To the Point By Jack Bobo
If you drive west from Phoenix, Arizona, early on an October morning, you might pass through an area called “El Mirage” where you will likely witness a spectacular phenomenon.
The area derives its name from the impressive mirages that appear and then vanish as if by magic. A whole range of mountains rises up from the horizon and then quite suddenly they can change into a structure that looks like the steel skeleton of a building under construction. There is, of course, the requisite lake for which mirages are most often known–and it also disappears in time.
Once, while driving this route, a huge mountain appeared in the direct path of the highway on which I was traveling, but as I approached it, the mountain split in two and then completely disappeared.
The incredible part about El Mirage is that thousands of motorists pass this way and never even notice what is happening. I suspect that when they see the mirage they just assume it is real and drive on.
I am reminded of El Mirage when I listen to analysts and commentators trying to explain the downturn in the stock market over the past several years. Most often the drop has been described as the bursting of a bubble. However, I believe they are using the wrong metaphor. A bubble is real and, though it may be fragile, it still has some substance. When a bubble bursts, it is also something that can be easily recreated. Mirages, on the other hand, are not real–they are just an illusion.
Recent reports regarding corporate governance abuses and accounting misdeeds make it clear that much of the market value that has been lost was not real in the first place; rather, it was just a mirage.
It is becoming increasingly clear that analysts and their colleagues have allowed conflicts of interest to help create this mirage. But even beyond the highly publicized cases, one has to question the value or even veracity of so-called analysts.
For example, several years ago Salomon Smith Barney published a list of 10 stocks they felt were the best picks for the coming year. Among the 10 was Lucent Technologies which, at the time, was trading at around $60 per share. No sooner had the list been published when Lucent stock headed for the tank and, as of this writing, is trading at 76 cents per share.