Triumph of the Yardstick

Riepe, Mark W.
October 2002
Journal of Financial Planning;Oct2002, Vol. 15 Issue 10, p40
Academic Journal
This article focuses on the stock indexes, rating agencies and auditing firms that hold influence on the companies they rate or evaluate. Stock indexes, in various forms, have been around for over 100 years. Though their original purpose was to describe what was happening in a particular market, in the past few decades they have come to serve additional purposes. Rating agencies like to think of themselves as unbiased observers evaluating the credit quality of the issuers they cover, but the widespread use of the agencies' evaluations sometimes causes them to have a staggering impact on the companies they rate. Investors operate in a world of rapid information dissemination, one in which decisions and the consequent movements of big blocks of money are automatically tied to the activities of the anointed meter readers and their various measuring sticks. Portfolio managers, particularly trader types, should be prepared to have their holdings whipsawed if they hold stocks that are on the cusp of being excluded from the various popular indexes.


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