young folks people do it for the chicks. college chicks that is…
There have been some pretty comprehensive replies here but just to give my two cents:
Q1 Does Equity Research bring in money - Yes. Historically this was more about generating commissions and cross-selling opportunities but recently there has been a move towards paying directly for research. Sometimes equity research is seen as a cost centre, but ultimately if it didn’t make money it wouldn’t exist.
Q2. Are equity analysts useless if markets are truly efficient? Well yes, but markets aren’t efficient. Or at least, as has already been said, they only become efficient due to the analysis of people such as ER analysts. So no ER is not pointless. And again, it becomes more useful the more esoteric a company or security is.
Last point - equity analysts do not get judged solely or even mainly on the strength of their market calls. Sell side price targets are a bit of a joke. No-one in the industry takes them seriously. For a buyside portfolio manager, you use SS ER to learn more about a company because the SS analyst will know it inside out whereas you don’t have the time to become a specialist in one particular niche segment. So the quality of the analyst is judged by their level of knowledge and the insight they can give over and above what is already available on the company’s IR website.
Ultimately it is the fund manager who makes the call of whether or not a security is cheap or expensive and how to trade on that basis. Given that, on average, equity fund managers do not beat the passive index net of fees, a more pertinent question is not are ER analysts useless but are portfolio managers? I don’t think it is clear cut that either active equity managers or hedge fund managers on average justify their fees, although since every manager seems to regard themselves as first quartile they all think that they are an exception to the rule.
Most portfolio managers were analysts before they became PMs. Especially if the strategy is active and fundamental-based.
VP of JP Morgan in India comes to teach finance courses in my college every saturday.He once told me that he gets paid 1/4th of his per month salary at JP by teaching at my college for 24 hours in a month ie (6 hours every saturday of the week.)
majority of pms underperform because the best pms take all the alpha. for someone to outperform someone has to underperform. an active game is a zero sum game granted the zero sum starts at the benchmark at roughly 10%. ss analysts are pretty useful in gathering info, but i would not follow their target price recommendations or whatever. they usually have the target price follow the market price anyhow. the best analysts have a higher chance of becoming a pm cuz they typically build a following.
Yes, adjunct for love of teaching, or adjunct because you need to get teaching experience, but no one does it for the money.
I think CvM was adjuncting for a bit… how did that go, bro??
I’m not sure that the reason for underperformance is because they just can’t compete with the best, particularly if you aren’t able to esablish who the best are before the investment results come in.
I suspect that the bigger issue in underperformance are transactions costs and overtrading in order to prove you are not being a passive benchmarker collecting active fees.
And I think the biggest alpha is probably taken from retail investors, who still own a large portion of assets - at least in the equities world. Technically, an individual managing a personal account is a portfoliio manager, but I don’t think they are included in data used to say things like “most PMs underperform”
Disagree. T-costs are continually moving down, even in EM and overtrading is not an issue I’ve seen in most funds. The biggest cause for underperforance is the diametrically opposed mentalities of a successful investor and those of most clients. In order to invest successfully you need to be patient. Clients are not patient. In order to invest successfully you need to be able to tolerate losses. Clients are intolerant to losses. In order to invest successfuly you need to look beyond the news to what is really happening. Clients watch TV and think you should invest according to what they just saw. There is a freaking 3D printing ETF…
The reasons I’ve seen for funds underperforming, especially after gather assets, is because they know that if they can hold onto those assets for a few years (by not underperforming excessively) then they can make millions and be set for life. So, they closet index, have thesis drift/weak theses, and get complacent.
The hardest job anybody in investing has is protecting clients from themselves. The money management industry is supposed to be oriented towards doing this, but it is too hard and the payoffs are too long term so instead everything is set up to retain assets. Assets generate fees.
So, like $200?
I just checked and it looks like adjuncts at my crappy, public, hacksaw make raound $5,000-$13,000/course. Each course is about 30 hours of class time. Assume 60 hours of prep/grading and you’re at around $56-$144/hour. That’s really not too shabby.
Most of my courses (all finance courses in my MBA major and probably half of “MBA” courses) were taught by full-time professors. The adjuncts were actually pretty good overall. As I recall most had MBAs from top-20’s with solid E-level career experience that they brought to the classroom. There was a statistics PhD and a JD in there somewhere, too.
I’m pretty sure the adjuncts do it for enjoyment. One was a recently-departed CFO of a public company who started a consulting company. The current CFO makes about $800k. Another was a guy who sold his respected accounting/valuation company (I think around 50-70 employees or so) and retired. So these don’t seem like people hurting for money.
^Actually, let me correct myself.
I think there’s a big difference between a non-tenure track PhD-havin’ professor who doesn’t research or publish, and a part-time, hacksaw MBA-havin’ lecturer. What I referred to above was the lecturer. I’m sure the former makes more money than the latter.
I can only think of one non-publishing, PhD-havin’ professor at my shitty hacksaw. He took the job just because he had to move here and he wanted a job. I think he pulled down something like $100k. He definitely did it for the money, though.
There’s definitely a difference, though. I think the part-time lecturers were actually more often into it because they did it as a hobby they enjoyed rather than an inconvenient aspect of being a professor.
I will admit that I didn’t read every post in this thread, but so far this is the only post I’ve seen that makes any sense. My only quibble is that it’s not exactly zero sum – it’s “mostly” zero sum against a low net growth backdrop. The US grows at a real rate of +/- 2% a year which should flow through to the stock market over time (market should grow value in excess of that, including inflation). Trading costs also play a minor impact. But yeah, basically zero sum.
It’s not enough to know how to identify mispriced stocks, you also need to know how to (legally) exploit other market participants. This is the inescapable conclusion you will eventually each in this business, which is why most finance people are dicks.
Agree that the sell side is good for information collection. There are also some fun games you can play with their models (for the lulz).
To the deduplicator!
I stand corrected, this post also makes sense and I agree 100%. A lot of underperformance, ironically, should be blamed on bad clients and having the wrong LP base.
It was kind of one big pain in the a$$.
I taught at the hacksawest of hacksaw community colleges. One of my students was attending on jail release which commanded that I sign his papers attesting to him being in class. Most of the students were lazy as fuk. Maybe 5 of the 30 really seemed to care about the class and their future. I really don’t know why the others were there.
Every week I heard excuses as to why work wasn’t done and frankly I tried to take some of it as truth, but it really undermined the performance of the whole class when half of the students didn’t do x, y, and z for various reasons.
Most of the class was black. I think that was the reason I was hired. I could see some whiteboy get shanked in that room; much like the movie High School High.
I was a tough and most of the class dropped out after the midterm. Of those who passed the miderm and continued coming, one other failed. I went above and beyond helping these kids even giving out my personal cell number and allowing text messages. But I didn’t play Santa when it came to sloth. Overall the school like how I stepped it up instead of just being the easy instructor giving all As which had happened in the past.
I made a whoppin $1500 for the semester. Obviously I did it just for the money.
$2000 per month. for taking classes 4 days a month…which is really good amount considering the PPP difference between USA and India.
A JPM VP makes $8K/mn in India? Is this one of those not really a VP type of VP we were discussing in another thread?
Because they were told by their teachers and parents and guidance counselors that “you either go to college or you flip burgers and dig ditches. Anything less than a college degree dooms you to a life of servitude and poverty, and you will be an abject failure in life.”
I don’t disagree with BWYF’s comments on clients and how they drive PM behavior, indeed I said that overtrading was part of the problem and that is driven by the PM’s need to show that they are “doing something” to their clients. I think that these two points of view complement each other rather than disagree with each other.
The ability of PMs to pick stable client bases is a key issue - and interestingly it has little to do with investment acument and everything to do with business and communication skills.
Clients may put money in or take money out, and this will show up in money wieghted returns, but the time weighted returns should still provide an indication of the PM’s decisions. When people talk about PMs outperforming or not, they are using the time weighted returns.
If the PM does not have the means or the discipline to ignore their clients, then client influences will drag down their time weighted returns, but if the PM iis disciplined, only the money weighted returns should be affected by client redemptions.
Also, some structures, like closed-end-funds, insulate the investors from clients better than others.