Hats Off To Sell-Side Analysts Who Have The Courage To Be Bearish
Reposted by PrecisionIR. To view full article, visit http://read.bi/sAKLuh
Sell-side analysts’ job is to generate ideas for their clients, mostly institutional investors, so that they would trade with the banks and the banks can generate revenue from those trades. Thus the truth is that the incentives for them to generate ideas that sell is probably going to be greater than to generate ideas that are right.
Thus most of the time, it is actually harder for analysts to be bearish. After all, all investors can buy stocks regardless of whether they have owned it or not, but only investors who have those stocks already can sell, unless you are a hedgie. Bearish views seem to be invariably less popular than bullish views, perhaps because human being is naturally optimistic (?), so that the consensus is more often positive than negative. Being bearish is often a lone voice, so it seems.
Mike Mayo of CLSA, who has criticised US banks for a number of years, wrote a book which is recently out, called Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves. Wall Street Journal published an excerpt of it, which says:
Analysts are supposed to be a check on the financial system—people who can wade through a company’s financials and tell investors what’s really going on. There are about 5,000 so-called sell-side analysts, about 5% of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of more than $15 trillion.
Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners.
To complement that, I would recommend and excellent post here on sell-side over-optimism, which says some, I would say, sad truth about analysts who are more interested in getting their calls right:
It follows then that the career risks in being bearish and wrong far outweigh the benefits of being bearish and correct. The experience of Quant Strategist Richard Bernstein while at Merrill Lynch in the 1990s is instructive here, illustrating the importance of timing. (For the record, Bernstein is my pick as the best strategist alive, but thats a story for another day). In 1997, Bernstein stridently made the case that technology stocks were drastically overvalued, in a bubble, and poised to fall more than 50%. The trading floor and investment banking departments were understandably displeased that their strategist dared to step in front of the money train, and struggled to explain away the conclusions while the steady conveyor belt of .com new issues (the true high margin cash cow of the industry) remained 400% oversubscribed.
By mid 1999 there were rumors that Merrill would replace Bernstein with a more malleable Abby Joseph Cohen “buy at any price” clone. Ms Cohen had assisted Goldman in generating steadily higher market share in tech stock trading and underwriting with a relentlessly bullish, “tree will grow to the sky” outlook for the industry. This outlook, supported by 60-slide presentations outlining future growth, helped portfolio managers assuage their anxiety over insane valuation levels and allocate more of the oceans of client funds coming through the door into the most overpriced market darlings of the day – Cisco, Intel, Oracle, Amazon, Yahoo!, Microsoft and the whole host of hot money hangers on. The 8:00 calls from Goldman institutional sales people were much easier and more profitable to make than for their counterparts at Merrill (although admittedly Blodgett helped offset the difficulties). Ms Cohen was made partner just as the implosion began, again, not because of prescience but because of successful, commission-generating cheerleading.
So, hats off to those sell-side analyst who have the courage to be bearish while most others aren’t bearish, because that’s mentally exhausting.
This article originally appeared here: Hats Off To Sell-Side Analysts Who Have The Courage To Be Bearish
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Investor Relations: What’s On Your Content Checklist
November 4, 2011
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Media-rich content that increases interaction and interest of investors
Did you know that most companies play at least some role in investor targeting? Investor relations professionals thus play an important role in attracting new capital, maintaining liquidity and ultimately growing shareholder value. In today’s highly volatile markets, this effort has become a greater challenge, requiring a tool set that equips the IR professional to identify and engage institutional investors, often before a competitor does and with a more compelling story.
According to “Global Roadshow Report 2011”, published by IR Insight, the research arm of IR magazine, 33 percent of survey respondents do their own investor targeting. Thirty-seven percent use the sell side, while 30 percent either use a combination or have no preference.
Translation: close to two-thirds of IR departments (using the study as proxy) have at least some role in investor targeting.
This is particularly prevalent in companies around the world with market capitalizations of below $5 billion, where 44 percent of respondents indicate they do their own targeting. There is a salient need in the IR community to master targeting in order to reap rewards of liquidity, engagement and shareholder value growth.
And the key to this, in part, is content. Yes, content, the stuff you hear marketers jabbering about these days.
In order to attract interest in your company, you need to put a compelling case together. Of course, this isn’t news to anyone in the IR space. From earnings calls to the annual report – and lately social media – IR departments around the world have been looking for ways to develop and communicate a story effectively to potential and existing investors, be they retail or institutional.
One of the IR products launched this year, Bloomberg Markets Spotlight, by PrecisionIR and Bloomberg Markets magazine, got me thinking about this. The product provides a company with a standalone website that can be used to house IR content and promote it as a single, consolidated source. But, what do you put in it, or in any IR content repository, for that matter?
I spoke with Bob Maguire, President of PrecisionIR Group about this issue. Rich media, he notes, is becoming increasingly important to consumers of IR content. “Shareholders and analysts don’t just want to see what a CEO or CFO is saying: they want to see the CEO or CFO. Video, for example, provides the physical cues that are normally available only at meetings, conferences and roadshows.”
To get more out of IR content, Maguire suggests the following:
- The basics: Of course, you should include earnings reports, annual reports and the other staples of investor relations.
- The details: Bring in roadshow and investor conference presentations, as you may be able to extract more value from the investments you’ve made in them by making them available to a larger audience.
- Rich media: Have you interviewed your CEO or CFO lately? Do it! Record short videos that you can release from time to time in order to help investors not on your roadshows begin to form a personal connection with your company’s C-suite.
- Online events: There are alternatives to the traditional roadshow and investor conference. Host a webinar, which you can list as an event in your IR content repository. In addition to driving investor interest, you’ll also have more content that you can use to engage the investment community asynchronously.
Content Is King: that’s not just a marketing mantra anymore. IR professionals need to take a keener look at producing content in order to engage the investor community. As part of this effort, packaging it into a unified environment can facilitate future engagement, as it’s much easier to have a single source than to push content into the market one disparate piece at a time.
The cohesive, rich content environment can be used as a targeting tool, both to gather information and to provide insights into your company to the audience you want to reach. Bring the right people to your IR content center, and they will have all the resources they need to digest your company’s story.
For more information, inquire at www.bloombergmarketsspotlight.com/learnMore, or contact Diana Taylor, B2B Marketing Manager, PrecisionIR Group.
Written by: Tom Johansmeyer, Group Marketing Director at The Cross Border Group, New York, NY
The Importance of Social Media in IR
Like it or not, social media is here to stay. While social media is at the forefront of most product marketing and communications activities, it is still trying to find its legs within the IR space. There have been a number of articles, presentations, blogs, and Tweets around this subject matter.
The goal of this page is to provide you a summary of that research and leave you with a better understanding of how to leverage social media for increasing the reach of your message and making your firm even more transparent to the investor audience.
To read and learn more, simply fill out the form below and we’ll send you a free white paper on
The Importance of Social Media in IR
Why Every Company Should Have an Individual Investor Strategy
Would you ignore an investor that owned 10 or even 20 percent of your company?
I can safely say that you would not ignore that investor. Instead, you would take a proactive stance to maintain your relationship by providing the critical information that the investor needs in order to make a smart investment.
Why then do companies ignore individual investors, when as a segment, they regularly represent 10 or even 20% of a shareholder base? The common answer is that retail shareholders take up too much time or have too little purchasing power. There are 30,000+ institutions in the world, each with significant stock purchasing power versus hundreds of millions of individual investors with far less to invest. It is a matter of resource management; as department workloads increase and budgets decline, it makes economic sense to focus on institutions with buying power.
Some companies, though, do not have a choice but to focus on individual investors. Micro and small cap companies need retail shareholders to support trading volume and share price. All too often, as these companies grow, they take their eye off of individual shareholders and devote their attention to institutions – unless they are very well known companies with high consumer awareness like Procter & Gamble or Kellogg’s.
Our view is that individual investors should always be included as a component of a company’s investor relations strategy. It is not a question of should you target the retail market but rather what is the most time and cost-effective way to do so.
HERE’S WHY:
1) The individual investor audience represents trillions of dollars in investable assets. This is an audience with global scope. The most attractive segment of this audience makes investment decisions on research and company fundamentals. Once they commit, they typically have long time
horizons and act as long term shareholders. IROs should not question the value of these individual shareholders.
2) Technological advances within the IR space have made communicating with the retail investor market far less daunting, expensive and time consuming. Digital and social media platforms offer untapped potential to simultaneously target, screen and communicate with a global audience of attractive retail investors. Analytical tools now exist to gauge the impact of digital investor outreach activities to help sharpen your
company’s story.
Our company, PrecisionIR, offers an integrated platform that enables IR departments to outsource their retail investor outreach initiatives. Our solution allows an IRO to focus on institutional investors without having to
relinquish on the retail sector. When it comes to targeting and connecting with this audience, remember that with one easy solution your individual outreach efforts can be easy and very cost-effective for your company.
To incorporate or learn more on how to add individual investor marketing to your IR strategy, please contact Scott Moody at (804) 837-6404 or SMoody@precisionir.com
What do institutional sales bring to the buy side?
http://www.insideinvestorrelations.com/articles/sell-side/18514/what-do-institutional-sales-bring-buy-side/?utm_source=ir_5top_141011&utm_medium=email&utm_campaign=what&utm_source=IR+Insider&utm_campaign=c2cfe06002-ir_5top_141011&utm_medium=email
Halliburton Investor Relations
http://www.marketwatch.com/story/raystream-retains-halliburton-investor-relations-as-investor-relations-counsel-2011-10-06
SEC Says Large Rating Firm May Have Leaked Pending Rate Move
http://www.businessweek.com/news/2011-09-30/sec-says-large-rating-firm-may-have-leaked-pending-rate-move.html
Shake Up at Bank of America
Bank of America received a big shot in the arm in late August when Warren Buffett decided to invest $5 billion into the bank. Buffett’s investment came amid fears that the U.S.’s largest bank would lose billions of dollars due to bad mortgage loans and other legal liabilities. Nonetheless, Bank of America shares rose 9.4% after the news.
However, recent and upcoming changes at Bank of America have taken the wind out of Buffett’s sails. Up to 600 branches of the bank could close, which would end up cutting around 30,000 jobs. There has also been a great deal of internal shuffling within Merrill Lynch’s wealth management, institutional investment banking, and trading divisions.
After opening at $1448.29 a share, Bank of America has fallen 2.72% to $1418.17 a share as of 3:30 today. On the bright side of things though, the market has tumbled across the board and Bank of America isn’t the hardest hit among other financials.
As Bank of America moves forward, it will be interesting to see how they manuever through this overhaul amidst their overhanging troubles.
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