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The issue is not ramping but disclosure

By Mr Karma | Friday 10 August 2018


 


The issue of disclosure of holdings and conflicts of interest by those giving investment advice is currently a live topic in the industry. At heart, writing about a stock and disseminating one’s ideas is, I would posit, for many retail investors who have been pushed even further down the pecking order post Mifid 2 and the lock out on their receiving much research, a welcome activity. Information is what feeds stock prices and what prompts investors to act. Without info everybody including the companies are worse off. 

The contentious point is where the “bias” of that particular commentator is concerned. From a regulated perspective there are prescriptive rules re disclosure of holdings/interests when writing about a stock hence the very valid commentary here this week by Tom Winnifrith in relation to BlueJay Mining (JAY), namely does SP Angel still holdings warrants and stock in the company (which we would see as a net positive as it means they DO believe their story) or have they sold?

It seems the company and SP Angel have been unprepared to clear this point up for which one can draw one’s own conclusions. There are 2 possibilities – either they do hold their interest but were remiss in regulation in not disclosing this holding or they DONT hold the stock in which the believability of their research I would posit is non-existent as they would be guilty of advocating a Buy stance (at supposed prices 3 times the current stock price) whilst selling into that advice.

This brings us to non regulated entities such as Malcom Graham Wood who actively promote stocks whilst being paid for doing so but do not disclose the payment basis (stock or cash). This is, in the first instance, unethical and, I believe, in fact a breach of the regulations as they are giving overt investment advice without being authorised to do so. 

Of course, paid for research by the likes of Edison, Hardman, Align etc should be seen for what it is – precisely that – paid for and therefore with bias. The major difference with these companies and Malcolm Wood et al is that they DISCLOSE this basis of remuneration and investors have the full picture from which to make an informed decision.


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