All is not as it seems on Wall Street. Even the most naïve investor knows this. But here at Notes we believe it’s critical to know how the game really works before putting “skin in the game.”

We’re lucky enough to work alongside former global finance insider Simon Mellon. Simon is currently putting the final touches on our new money management product, Bonner & Partners Family Office. And he’s kindly agreed to contribute to Notes as he gets ready to launch what we believe will be one of the most important wealth protection services available. (More on this project later…)

I still remember my first job interview with a stock broker. The stuffy suit sitting in front of me asked me to give examples of shares I would buy. I had predicted the question, who wouldn’t? And I quickly ran a few examples off the tip of my tongue, backing each pick up with some basic reasoning.

My logic was simple, but not wrong. And I’ve professionally traded shares on weaker arguments since. But the broker shot me down with a question I hadn’t expected: “Do you think you really know these companies?

To be honest at the time I didn’t have much of a response. I’d done my homework – I’d analyzed the financial accounts and read the news flow. But I hadn’t taken into account some crucial elements. I hadn’t picked up on the daily chatter… I hadn’t looked the management in the eyes… I hadn’t lived and breathed the company for years… And most importantly I had been told what to expect by the company itself. (By the way, I still got the job!)

My point is that to the industry outsider, the analysts that produce reports on companies for stockbrokers and investment banks are seen as impartial and independent thinking. This is probably the biggest misunderstanding for any private investor.

See, the most important thing for any sell-side analyst is good access to the companies they cover. And this kind of access would be impossible if they published negative opinions. The reality is that most fund managers don’t really value the analysts’ opinion. What a good fund manager wants from an analyst is for them to talk directly to a company’s management team and to pass on what they’ve been told. And above all, fund managers value analysts’ ability to arrange meetings with company management.

The recommendation on the top of the written note is usually biased. In my experience (except in a handful of cases), this isn’t due to any corporate agenda but rather to the analysts’ desire to please the companies they cover. A positive recommendation ensures access. It’s as simple as that.

If you spent a morning on a trading floor listening to the institutional sales teams in actions, you would hear as many different recommendations as there are sales men. And these are the opinions that count, NOT the analysts’ recommendations.

Nigel Lawson, the former British chancellor of the Exchequer, once described the analysts in London City as “teenage scribblers”. And you know what? He’s not far off the mark. Okay, they’re not all teenagers. But many are not far off.

Just a little over a year after I left grad school I was covering some of the biggest companies in Europe. I had attitude and the smarts. But I didn’t really know these companies. I didn’t know their management and their corporate history. How could I? Just two years earlier I was being spoon fed the theory in college classes. And suddenly I was the expert!

So when regulators and government officials speak out about their shock at the complicity in the financial world. They are either lying or showing their ignorance of how the industry works. I would personally prefer to think they are lying. Unfortunately, in many cases it is probably a bit of both.

This earnings season has been a great example of the analyst “brown nosing” I’m talking about. Despite the economic turmoil, company after company has been beating analyst estimates. Hardly surprising when they’ve agreed them in advance with the analysts! Of course, this is perfectly legal and falls under the respectable cloak of “guidance.”

When we get beyond this “easy to beat” analyst driven rally, Simon believes we’ll return to a secular bear market trend.

I genuinely believe you can’t have an extended bull run without the pain of an extended bear market on the other side. The “green shoots” have been shown to have nothing but brown roots. As long as the banks sit on the bailout cash and consumers continue to hold back on spending we are not going to come out the other side of this. So don’t believe the numbers. They’re all low balled and biased. Wait until we see companies beating meaningful forecasts before picking up those speculative equity positions.

Remember those overeager investors in 1930! My advice to today’s investors is that they hold back on piling into equities. Even if you miss the first returns when the real bull eventually runs, there will still be plenty of money to be made.

It’s crucial you make sure you’re still solvent when that day comes. Patience is the ultimate virtue in these times. To quote Donald Trump, a man who has risen from the financial ashes on more than one occasion, “Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.”