Retail investors have access to a lot of information about the municipal bond market. Maybe too much information?
Ever since Wall Street analyst Meredith Whitney spooked the market in December — predicting up to 100 municipal defaults and bankruptcies this year — a torrent of data, research, analysis and commentary has flooded investors. Financial firms have created blogs, newsletters and discussions to post on social networking sites like LinkedIn and Twitter. One has even introduced monthly transparency reports.
But while some of this information has been valuable, some of it has just been plain wrong, experts say.
"I think more information is generally always better," said Chris Mier, chief municipal analyst at Loop Capital Markets in Chicago. "The problem is the accuracy of the information being given, and what kind of interpretation is being provided with it."
Mier said it's difficult for the retail investor to discern the difference between those who are qualified to render opinions and those who are not. That challenge is compounded by the flurry of data posted on the Internet, sources said. Obtaining investment information from valid sources and separating fact from fiction is crucial to understanding and utilizing the bulk of research available on the Web.
"Information is always a good thing, but it's a matter of organizing that information," said Bill Mason, senior vice president of municipal trading and underwriting at David Lerner & Associates in Syosset, N.Y.
"With the Internet today, it's like a graffiti wall — whether it's the truth or not the truth, an individual is going to have a hard time sorting through the information because they have no control over what goes on the Internet," he said.
Mier agreed, "In the age of the Internet, anyone with an opinion can find an audience."
Good information is important for mom-and-pop investors who are making critical investment decisions about muni investing. A nearly month-long rally has pulled tax-exempt yields lower amid lingering fiscal stress at the state and local level.
Experts agreed that a professional financial adviser can minimize some of the confusion, and help distinguish between the good, the bad and the ugly. "Ongoing due diligence relating to issues of financial disclosure by municipalities is both time-consuming and not readily understood by those less versed in the opaque dealings of the tax-free bond market," said Michael Pietronico, the chief executive of Miller Tabak Asset Management in New York.
Mason said information about munis was always available from different avenues in the industry but has further proliferated since Whitney's prediction. "She came out with something negative, but because of her high profile, people tried to validate it or find out if it wasn't true," Mason said. "She strayed into an area that she wasn't that comfortable with, and is not a muni bond analyst."
Pietronico said there have been benefits from the increased dialogue about munis in the financial media. "This can only be deemed as positive in the long run as investors should be educated on the events surrounding the market they are deploying capital to," he said. "Certainly the more sources of information an investor can access, the better investment decision one can make."
