Hi All, We see a lot of posts here from people inquiring about what is the best of this or the best of that. On a day when the Dow is down another 200 points, I thought it would only be fitting to have a thread about industry worst practices, so that people on this forum are less apt to make career-limiting mistakes or poor investment decisions. So, what do you guys think is some of the worst equity research? Anything published on First Call is fair game. Feel free to name banks or analysts.
I took a tip for Numi once and it was a complete wash 
Signed, Fibber
I’ll start. I saw some complete junk from Noble Financial research this morning. Here is what the note looks like (certain words blanked out not to hide the company we’re looking at): " - Second quarter earnings will be released after the close on Thursday followed by a 5pm call. - We expect revenue of $XX million and strong organic growth in the 20-30% range - Call details: Thusrday, August 4, 5:00PM ET, dial-in at XXX-XXX-XXXX" That was it! What a joke…as if none of us could have just gone onto the company website to get the dial-in information. On another note, who the heck gives a 20-30% range for organic growth? That’s like someone asking me what my GPA is and I tell them it’s between 0 and 4 on a scale of 4.0.
I have to resurrect this thread because I can’t believe nobody here has ever seen bad equity research. Guys, the markets are down over 10% the last week! Surely everyone here has some “worst practices” for research/analysis so others can learn what *not* to do.
numi Wrote: ------------------------------------------------------- > I have to resurrect this thread because I can’t > believe nobody here has ever seen bad equity > research. Guys, the markets are down over 10% the > last week! Surely everyone here has some “worst > practices” for research/analysis so others can > learn what *not* to do. Anyone initiating coverage with a “hold” (unless their firm did the IPO or whatever and that absolutely HAD to put out coverage) should be thrown into the sea. I understand that plenty of sell-side guys don’t get a choice about what they cover, but jebus, what a waste of time. GUYS COME QUICK AND PUT ON YOUR HOLD/NEUTRAL ROBES AND HATS. Hat tip to folks who put it better than I could: http://longorshortcapital.com/ridiculous-sell-side-research-report-titles.htm
First, thanks for that link. I love that blog. Secondly, I don’t know that I have a personal aversion to a “hold” rating. Now, when I was on the sell-side, I hated initiating on anything with a Hold because that usually meant we’d get fewer client calls and trades. And yeah, usually doing all that work to come out as a “hold” typically s*cked so I understand where you’re coming from. But now that I’m on the buy-side, I realize that not everything is going to be a “buy” or “sell” – it’s tough to find something that you’ll actually take action on and sometimes there’s not enough margin of safety to be anywhere other than neutral on a company.
I would imagine that the report Numi is referring to was probably just put out as a courtesy to people on their email blast list, so in my mind it should get a pass versus actual research reports. Personally, I dislike CS HOLT/CS European research. I’ll generally just use sell-side to either set up management meetings or I’ll read an initiating coverage report when I’m starting on a new name (I’m at a fairly concentrated, value based, L/S fund). The CS HOLT reports tend to be way too focused on what comes out of the black box of the HOLT model/database so I don’t find it useful at all if I’m trying to understand a business and put a research plan together.
I can’t speak to specific worst practices here, since I tend to do most of my stuff on my own and have never been on the sell side professionally. I do look at miscellaneous SS macro research at times, and some SS technical analysis. I can understand that saying HOLD on the sell side is kinda pointless, but necessary, I guess, to reassure people that you actually are able to say that something is fairly priced, as opposed to having to say buy it! sell it!, since, presumably, something in that big old universe must be fairly priced at times. I don’t think that the market being down 10% shows that all the analysis saying companies are great is necessarily bunk. Macro events are larger than companies, and all that company research really only says whether a company is strong relative to others or not. That’s why I think the outperform/underperform/market perform ratings make more sense than simply buy/sell/hold… they isolate the analysis to what you can know about the company without requiring that you also be a guru on the macro environment. I do understand that - from a marketing perspective - the outperform/underperform/market perform scale requires the client to have to think more, and therefore makes them less likely to jump in and immediately transact with you. But from an analysis perspective, I like it better. One thing that would make for superior research, however, is research that looks at what different changes in the macro environment will do to the company. It’s not necessary to predict the macro-environment, but getting a handle on the company’s sensitivity to macro factors is very helpful, particularly if it will perform significantly better or worse in any particular macro scenario. I suspect that a some SS research actually does that, but since I don’t read a lot of company research personally, I am not sure how common it is.
I’m saddened by this thread. Some of the hate on here against SS equity research is unwarranted. Initiate on a hold can happen quite easily. For a legit analyst, when he/she begins the actual initiation process, it could take over a month of real fundamental research / meeting with mgmt/ due diligence before it is finally released. If an analysts initiates without meeting with mgmt or doing a lot of research, that’s very bad practice. If your stock runs within range of 10% of your price target during your research, you either have to boost it, or reluctantly move to the sidelines. — And numi your example is also biased. I don’t know what industry or what company its about, but maybe the firm is a large grower based on M&A, and poor organic growth. Maybe investors have been concerned about it, and that happens to be a key problem of that company. Investors can see what M&A does to earnings, but what if the organic growth component being stellar is the key to beating the quarter. The analyst could be making a call on the quarter telling people to get in, and get a boost when the results are announced.
supersadface Wrote: ------------------------------------------------------- > numi Wrote: > -------------------------------------------------- > ----- > > I have to resurrect this thread because I can’t > > believe nobody here has ever seen bad equity > > research. Guys, the markets are down over 10% > the > > last week! Surely everyone here has some “worst > > practices” for research/analysis so others can > > learn what *not* to do. > > Anyone initiating coverage with a “hold” (unless > their firm did the IPO or whatever and that > absolutely HAD to put out coverage) should be > thrown into the sea. I understand that plenty of > sell-side guys don’t get a choice about what they > cover, but jebus, what a waste of time. GUYS COME > QUICK AND PUT ON YOUR HOLD/NEUTRAL ROBES AND > HATS. > > Hat tip to folks who put it better than I could: > http://longorshortcapital.com/ridiculous-sell-side > -research-report-titles.htm you have no idea how research works. as an analyst you’re trying to identify MISPRICING IN THE MARKET if you feel a stock is FAIRLY VALUED, you initiate with a HOLD/NEUTRAL rating know what youre talking about before you comment on forums
builders Wrote: ------------------------------------------------------- > you have no idea how research works. as an analyst > you’re trying to identify MISPRICING IN THE > MARKET > > if you feel a stock is FAIRLY VALUED, you initiate > with a HOLD/NEUTRAL rating > > know what youre talking about before you comment > on forums Builders, I didn’t insult your family name or kick your dog. I didn’t slap you with a glove and challenge you to a duel with pistols over a woman’s honor. Please, calm down with the hostility. My point is not that hold/neutral ratings are inherently a bad thing. If the current price is within the range their models and research estimate as fair value, an analyst is well within rights to call the stock a “hold/marketweight.” My point was that it takes time and resources to cover a stock, and typically the “initiating coverage” reports are some of the best-written, most comprehensive reports that an analyst puts together. Capping the whole thing off with a ‘hold/neutral’ feels like a tremendous waste of resources. Why initiate coverage and publish this 30-50 page opus explaining the industry, company history, Porter’s five forces, absolute and relative valuation, etc, etc, only to conclude, “Welp, looks like it’s 'bout right as far as pricing”?
True in terms of how it feels, but isn’t the decision to initiate coverage based on a longer term view that the company is going to be important to follow over a long period of time, rather than “it’s under/overpriced right now, we better initiate coverage?”
once I came across a set of reports from CLSA on HDIL (Indian realty stock) where they keep revising their target down with a buy rating and suddenly changed their call to sell when stock decreased to 150 from 650. Spot Target Call 650 750 Buy 550 650 Buy 450 550 Buy 350 450 Buy 250 350 Buy 150 100 Sell
dunno bout other sectors, but i’ve noticed the GS Commodity analysts changing their price targets for Ag Commodities (Corn, Wheat, etc) a bit too often and on a very short term thesis. and then they qualify it with riders which just makes the whole thing quite frustrating. MS Commodities is the best in the biz, led by Hussein Allidina.