research-definition

A Reminder: This Research Report Is Not Research

I published this a while back, but in light of all of the opinions forming about Facebook I thought it wise to review some of the practices embedded among the Wall Street wirehouse firms, specifically regarding research…

A friend of mine sent me a report from a Big Name firm a few days ago entitled “On the Markets.” His email said, “Tell me what you think.”

I’ll describe the report. It’s 16 pages long, filled with pretty charts and graphs from really smart people. It’s really quite an attractive publication. But after that, it requires some real reading. Not of the actual report itself — that was rather mindless; let me explain.

For all of the recommendations & observations that are made in Wall Street publications it’s what you need to read between the lines that’s the most crucial.

See, the way most of the big banks are set up they have an equally impressive bench of bears & bulls. This is not an accident. Depending on what foot the bank wants to insert into their mouth, they selective pull from their analyst/economist/strategist quiver whenever the markets are towing the line of whomever is right (or will resonate) for the day. They’ll pick some strategist or analyst that pretty much known as an uber-bull, at least internally. And each time the market drops 2% in a day, this strategist will make the media rounds talking about how overdone things are, and how we could see some (in)conceivable year-end rally (it’s always a year-end rally call, the analyst’s Hail Mary).

Then clients and advisors can point to the talking head to say, see told ya, we’re making the right decision to hold here.

Conversely when markets start to get frothy, there will be some missive from their uber-bear economist, sent to the salesforce about how this time IS different and modern finance as we know it is coming to an end. And then a couple of days later, after the report worked it’s way through the firm’s information pipeline, Mr. Bear will be on Bloomberg smashing softball questions about his report, and why this really could be the end.

The people and parts to this story are almost completely interchangeable. You can have your bears out when the market is crashing to get people to sell more, and your bulls out when people aren’t buying enough. Either way it’s all about activity. I’m generalizing, but the problem with all of the publications coming from these big firms is this conveniently, serially forgotten, dancing the tightrope dynamic.

One publication the analyst says “half-full”, the other “half-empty” and quickly leaking — sometimes only days later, as Josh Brown pointed out back in November. And all the while, the bank makes money on any movement of the pile cash they are custodian for. The Interloper has some great insights to the institutional side of this dance.

The point in either case, with retail investors or institutional clients, is to get you to do something, anything, or at the very least fill your head with mantra-like talking points (Insert: “buy when there is blood in the streets”, “overdone”, “compelling valuation”) for why the market is doing what it’s doing.

Think of the talking head from the big banks as an ambassador, to virtually hold your hand via the nightly news — while everyone else from the firm is busy picking your pocket. That’s not to say your advisor (or all advisors) are evil, it’s just the way the system works. They’re culling through the same piles of research alerts not sure who to trust either. Add to the fact that these firms have armies of 18,000 advisors, and you can pretty much bet that no one is getting a consistent experience from the firm. Some advisors are like Wile E. Coyote, others are completely short the market, while others are completely long, telling you just to hold on a bit longer. That’s not to say everyone should have the same approach or opinion, but once you start working under the same roof, it sure might be helpful to ensure clarity for clients. But at least we have these reports from the firm… Ah yes, the report — On The Markets…

This particular report was written by a Chief Investment Officer, Chief Investment Strategist, and Deputy Chief Investment Officer, 3 different Equity Strategists for the US, Europe and Emerging Markets, a Chief Fixed Income Strategist, a Chief Municipal Bond Strategist, etc., etc.

Yep, after you fill your head will 14 pages of world-class charts and their newly-pressed Helvectica font instead of the now stodgy Times Roman, that’s when the really heavy reading begins. Not the 14 pages of delicious company stew, but the disclosure pages — two full pages of them. Written by world-class attorneys. By the way, that means a full 12.5% of the report is disclaimers…

And this was the best part of replying to my friend. Highlighting this line buried in the disclosures…

This is not a research report and was not prepared by the Research Departments of TBTF & Co. LLC or TBTF Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at TBTF, LLC or any of its affiliate companies.

So, what is it then? “I guess it’s just fun reading.”

10 thoughts on “A Reminder: This Research Report Is Not Research

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  3. b2k

    not to defend this, but you can thank a lawyer for this luke-warm type of “research”.  Securities litigators have effectively neutered investment firms from taking too strong a position.  Now the incentive is to hide right in the middle of the consensus, just to do the best for clients while not exposing themselves too much to lawsuits.

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  5. An Objective View

    Used to be an advisor at “TBTF & Co. LLC” (hilarious btw), This article is spot on. 

  6. Anonymous

    A bit of catch-22, don’t you think? If the securities industry hadn’t done so much to push the envelope in 2000 with strong buys to get more investment banking business, maybe the lawyers wouldn’t have had as much ammo regarding research. 

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