Tuesday, October 03, 2006

Hope you're sitting down

A friend pointed out this article from Bloomberg today on accuracy of analyst stock calls. I like the reference to the poor senior Wall Street analysts having to try to get by on $600k per annum, as against $1m on average six years ago. I personally would love a chance to muddle through life on "only" 600 grand - I think I could just about manage - I might even buy a new bicycle. (Author's note - in case the irony above has not been clear enough, I am paid very spectacularly less than this figure.)

Anyway, here's the "there's no justice" aspect to the story. On the Bloomberg terminal version of the story (and in the brand-new edition of Bloomberg Markets magazine), there is an attachment which actually lists the most accurate 20 stock pickers in investment banking research according to the survey, based on an analysis of calls made by 2,500 analysts on a sample of 200 companies over the period August 2004 - July 2006. Judging from the .jpg I ripped, I appear to be one of them, as does my boss David Stedman. Suffice it to say that this has generated much interest internally, where I am, ahem, somewhat misunderstood.

UPDATE: I have to confess to being excited and bemused in equal measure by this news.

On the one hand, I love the idea that a two-year number-crunching exercise compiled by a trusted source of financial data has yielded a result which gives Daiwa 10% of the top 20 analyst slots, especially in light of the fact that the brand name Daiwa is usually associated outside Japan with fishing rods (this is an unrelated company). Among all the esteemed names appearing on the list, Deutsche Bank is the only other company which appears twice. At first it seems counterintuitive, but hell, if it's good enough for the mayor of New York, it's good enough for me.

On the other hand, this strikes me as almost surreal, given the reality underlying it. European equities are a very small part of the overall Daiwa business, and accordingly, we are a very small department. An outsider looking in might say that we are woefully underfunded, under-resourced, and pretty much unloved internally - and I would probably have to agree with them. My boss David and I are one-man shows, like all of our analyst colleagues. None of us has any support - no research assistants, no junior analysts, no specialist sales. Compared to most of our competitors, we wouldn't seem to have a chance in hell of differentiation against all the noise they can generate. Then again, maybe this survey suggests that noise doesn't have that much to do with it.

Then I look (via the webcast) at the mass of people who made the trip all the way to Milan for a four-hour Vodafone presentation today, and I think about the expense (travel, accomodation, office premises, IT, production, compensation, deforestation [why must brokerages continue to print research?]) incurred in supporting the conventional sell-side research effort, and I have to say that I am more perplexed than ever about the rationale for this industry to continue to exist as it is now. I guess someone will sort all this mess out.

No comments: