Ever since Tesla Motors announced its $1.6 billion convertible debt offering yesterday afternoon, market watchers have been crying foul. Why?  Because Morgan Stanley is one of the underwriters on the deal. Their analyst, Adam Jonas, put out a very bullish report and raised his target price on Tesla just a few days before the deal was announced.  Sounds fishy, eh?

Not so fast.

Sure, I can see how it’s possible for the analyst to have secretly held talks with his banking colleagues and developed a plan to issue a bullish report to win over Tesla’s management such that they’d be included in the deal. This situation, which is only being presented as hypothetical, would be illegal and unethical. I do not believe this is what happened.

Here’s how the business really works.

Analysts are not allowed to communicate with bankers openly. There is a very strict “Chinese Wall” between them. In Canada analysts can at least call their banking colleagues on the phone, provided they stick to the rules about what is and is not allowed to be discussed.  But their phone calls are recorded for regulatory purposes. My understanding is that in the US the rules are even more strict.  Analysts can’t speak to their investment banker colleagues without a compliance officer from their firm present.  The compliance officer’s job is to protect the firm from the dangers of inappropriate behavior by employees.

Analysts also get paid, indirectly, from investment banking revenue that their firm generates.  Analysts who are bullish on stocks obviously want to have their firm included in underwritings of those stocks.

Elon Musk made it crystal clear that a financing was very likely following the company’s Q4 results. The whole Street knew this was coming in order to finance their GigaFactory.  If you were the analyst at Morgan Stanley, and you had a bullish thesis on the stock and believed that the GigaFactory would help Tesla secure a position not only as a leading electric vehicle maker but also in the energy industry, wouldn’t it be your JOB to publish your opinion and tell the world?

Yes. It would.

Provided Adam Jonas believed what he wrote (I imagine he does/did) there is nothing illegal or unethical about Morgan Stanley’s research department publishing a bullish report one follwed by their investmenk banking department underwriting a conertible debt deal a few days later.

Rather than anything sinister happening here … I think it’s more likely that the analyst loves the stock, and the bankers have a good relationship with Tesla’s board of directors.

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I admit that I was wrong about Microsoft … at least in the short term. In late 2012 I was very bearish on Microsoft just as I started participating in the Globe and Mail’s “Strategy Lab” project. I wrote a few articles explaining why I preferred to own Google and Apple rather than Microsoft.

Turns out that over 12 months the Google bet was smart, but the Apple bet wasn’t. It’s OK. I don’t really care about one year results. Any long term investor (who really is a long term investor) doesnt’ give much of a sh*t about one year results. I have no idea where stocks are going next year, and I almost always avoid investing in stocks with an expected holding period less than several years.

Anyway, I’m not convinced Microsoft can acutally stay in the consumer business, and I wrote a detailed blog post about this for WPCentral.com

There are over 100 comments on the article already, so people are obviously opinionated on this topic (as I am).

What do you think the future holds for Microsoft? Enterprise focus like the attempted BlackBerry turnaround by John Chen? Or Consumer stronghold?

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Should you bother to read analyst reports?

by Chris January 16, 2014

If you invest in stocks you probably read analyst reports. Or at least you probably read summaries pulled from these reports in the financial press, right? So the question is … should you pay any attention to any of these reports? I answer that question in this week’s Strategy Lab column for the Globe and […]

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Apple is heading to $1000

by Chris December 11, 2013

Yup. That’s what I think. Just don’t ask me when it will happen or what the path will look like as it gets from here ($560ish) to there. This is the subject of the article I published for iMore.com yesterday, which you can read here. I was a sell side analyst for almost 11 years. […]

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Here’s what people think about the end of the PC

by Chris November 26, 2013

About 6 weeks ago I published one of my weekly columns in the Globe and Mail as part of the Strategy Lab project. The topic was how Apple may turn iOS into a PC replacement. You can read my column here. I firmly believe that PC sales are now in a long term decline. Many […]

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BlackBerry and the so-called “deadline” with Fairfax

by Chris November 1, 2013

Tonight has been a hilarious night of Twitter dialogue. In some cases friendly and in some cases more like a Twitter fight. The topic: BlackBerry.  Too many media outlets are representing Monday November 4th as some kind of looming deadline for Fairfax Financial to firm up their bid to buy BlackBerry.  It isn’t a deadline […]

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My latest article on Monsanto is making people mad at me

by Chris July 30, 2013

As part of the Globe and Mail “Strategy Lab” project, I write a weekly column on growth stocks. This week I took a break from the usual electronic technology area that I focus on. I wrote an article about Monsanto, a giant in the food business. You can read it here. It seems people are […]

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I just dumped my shares in Vancouver-based Coastal Contacts

by Chris July 24, 2013

A few years ago I made an investment in a Canadian small cap company called Coastal Contacts. In Canada they are better known under the banner Clearly Contacts, and their primary business is selling contact lenses online. I didn’t buy the stock until they expanded into the glasses business. I think they had a great […]

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Netflix Using Google Hangouts On Air for a Quarterly Call: Multiple Disruptions

by Chris July 22, 2013

Tonight Netflix announced its Q2 results. Netflix is not your average company. Most public companies hold the most horrendously BORING conference calls. They start by reading their press release to analysts and investors, which is a stupid waste of time. Then, after a while, they get around to taking questions and providing (hopefully interesting) answers. […]

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Is the Android OS too complicated?

by Chris July 4, 2013

Serious question. I am not an Android user although I generally love Google products and I’m also a (happy) shareholder. Here goes: Last night I was at a pub with friends. One of them, who we will call Paul (only because that’s his name) had a Samsung Galaxy S3. He used to be a BlackBerry […]

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