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The analyst and his time challenge

Jun 2010/in /by

Guest post: Michael Prospero, Director of Research at FirstRain

As an analyst, one of the things I struggled with was the vast amount of information coming at me each day. A large part of my job was to read anything from or about my companies, competitor companies, industry bellwethers, thought leaders and of course the overall economy.

I set up Google alerts, but depending on the companies/stocks I entered I got a lot of junk both old and irrelevant. Also, there still isn’t a way to set up the types of sources you would like to read (e.g., no press releases or wire news) — the number of sources alerts covered is relatively small. The stated information from Google is that it watches more than 4,500 English-language news sites. and the number of alerts can become annoying if you have large portfolios of companies you’re tracking.

Additionally, I would have my stock ticker service up on my screen with the stock prices of my portfolios and this would provide an icon if there was news on a stock I had set up on the screen. A large part of my day was spent reading financial publications, checking news from the alerts on my companies, talking to customers and companies. When I had time in between those tasks, I spent my time working investment ideas.

As you read, you come up with ideas (idea generation), which leads you to search for other stories to either support or invalidate your theory. To find those stories, you would of course use Google search. Obviously, Google is very good at finding content, but because it’s most every source on the internet, you have to really hunt for something interesting and timely.

Oftentimes, you will find an article that is exactly what you were looking for in your search only to realize that it’s from 2006. Google search is comprehensive, but it’s tedious and extremely time consuming to dig through the clutter of totally irrelevant as well as non-business relevant content.

It’s been nearly three years since I was an analyst now and the one thing that has drastically changed is the number of blogs (and overall number sources on the internet) and their authoritativeness. In the beginning, the number of blogs was sparse and at best the authors of them were questionable. Now, we have blogs from extremely knowledgeable, connected, intelligent people and micro-blogging (e.g., Twitter) is yet the next step in the evolution of news.

So this leads to why I am at FirstRain: I believe if a system could have gathered all of the news that was business relevant, categorize it by company and topically, and allow me to personalize its delivery along with other preferences, it would have helped my process enormously. I could have spent more time on the phone and more time working on idea generation. Time spent on new ideas rather than time spent covering your butt is the way to create alpha.

The rapidly changing (reducing) role of the traditional sell-side analyst

Jun 2009/in /by

I sat on a panel today at NIRI (conference for IR) today in Fort Lauderdale and the topic was the changing role of the sell-side analyst. My fellow panelists represented the differing viewpoints of independent research – and a client – but the consensus was the same. The sell-side is going through radical change.

The problem started 30 years ago with commission deregulation – the day when how much a broker was paid to trade a share of stock was no longer regulated. As you can see from Rick Hanley’s chart here — the price of a trade has dropped continuously. Trading volume and investment banking were the two sources of funding for sell-side research — for the first the price per trade has plummeted, for the second Elliot Spitzer put up a wall between IB and research — and so the business model of traditional sell-side research within the big broker dealers is broken.

The net result is, unlike in the internet bubble when sell-side analysts were rock stars, now many of them have left and either gone into the buy-side or have set up their own research firms (or retired). Howard Penney from Research Edge talked about their new independent research model – clients just subscribe to research – no trading. Rick Hanley talked about his new service for management access (and how they partner with us) and Tom Digenan from UBS was the sole representative of the customer side. I was the lone techy (in a service intensive group) but rounded out the picture with the rapidly changing toolsets that are available.

In the end after much discussion and many questions from the IR professionals on how to use the sell-side it became clear that sell-side research is here to stay – but – and this is the but of change – it’s only one piece of the puzzle and is no longer the exclusive way to get to management – so IR has to learn to work with the other independent research and technology providers.

It was also clear the sell-side is not being careful enough of their company relationships. One of the IROs in the audience (who is IRO for a major cosmetics company) told me she is so frustrated with the sell-side she is ready to cut them out. Her complaint is that she can’t get the meetings she wants, with the investors she wants, through the sell-side because, at the 11th hour, they will swap out the institutions she wants her CEO and CFO to meet with and swap in their highest trading clients: the hedge funds.

There is clearly a role for unbiased management access now.

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