors demand absolute returns. They don't want to lose money, even if the benchmark indices are down. For clients who qualify, hedge funds of funds are perhaps the best way to help clients have it both ways. Starting with a roundup by former Fortune investments reporter Amy Kover on page 35, we cover the hedge fund waterfront, so to speak. Look for stories carrying the little hedge icon.

Finally, the Endpiece — our monthly essay written by a reader — gives the lowdown on sellside research from the viewpoint of a buyside analyst. His take: Don't believe your research department, but don't try to be a do-it-yourselfer, either. The best investment you can make is taking the time to pick really smart managers. By the way, if you have something to say and can say it in a breezy 700 or 800 words just call me at 212 462-3591. I'll give it a read.

A reminder: We are getting close to the cutoff for our 22nd annual Outstanding Broker Awards. Feel free to nominate a friend or colleague — anyone who has a minimum three years experience, has been with his present firm for at least 12 months, is in the firm's top quartile in production and who has a clean U-4 (please submit CRD number, please). Please hit www.registeredrep.com to fill out and submit the Outstanding Broker Award nominee sheet.

We thank you for your support. Drop us a line with your comments at: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us, [email protected]. Publisher Rich Santos can be found at [email protected].

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