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The Buy Side

Cool it. Slow down. Don't buy the rthetoric Add to ...

Most investors assume that Bay Street or Wall Street careers are built on being right, but that's only partly true.

Those who must be right most often are money managers - what's known as the Buy Side. Those on the Sell Side, however, also make a living by knowing how to convince. Luckily, most of them do it by instinct only, not by formal training, or we'd all be in trouble.

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The formal art of convincing others is called rhetoric. The Greek and Romans used to teach it, as did the Jesuits, British law schools of old and certain colleges in France. There is a variety of rhetorical styles - Roman, Greek (which includes oratory), British, French, German - but all are meant to do one thing: convince you and push you into action. That brings me to the topic of this column - a warning against letting yourself be convinced without checking things yourself.

Rhetoric is no longer taught formally, so those hit with the real thing for the first time are often helpless before its power. As I noted in another column, when I served as research director at Brown, Baldwin, Nisker I made all five of my analysts take a course in rudimentary rhetoric (written and spoken) in the guise of a presentation course, and within two years they all became ranked No. 1 by the Brendan Woods survey of institutional portfolio managers. Same analysts, same research, same analysis; the only change was rhetorical delivery. Luckily, all five were very good to begin with, or, with their new powers, they could have convinced clients to buy even mediocre picks.

But is rhetoric really such a powerful tool? Let's have a side bar, then, about structured language. Language intended to get results comes in three formats: informative language, fictive language and rhetorical language. The first kind restructures information the way the brain assimilates it most easily - hierarchically. That's how good reports are organized and how effective newspaper and magazine pieces are written.

The second format, fictive language, is meant to raise strong emotions and also has structures of its own. (Fictive techniques can leaven rhetorical delivery to achieve greater power, as Ronald Reagan used to do.)

The third format, rhetorical language, is often the most powerful and is meant to move people to act. That's how Alexander the Great roused his soldiers before battle, how U.S. President Barack Obama energized the Democratic convention, how Sarah Palin captivated the Republican convention and how great entrepreneurs get financing for risky projects. They convince through rhetoric.

The content is relatively unimportant. When a rhetorical format is used correctly, either knowingly or instinctively, it can generate whatever action the speaker (or writer) is calling for: buying a stock, getting financing, pulling a voting lever, or pulling a trigger. Like a great mezzo-soprano who sings sublimely in a language you do not understand, both political rhetoricians and great salespeople can convince and move you by form and structure alone. They can sell, in effect, anything.

Now, though not even close to any of the above masters, Bay Street and Wall Street have their share of practical rhetoricians (or, as they are commonly called, good salespeople) because, by Darwinian elimination, those who cannot convince clients to act, must leave the business. Therefore, I strongly urge you to mistrust your ability to recognize an investment's intrinsic worth if it's delivered by a good salesperson.

Sure, enjoy the rhetoric/salesmanship wherever you find it, but mistrust it too. Because at its best, correct rhetoric is an art; and, as in all art, form is more important than content. The painter Chaim Soutine painted a side of beef, yet created a masterpiece. Picasso painted a broken guitar from six viewpoints at once, and created another. It's not the "what," but the "how."

Still disbelieving? Well, take a look. Barack Obama's oral speeches, when transcribed, often say little. As for our own Pierre Elliott Trudeau: I once saw him speak before a sedate audience in Toronto, in classical Cartesian rhetorical style as taught in the École des Sciences Politiques in Paris. The audience swooned. Sure, it was his personality too, but the learned rhetoric was key. Ronald Reagan used an American variety of rhetoric (composed by Peggy Noonan), John F. Kennedy used Ted Sorensen's written speeches and Mr. Obama uses his own (the classical Greek/Roman kind, mixed with oratory). Sarah Palin uses her own style - she's a natural - but surely it's not the language, which she butchers; rather, it's her structures, which are rhetorically correct. As previously noted: It's the how, not the what, where most of the magic resides, both in Washington and on Wall Street and Bay Street.

So, be careful of investing too hastily based on a convincing argument you've just heard from a salesperson or analyst, or recently read in a well-crafted research piece - or, for that matter, in a newspaper column written by some Joe who can string words enticingly. Just because someone convinced you doesn't mean it's right, whether in politics, business or investments. Never rush. Cool down. Wait. Sleuth it out. Don't be too easily convinced. When subjected to correctly structured rhetoric, you are more malleable than you think.

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