Beginners Education: What Analysts do
Every results season, for the whole month of February and again in August, it is the job of broker analysts to analyse the stocks that announce results and it is purgatory. Poor brokers. Here’s why.
In order to be competitive, at the very least, on the announcement of an important company result the big broker analyst has to hit the biggest institutional clients straight away with a crisp and accurate analysis including an action recommendation that generates an order that makes both them and the client look very clever by the time the stock opens the next morning.
On top of that the analyst has to verbally brief the whole of their dealer group with a similarly accurate, informed and hero making opinion that their dealers can disperse rapidly down the phone lines in the pursuit of even more first-mover inspired salary justifying orders. And all before the competition do the same thing.
Then the analyst has to tune into the analyst’s conference call with the company, furthering their brand through the teleconferencing protocol which includes stating your name and institution and asking brilliantly insightful questions you already know the answers to and that your future employers, who are almost certainly listening, might be impressed by. Then, in less than half an hour, the analyst has to put out a written summary of the results that further carries their brand and brilliance to the inboxes of the whole industry.
At the same time, if they want to remain employed, their opinion musn’t jeopardise any relationships their broking house might already have with the company itself and, if you know which side your bread is buttered, actually furthers your relationship with the company just in case they have a corporate deal for you sometime in the future.
And finally, amidst the constant barrage of client and dealer questions and even a visit or two to the biggest client’s offices to brief their analysts they have to write a fresh and original twenty-page piece of research for the next day’s morning note that will “stands out” from the other broker research after it is proofed and submitted by the research editor’s deadline which resides somewhere between closing time and 4 am.
And that’s if the analyst only has one result a day. Some analysts get two or three a day. On the biggest day of the results season, there are twenty top two hundred results all of which have to be digested, analysed and regurgitated before the research is sent out at 6 am. Good luck getting home that day, week, month. “Dinner’s in the dog” is a great “Welcome Home” post-it note when you’re busting your arse bringing home the bacon. Tough stuff.
But before you pull out your violins, imagine doing all that and getting it wrong. Imagine what it’s like for an analyst running with a buy recommendation when the results are terrible, or a sell recommendation when the results are great. There’s standing out and there’s standing out for the wrong reasons. Get it wrong and you’ll be pushing research out at 4am in a cloud of shame. Your dealer group will abuse you for their lost goodwill, the corporate department will send you to Coventry forever, the clients will drop you for your lack of value and your competitors, and potential employers will rejoice in your misfortune. Is it any wonder forecasts hug the consensus? In a broker, each broker world just remaining a broker is sometimes reward enough. Survival is a bonus.
So spare a thought for the brokers as you read the research this month. You have the luxury, in the clarity of the morning, on a full stomach, after a good night’s rest, with the power of hindsight, in the context of multiple opinions, of casting judgment on a professional, under a lot of pressure, with an empty stomach operating at 4am in the morning whilst their dog sleeps at home, bloated by a well-done rump steak. They’re a tough breed those broker analysts, in a dog eat dinner world.