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Street Research Unoriginal, Opinions Similar

Not only is the Street myopic, it is also unoriginal. Everything the Street now publishes or communicates is excruciatingly reviewed for approval. Although research may now be more credible, it is hamstrung, emasculated, and diluted. Pithy, original, or controversial content is difficult to communicate to investors. Analysts run in packs and find standing alone to be uncomfortable. The Street tends to have similar opinions on most stocks. Analysts identify and underscore the macro industry trends in the stock groups covered, which puts them all in the same boat. If the sector is in favor, almost all of us recommend just about every stock. We love a stock when fundamentals are healthy, regardless of excessive valuation. The same is true of the negative side. After major disappointments or shortfalls, we all belatedly change over to negative views. There is little uniqueness or willingness to stand alone from the pack.

Further diminishing the relevance of brokerage investment research and opinion ratings is that research reaches individual investors late. Analyst contact priorities are the sales force and traders, then the press. Stocks react when events occur and news breaks. The analyst first jumps on the squawk box and makes comments to the sales force. Traders get a call about the same time. (They’re not supposed to be first, but sometimes they are.) After returning phone calls from institutional sales, the next priority is the press. We love to see our remarks running across the Dow Jones newswire—and Bloomberg, Reuters, and the next day’s New York Times, too. Then we might start chatting with the key institutional clients like Fidelity. By the time most investors hear of or read our research views, it is way late. Its tardiness renders it worthless for near-term trading. Individual investors are low in the analyst’s pecking order and need to treat Street research accordingly.

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