Friday, April 01, 2005

It Gets Worse at Morgan Stanley

It Gets Worse at Morgan Stanley

Watching the fun and games at Morgan Stanley is more fun than the Maple Springs United Methodist Church fish fry. It is almost as much fun as watching the newspaper business flop around like fish out of water. The past few months, our ET and AMTD stocks have flopped around but not as much as SCH. The "full service--full price" businesses still have large adjustments to make to the low cost internet way of investing. The discounters are simply throwing out low cost bait to snare many of the big fish leaving the big pond.

Dan Sherman has started a blog devoted to watching the newspapers flop; it is a good read. A blog about the flopping full service brokerages would also be interesting. I am aware of several blogs that regularly report events related to the demise of the land-line phone business. The reality is that powerful change forces are at work. Those who pay attention can make big bucks!

Don't get me wrong; I am not saying that the big brokers or that the big newspaper will die. I am saying that they must transform their operations. There will always be a need for the big houses. Big institutional clients need distribution and the big houses are set up to do it. This phenomenon is not well understood by the general public, but one prime purpose of big brokerages is to distribute to the "little boys" what the "big boys" no longer want to own.

Ironically, big media and big brokers work together to raise capital and to distribute product. I think it was on Dan Sherman's site where I read that the Washington Post and another big paper cannot give subscriptions to young internet savvy citizens. The folks simply do not want to have the reams of paper piling up in their homes. A close friend of mine has had an internet connected computer for at least 5 years. This wealthy fellow is 80 years old and owns shares in many companies. Even after years of coaching by his son and I, he still cannot bring himself to buy stocks over the internet. He does not trade often. His trades are substantial and his broker gives him a large discount but he still pays about 500% too much. Morgan Stanley, Southwest Bell, Knight-Ridder and many others are caught in a tough position. Their old business model is a cash cow but a shrinking cow. I like the fish image better--they must teach their businesses how to swim in the internet water.