You probably have heard that Prudential has closed its equity research department. It would be easy to make joke about lousy research, and I have done so in the past but I don't think this is a good thing.
I read research from a foreign bank about currencies and emerging markets on a regular basis. The benefit of the research is that it is a great source for facts. The reports spell out some facts, talk about why those facts lead them to a certain conclusion and what that conclusion is. Quite frankly this bank is wrong a lot but I find the access to the facts (data points really) and how they use them to be useful even if I expect the conclusion to be wrong.
This also stands up for individual stock research too. Relying on the conclusion may be a mistake but facts and little bits of process are very useful. There can be factual items in these reports that you might not find through other normal channels.
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6 comments:
Roger
I agree with your lament, but I suspect the trend is inevitable. The core problem as I see it is that few investors are willing to reach into their pockets to pay for research. So they i-banks use advertising model to cover their costs, allowing the provision of "free" research. Now that there is a trend to accountability, ad model no longer works.
I don't know what the right balance is, but I think we're probably moving in the right direction to the extent conflict of interest problems are reduced. Seems like there's little question industry was over the top in some of past practices. Unfortunately, a casualty of the shift is that high quality information and research may only be available on a fee basis in the future.
There may be an interesting analog to financial advice business...
My accounts are largely with Fidelity, though I have some with E-trade. Prudential's research used to be available there also Lehman's. The research that I've found the most helpful is the sector research from Lehman. The comps that they do for the names within sector is terrific. I've seen this in rural telephone, oil services and coal stocks in particular. One of my greatest investments was FRP. I found the stock myself, but found Lehman's sector analysis which turned out to be spot on. This was not a sector that one ever saw highlighted in the media.
Though the "experts" seldom agree as to which way the wind will eventually blow, having access to research and differing opinions at least helps investors see the opportunities and the risks and make decisions accordingly.
Roger,
Could you tell us the name of the bank that produces the research you mentioned in the post?
I think Prudential made this decision long time ago when they got rid of their Technical Analysis department with Ralph Acampora. At that time (2005) every brokerage house had a T/A department.
I actually think that this is a good decision by Prudential. The market is hot right now, no guarantees that it will be in the nearterm. Of course, I could be wrong on the decision.
Research is just as much an art as a science.
To paraphrase JFK, "Keep your analysts' research close, but your lifelong developed gut instincts closer."
Roger you have a good point, but it should include a warning. "Be certain you know the other facts."
The facts chosen (to be reported) can lead to an inescapable conclusion that may not be correct. It happens in business all the time.
Dick
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