Less than a fair share

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Last Monday, shares in Great Universal Stores fell 28p to close at 690p. News reports said this followed private meetings the company had with two brokers, CSFB and Cazenove, whom they informed of a deterioration in the mail order side of the business. The two brokers cut their profit forecasts as a result.

On Tuesday, shares in Emap fell 62p to 1,220p. This reportedly followed private discussions it had with a series of brokers - including BT Alex Brown, Merrill Lynch, Morgan Stanley and SBC Warburg - which resulted in the brokers trimming profit forecasts.

On Wednesday, Compass Group closed up 19p at 717p. Again, this reportedly followed a series of private discussions with brokers in which Compass was upbeat about its like-for-like sales and profits.

The unifying factor in all these instances is that brokers may have received price-sensitive information that allowed them to make trades to benefit their clients before that information was widely known. This means that the clients of these brokers - no doubt mostly large institutions - had the advantage over private investors.

The private investor, who is as much a part owner of the company as the institutional shareholder, is getting a raw deal here. In fact, in our view (although we don't know what information has been disclosed) this kind of thing could be getting close to insider dealing. It seems particularly serious when the calls take place while, or right before, the market is open. We don't know the details in the examples above since all reports of them are based on hearsay.

A similar thing takes place in the US when companies give conference calls to update brokers and analysts but don't allow private investors to participate. Xilinx, a manufacturer of computer chips, gave Motley Fool Global HQ in the US the phone number to participate in one such call in 1996 but retracted the offer, saying it had "made a mistake". The news was published on the Motley Fool website and was online for only 45 minutes before Xilinx reversed its decision; its fax machines and phone lines had been jammed with irate investors.

In the US, companies have argued that price-sensitive information is not disclosed in these calls. So why have them? In addition, Arthur Levitt, chairman of the SEC, the US investment regulatory body, has criticised the practice of closed calls.

In the long run, this approach will only hurt their standing in the wider investment community. Information is becoming more available all the time, via the internet, and trying to hoard it only creates ill feeling, especially when it is information that should be in the public domain.

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I bought shares in Apple Computer at $14 in December 1997, as it turned from loss-making to profit. Today, their price is around $36, as they bring out ever-newer versions of their new product, the iMac.

It was a recovery buy and a buy-what-you-know buy. It had had two years of (huge) loss, but I have always liked its products - Apple has always enjoyed great customer loyalty. I bought the shares just after a management reorganisation, a company restructuring and a whole new product line .

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