June 5, 2000
Securities and Exchange Commission
450 Fifth Street, N.W., Stop 6-9
Washington, DC 20549
Attn: Mr. Jonathan G. Katz
Re: File No. S7-31-99
My name is John W. Adams and I am Chairman/CEO of Adams, Harkness & Hill, Inc. a Boston-based investment bank. Having been in the securities business for 35 years, I have witnessed constant and quantum change. Throughout, the Securities Exchange Commission has been a positive factor, supporting change in ways that always buttressed the confidence of the public in our markets.
In proposing new regulations on Full Disclosure (File No. S7-31-99), the SEC believes that it will add still further to the public's confidence. As per the attached comment, I believe that the reverse will occur. My conclusion is counterintuitive, perhaps, but thirty-five years have taught me that so too is much of investing.
John W. Adams
Comment to the SEC on Full Disclosure
Undoubtedly present disclosure regulations give an edge to professional investors: Company X is more likely to grant an interview to Fidelity than to me as an individual, added to which Fidelity has the time and staff to conduct more interviews with more participants in an industry than ever one person dreamed. They are professionals at investing; most individuals are amateurs.
For the past 20 years, the institutionalization of equity investments and the professionalism of money managers has been considered a good thing. Results obtained have been generally consistent with stated objectives. More important, the amount of skullduggery formerly perpetrated upon individual investors has perforce been reduced.
The advent of Internet-based stock brokerage has made it cheaper and more convenient for individuals to trade stocks. Millions have taken advantage of the new technology with many of them being first-time participants. Is this a good thing or a bad thing?
Some individuals are capable of managing their own money. However, history has shown that many-quite likely a large majority-are not. Access to charts, reports, webcasts, 10Qs and the like is not going to overcome the mob psychology that causes people to buy at the top and sell at the bottom. Thus, the advent of e-brokerage saves money for investors and adds convenience but, paradoxically, it also makes it easier for more people to do more foolish things.
We believe that the millions of new equity investors will, as a group, underperform the results achieved by professional managers. Worse, there will be greater dispersion of results including a large quota of utter disasters. In a modern tragedy, technology is making it easier to underachieve and, in some cases, to experience major losses.
The SEC's proposed regulation on Full Disclosure may blunt one edge enjoyed by professional investors but, possessed with more time and more resources, the pro's will develop others. Thus, the only result will be to encourage individuals to continue to play a game in which the odds are stacked against them. Unintentionally, the SEC has become the advocate of harming individual investors rather than helping them.
Common sense would suggest that the first priority is to establish data on the results that individual investors are achieving. Given the concentration of e-brokerage accounts at a handful of firms, it is easily possible to gather this data and analyze it. If the results achieved are comparable to those recorded by professional investors, we would eagerly bless any initiatives taken by the SEC to support the individual. If, however, the results achieved are adverse, then the SEC should actively disseminate this information, warning individuals that self-management is hazardous to their wealth.