Equity Analysts: "In A Bull Market, You Don't Need Them. In A Bear Market, They'll Kill You"

Tyler Durden's picture

From bull market gods and goddesses of the 1980s and 1990s, stock analysts now preside over a much more modest kingdom.  Nic Colas, of ConvergEx notes that the world has moved on to new golden calves, from currencies (with great leverage) to exchange traded funds (with generally less volatility) to macro analysts (the current Zeuses and Heras).  This even extends to the world of the retail investor – there are far more Google searches in the U.S. for "Storage auctions" (246,000/month) than for "stock research" (just 33,000/month), and the rate of decline resembles a fast-decaying radioactive particle.  Yet the rebirth of the business is already underway.  Analysts now focus on developing useful proprietary datasets, exclusive expert resources, channel-checking contacts, and deeper management relationships.  The public’s attention to active money management and stock picking will always be linked to overall market performance, but when the next bull market arrives those analysts who remain – and innovate - will be well-positioned to climb back to the top of the food chain.

Nic Colas, ConvergEx: Death (and Rebirth) of a Stock Analyst

Suppose for a moment that you are a money manager with just one client, whose investment more than covers your day-to-day expenses at your customary 2% management fee.  The catch to this happy arrangement is that this investor wants a 10% absolute return and will pull his capital if you do not achieve it.  On the plus side, he will keep the money with you for as long as you achieve this bogey.  Drawdowns don’t matter; just make 10%.  Oh, and the performance fee is 50% of anything over that target. 

One more catch – you can only use one external resource in your investment process.  Our mystery client wants you focused.  Your choices are:

  • Unlimited access to one major broker’s sell side research and investment conferences.
  • Top-customer status at one expert network of your choice.
  • All the quantitative research resources you would like.  The catch here is that you can only hire a few programmers to exploit this content.
  • Unlimited access to a top-tier macro research firm, with resources deep in every major central bank around the world.

In the current investment environment, the last choice is the lay-up answer.  With asset price correlations near 90% for a wide range of investment choices, the on-off switch to market direction sits in Washington, Frankfurt, Beijing, and other centers of political and central bank power.  The other choices would give you little insight here.  Even those brokerages with excellent macro research and alumni in high places don’t seem to be able to call the twists and turns of macro policy. 

That little case study is just one reason for the declining interest in single-stock research, especially in the United States.  There is, of course, the range-bound equity market of the last +10 years as well.  There is an old saying about analysts among the grey hairs of Wall Street: “In a bull market, you don’t need them.  In a bear market, they’ll kill you.”  And in a flat market, it seems, both apply.  A few datapoints to highlight the decline of stock research in American capital markets:

  • Most surveys of institutional investors – mutual fund and hedge fund managers, mostly – find that these major clients of Wall Street firms pay their brokers for management access far more than the insights of their analysts.  The most commonly surveyed percent of commissions for access to conferences and 1:1 meetings is 60%.  The buy-sell-hold recommendations, written reports and visits from analysts are collectively worth more like 20% of the commission pool.
  • Retail investors have a similar level of ennui at the moment when it comes to equity research.  If you look at Google Adwords search count data for the term “Stock Research” you’ll find that the average month only registers about 33,000 searches for the term.  Thanks to several reality TV shows, the term “Storage auction” – the business of buying abandoned storage lockers to resell their contents at a profit – gets 246,000 searches per month.  At the crudest level of comparison, this means the average American thinks wading through bedbug infested storage lockers is preferable to sorting out the winners and losers in their portfolios.
  • Google Trends data shows the rate of decline in the search for “Stock research,” and the decline since 2006 looks like some fast-decaying radioactive isotope.  Interest in the term saw a 50% reduction from 2006 to 2008, and a further reduction of like amount since then.  That essentially means that searches for the term now sit 75% lower than just six years ago.  By contrast, the search term “ETF” is exactly where it was in 2006, which may sound like a pyrrhic victory save the tough investment environment of the last five years.

It is, however, too soon to put the stock research business in the same receptacle as buggy whips, road atlases and the yellow pages.  First of all, brokerage firm analysts are the single most efficient billboards available for those companies’ thought leadership in a given sector. An analyst that “Shows well” to the firm’s investment clients and corporate customers is still a valuable franchise.  How else do you think all those management meetings come to be in the first place?

Even outside the narrow confines of brokerage research, enterprising independent analysts are remaking the single stock research game along a new set of parameters.  And some that aren’t so new, but have fallen into disrepair.  Some examples here:

  • Quantitative data sets and surveys.  When I first started as a stock analyst at First Boston in 1991, my mentor was a 20 year veteran named John McGinty who covered the machinery sector.  Every quarter he would call all the Caterpillar dealer around the world – there were about 350 at the time, I believe – and ask how business was going.  Sales trends, inventory levels, and the like.  He published the findings, which were always well received since no one else did the work. 

    The world has moved on a bit since those surveys.  Many U.S. listed companies take a dim view of analysts calling their store locations – even those that are franchised - or trying to wheedle information about of mid level executives.  And the Securities & Exchange Commission looks on such leaks with an equally discouraging eye. 
    Against those forces of containment you have the expansive push of technology.  Credit cards companies now have purchase data for hundreds of millions of consumers.  The Internet makes certain business models – think online booking of airplane tickets – entirely transparent to anyone who can ping travel websites every hour and look up the average seat cost for every flight.
    When you dovetail this newfangled way to collect information with an increasingly computer-based trading architecture in the U.S., the future of stock research and analysis comes into sharp focus.  While quantitative investors and high frequency trading operations currently have remarkably short-duration investment holding periods, there’s really nothing in their platforms that limits them to 15-second periods of stock ownership.  As more data about consumer spending and behavior goes online or into corporate data centers, that information will be sold to Wall Street.  It’s already happening.

  • Narrow industry focus/select distribution.  At ConvergEx we have a robust business promoting select research providers to institutional clients, and in this particular area the single-stock analyst is still welcomed – on their merits – into the investment workflows of hedge funds and long-only shops.  Prospective clients want to see a small client list (less than 20 is ideal), a definable edge (usually in health care or technology) and a strong compliance process.  Connect those three dots, and stock research is still alive and well on Wall Street.  The downside: those are three hard-to-connect dots.
  • Novel sourcing.  Imagine that you have a lead on a great investment opportunity in West Africa -  a new group of highly experienced mining professionals for the region has identified a promising new diamond field.  How do you tell if the managers are on the up-and-up?  You hire a team of ex-CIA and British intelligence officers to check it out.  In less than a week they can ping their resources in the region and given you a written report detailing everyone involved in the venture.  Where they went to school, any history of corruption, the whole ball of wax.  This won’t assure success, of course, but it does limit the possibility of fraud.

In short, stock research will make a comeback, and that return journey will likely come from two directions.  The first will be technological.  Any product that can systematically deliver quantitative business information in real-time to the increasing legions of automated trading systems and algorithmic investors will grow.  The second path is more cyclical in nature.  I can’t but think old-school stock research, with sector analysts, is ultimately tied to the fortunes of the equity market.  When those recover, interest in stock picking will as well.  And for analysts and stock market investors, that inflection point cannot come too soon.

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reader2010's picture

Where have all those flowers gone? Remember Mary Meeker?

GetZeeGold's picture



Evidently someone does......and just junked your ass.


Hi Mary! Where ya been?


markmotive's picture

It's a marketing game. 

Will your favorite portfolio manager see the crash coming? The answer is 'no'.


mharry's picture

Vampires sucking the suckers to death, if only they knew.

ebworthen's picture

The markets involving humans aren't coming back without the jailing of CORZINE, the return of structural career employment, and the death of skynet (...and sound money, and the end of trillion upon trillion of debt and unfunded liabilities and...).

Now gambling - that being the second oldest profession in the world - will still be around.

Temporalist's picture

I'm pretty sure the second oldest profession is politician, or is that encompassed in protstitute?

CCanuck's picture

Not sure that they are Ho's, cause it always feels like the politicians are Fuck'n ME! and not in any manner I prefer.


zhandax's picture

Explain the difference.....

TWSceptic's picture

Even though I voted up, I can imagine this being offensive to prostitutes.

GetZeeGold's picture



Prostitutes are far more noble than stock gurus....at least you get what you paid for.


With equities analysts you get screwed.....but it's not the good kind.


I am Jobe's picture

Stick Gurus and Marriages are the same- Both will screw you over. Better to be single and live life. Screw the old notion of marriage and crap. Agreed about the prostitute statement.

rocker's picture

Exactly right. The Bankster's Scam continues on. Price is NOT truth. The HFTs, Goldman, JPMorgan Barclays along with other fraudulent banks rig it all.

The Banksters control interest rates, comodity prices and equity prices. It is all rigged and manipulated to be whatever price they want it to be.

Ever notice how short interest gets high and then the markets ramp up while nobody is actually buying anything. Where the hell is the SEC.

They front run all honest trades and then manipulate price to make it a bad trade. Unbelievable the worst I've seen in thirty years of trading.

I quit long ago. Own some PM's bought three or more years ago and thats it until it has a honest real crash. Let them steal somebody else's money. 

Dark Pools own the markets from this date forward. We no longer have investable markets. It's Gone Forever because nobody wants to fix it.  

caerus's picture

the death will be slow and sorrowfull

CCanuck's picture

The death will be slow and Sorosfilled.

Fixed it for ya

cranky-old-geezer's picture



What good is equity analysis anymore when traditional factors of value don't matter anymore, when stocks rise on central bank money injections and nothing else?

What good is equity analysis anymore when stocks rise 30% on central bank money injections while the currency those stocks are priced in loses 30% of it's value, leaving the investor with no real profit?

Equity analysis must have a stable monetary base to be worthwhile.  The printing press must stay off.


Oh regional Indian's picture

"In short, stock research will make a comeback, and that return journey will likely come from two directions."

Dream on. It's like saying that well designed cars and girls with even a modicum of shame or men with at least a dollop of masculinity will return.

OVER. At the end of this shit-show is a wreck. Being in or out of it is a choice.




l1b3rty's picture

But you might need something tangible...

Get Free Silver @ Silver Liberation Army

oldmanagain's picture

The current econ/market thinking is symtomatic of a headwind little understood.  Trying to cope with old tools, and inadequate theory, fighting to save old myths.


Look who is blamed.  Bernank, and other things they know little of. Voicing the cure of returning to what got us here.  Their defense against declining resources, cheap money, unbalanced wealth, is to buy another a shotgun or tank.


Your ignorance is your real enemy.

Kreditanstalt's picture

"Storage auctions"??   WTF??

Obviously everyone is in a desperate search for supposedly-underpriced assets - if any such still exist in a ZIRP world...

Just like the fools buying real estate now.  Eternal optimists.

Sudden Debt's picture

everybody expects to find 10k in each storage box and also thinks that in every box there are precious antiques or other second hand stuff.
the series looks funny but it's looking in the trash, nothing more.
so now we've become a society where people prey on other peoples junk and hope to sell it. clearly a lot of people buy second hand stuff also so that's even another story.
my god... what's next? golddiggers? crab fisherman? no... not the last one, that looks like real work.

zhandax's picture

You talking about common golddiggers or people who actually put shovel to dirt?

Sudden Debt's picture

i'm talking about the kind of golddiggers on television who have no clue about what they're doing but hope to strike it rich in a month and who are totally bankrupt if things turn for the worst. look at the anger those guys have!

and than you have your generational golddiggers who work like beasts and who are succesfull and who think working hard is normal, and yet, they're not interesting enough to put on the show.

I am Jobe's picture

Next Facebook Posting which is vlaued more than anything than u have imagined. Friends you did not you knew and posting on FB will payoff .

slewie the pi-rat's picture

"The second path is more cyclical in nature.  I can’t but think old-school stock research, with sector analysts, is ultimately tied to the fortunes of the equity market."

tyler has put up several pieces about high cross-asset and cross-sector correlation saying that it's gotta change, too

ZIRP = flat = 1

altho this may not end well, it ain't over yet, BiCheZ!

everybody take the week off;  with pay 

Confundido's picture

The irony of this all is that the same stock analysts who tell you they would never invest in gold...would do wonderfully under the gold standard...for only under this standard, do relative prices matter in terms of productivity, of fundamentals of the assets. Only under the true gold standard, where Wicksell's natural rate of interest could be observed, would we need stock analysts to outperform. The rest, will only be a waste of time and will depend, with greater or lesser degree on the leveraging of the system and its counterpart: correlation.

Lebensphilosoph's picture


I've been enjoying visiting left-wing sites to see the outrage over the Supreme Court's recent Citizens United decision. I'm particularly struck by one recurring trope--that the decision places the country squarely on the road to fascism; see, for example, the Huffington Post, but an internet search using the terms "Citizens United," "Supreme Court," and "fascism" yielded some 86,000 hits. Yes, I know that the whole "fascism-as-capitalism" theme was pushed hard by the Communists in the 1930s and 1940s, but it surprised me that marginally intelligent people believe it today. In fact, big business barely existed in the semi-industrialized economy of Mussolini's Italy, and it didn't fare well at all in Hitler's Germany. In fact, a couple of recent economic histories of Nazi Germany--Adam Tooze's The Wages of Destruction and Goetz Aly's Hitler's Beneficiaries--show how corporations were subjected to bureaucratic micromanagement, constant threats of expropriation, or imprisonment of their managers, and, in particular, crushing taxation. Aly points out that, from 1933 to 1939, the only tax that the Nazis significantly increased was the corporate income tax, which reached 60 percent by the final years of the war. Much of this, it should be added, went to fund a cradle-to-grave welfare state.

So where is the line about "corporate fascism" coming from? It seems that many of them have hit on this alleged quote by Mussolini: "Fascism should more properly be called corporatism because it is the merger of state and corporate power."

On the surface this would seem to be pretty damning; however, there's no evidence that Mussolini ever said it. A reading of his most important writing, "The Doctrine of Fascism", yields all sorts of references to a "corporative" system and a "corporate" state, but he clearly wasn't talking about business organizations. Rather, he was claiming that the role of the state was to play a harmonizing or balancing role among the various interests in the nation. In other words, fascism looks a lot more like progressivism than it does anything the Roberts Court mentioned in Citizens United. At the very least, the willingness of the Left to make such breathless claims gives the lie to the accusation that Tea Party-types are uniquely prone toward hyperbolic Hitler comparisons.

Lebensphilosoph's picture



MeelionDollerBogus's picture


Fascism IS the corporate merger with the Nation State, PERIOD. Mussolini invented it and that's HOW he invented it.

Marginal Call's picture

Not that I disagree with the overall sentiment, but nobody (outside of 33K idiots) researches stocks by googling "STOCK RESEARCH".  While "storage auctions" is a clear cut search description people looking for analysts or brokers can use 20 different search terms.

Diogenes's picture

Millions have been forced to pull their investment money out of the market because they lost their jobs, their houses, their businesses, or they needed the money for their children who have also been driven to the wall.

Down to their last few hundred, or thousand dollars, they look around for a way to make a buck. On TV they see storage auctions, pawn shops, why not give it a try?

Next stop, scavenging for recycleable scrap.

MeelionDollerBogus's picture

It's probably more profitable more often to re-sell stuff left for junk that's actually good quality tools, gold, silver, jewelry and furniture. You still can't be a dimwit in picking and you need capital to invest (time & dollars) but you don't have someone DELIBERATELY falsifying the valuation (stocks, financials in particular) and the markup is WHAT YOU CHOOSE. You want a higher mark-up then DO NOT over-bid. It's that simple.

Diogenes's picture

Fascism = national socialism. Communism = international socialism.

MeelionDollerBogus's picture

I don't think you know what that word means.

Fascism is CORPORATE governance merged into the Nation State. It is not ANY kind of socialism.

Socialism is NOT corporate control of any sort, it is the collective action of the people, PERHAPS with a government, PERHAPS without, PERHAPS CENTRALIZED, hopefully NOT centralized.