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
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

• Want to Short China Now? It’s Not Too Soon, But Too Late
• Credit Suisse Is Bearish On Chinese Banks
• Scrambling To Sell Properties: Wenzhou Edition
• Is China The “New Dot-Com Bubble”? Martin Wheatley Thinks So
• Hong Kong Property: Scramble To Sell?
• Quick Europe Update: Sell-Off, But Not Panicky Enough
• Santa Claus Rally 2011?
• Want to Ban Short-Selling? How About A Buy-And-Hold Ban?

Read more: http://feedproxy.google.com/~r/AlsosprachAnalyst/full/~3/XSiIBaOK8KI/hats-off-to-sell-side-analysts-who-have-the-courage-to-be-bearish.html#ixzz1dPwFMUh4

Investor Relations: What’s On Your Content Checklist

November 4, 2011

____________________________________________________________________________________________________________________________

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