what is the most difficult sector/industry for analysts?

what industry/ sectors have the most complicated business structures and operating cycles that make it difficult for analysts to consistently beat the street?

financial services (large banks?), biotech?

Financial services IMO. The accounting is hard and while there is a lot of regulatory oversight (apparently, although it’s hard to see that it’s been effective at all), I never trust the numbers.

Biotech is not that hard to follow – the premise is easy, it’s just hard to handicap the outcomes. Does this drug work or not? Conceptually it is easy to understand.

Any commodity business with fluctuating demand is hard to follow, IMO. The results can get whipsawed very easily. I don’t like semiconductors for that reason (and also because they are design in products, which is another factor that is difficult to forecast).

Healthcare can be difficult to follow due to changing reimbursement and regulatory trends. That’s one industry where I would argue it helps to be a specialist (although not required).

Tech ecosystem stuff can be tough to step into cold, as in, “How does this product fit into the competitive landscape?” Some software niches come to mind.

^^ thanks

I can see your ponit. As a former regulator, a lot of the work we do is behind the scenes and a lot of our “mistakes” get on the front page of the Journal. There will always be a lag between what new regulatory provisions should be implemented and when it actually happens. Unfortunately, a large negative event will act as the catalyst to speed up the process. Afteward, a bank will usually find some sort of loophole to skirt around these things. I mean, banks are supposed to be hiring all the “smart” people, aren’t they?

But to answer the original question, I would say any financial related company. There’s too many moving parts on the balance sheet, and it’s hard to build in regulatory and litigation risk into your projections.

It’s not ONLY a regulatory problem, but it’s clearly a problem that regulations have not been able to solve to date. Is there any industry you know that has had more crises than financial services in the last 50 to 100 years? I can’t think of one.

Similarly, is there an industry you know of that has had more fraud than healthcare in the last 50 years? I can’t think of one.

Transparency in both can be low for different reasons. I never trust the numbers in either.

With financials, I adopt the “best house in a bad neighborhood” approach. Personally I like Canadian banks. It’s a highly regulated oligopoly with very nice yields. Euro banks are virtually impossible to value with the debt crisis ongoing. US banks are so integrated and as close to black boxes as we’ll see. Not to mention the big guys (Citi, B of A) still have targets on their backs b/c of the mortgage issues. That being said, they can make amazing long/short swing trades due to the high volatility, but I dont have the capital/guts to take either side of that right now.

But yeah, its nearly impossible to know wtf they have on the BS or how they make their money.

I think part of it is a result of the industry is designed to always operate under a lot of leverage.