These Boots Were Made For Walking

The London Paper  –  7 May 2007

Last Monday the chairman of Boots, Sir Nigel Rudd, declared in bold headlines on the front page of the Financial Times, that City analysts were ‘stupid’ and ‘mostly a waste of time’. No shit Sherlock. I have been a City analyst for over ten years and my experience suggests that Sir Rudd, unlike for example Heather Mills, really does have a leg to stand on. However, I wisely kept these views to myself whilst listening to my colleagues complaining about his comments around the water cooler. By the end of the discussion my fellow analysts had worked themselves into such a state of frenzied anger that had Sir Rudd then walked into the room he would found himself the victim of a spontaneous lynching.

Sir Rudd’s particular complaint was that City analysts had under-valued Boots and hence its share price had languished which in turn explained how a ‘sensible’ private equity firm was able to pay a massive 45% premium to buy his company. Funnily enough, I’m not so sure that if the boot was on the other foot and my esteemed peers had over-valued his company that he would have complained quite so vociferously about their ‘stupidity’.

Anyway, this self-congratulatory joker appears to have a point. Only four of twenty one City analysts who researched his company were telling investors to buy shares in Boots just prior to the bid. So, anyone following the recommendations of the vast majority of analysts would have missed out on a major cash bonanza. Of course, this is not the first time I’ve witnessed major screw-ups from my peers; let’s not forget that eighty percent of US analysts’ recommendations were ‘Buy’ in early 2000 just prior to a three year bear market. Indeed, I think that even I once made a poor recommendation … about ten years ago.

Still, let’s not be too harsh to City analysts. The vast majority of factors that impact share prices like GDP growth, the oil price, interest rates etc are things that are almost impossible to predict. Add into the equation predators that are willing to buy companies at silly prices and it’s no wonder our ability to forecast share prices accurately can be compared to the prescience of the average BBC weatherman. What’s amazing is that despite our clear pointlessness my peers and I are still paid hideous amounts of cash even though we’re just wasting everyone’s time.

So whilst I listened to my colleagues complaining that Sir Rudd, like Heather Mills, had got too big for his boot, all I could do was silently thank the good Lord that my peers are generally rubbish. That’s because their incompetence makes even a work-shy slacker like me look relatively smart and that’s got to be a good thing.

Thoughts ?

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