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Interesting ER Article
 

TOB2020's picture
 
Points)
 on 7/12/12 at 8:02am

http://www.bloomberg.com/news/2012-07-12/jpmorgan-...

"One growing and unheralded role analysts play is in connecting their buy-side clients to managers of the companies they cover through meetings, conferences and field trips. In one recent high-end excursion, an analyst signed up 15 top clients, chartered a plane and took off to meet with executives at half a dozen companies in the course of a few days. One buy-side firm paid the analyst more than $100,000 in trading commissions for the trip.
The face-to-face meetings are the latest offering by an industry hurt by a poorly kept Wall Street secret: Its traditional buy-sell-hold recommendations get scant heed from investors."

Any truth to this statement or overall thoughts on the article?

Note: I am not currently in ER but interested in moving into it.

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jb7049's picture

This is somewhat true. True

 
Points)
 on 7/12/12 at 9:13am

This is somewhat true.

True in the sense that buy/hold ratings and price targets from sell side analysts don't mean dick to the buyside. I know a lot of analysts...and any of them that are honest will tell you that they game quarters and pretty much hug the pole in terms of not being too far from consensus (they all read each others' reports btw).

I suspect many investors use the sell-side to get access to management. I work at a shop that is big enough to get our own meetins, which I prefer because I can set the agenda. The value of sell-side trips is that they can organize meetings with 8-10 companies on the same trip, which would be nearly impossible to do as a buysider b/c of scheduling issues with the company. They're more willing to accomodate a group of 15 as opposed to 1 investor....unless you are already a shareholder and then its pretty easy to get face time with the CEO/CFO etc.

$100k in commissions isnt a lot for an established firm.

Stephens does the private plane trips all the time. They have their own jet for this exact reason.

hoodinternet's picture

I always thought this was the

(Baboon, 123
 
Points)
 on 7/12/12 at 9:54am

I always thought this was the whole point of ER, to be a middle man between management and institutional shareholders. Smaller shareholders get access to management and can ask questions to gain an edge on the competition, and management can find out what shareholders are thinking. These in person trips are just a way to express this relationship in person, but this stuff happens all day over the phone.

jb7049's picture

I can assure you small

 
Points)
 on 7/12/12 at 10:00am

I can assure you small investors aren't the ones getting access to management...

Management (most) really only care about what the top shareholders think and maybe some large shops that could be potential investors...

Sell-side guys are an inch wide and a mile deep...buyside is mile wide and inch deep. Sell side is a good resource for us to get up to speed quickly on relevant issues with one of the hundred or so companies we are resonsible for in our sector. Because they cover 10-15 companies extremely closely, they have a better grasp on the intracacies (that doesnt mean they are better investors...but generally they are better analysts).

That's my $0.02

valiant7002's picture

jb7049: Sell-side guys are an

O
 
Points)
 on 7/12/12 at 10:29am
jb7049:

Sell-side guys are an inch wide and a mile deep...buyside is mile wide and inch deep. Sell side is a good resource for us to get up to speed quickly on relevant issues with one of the hundred or so companies we are resonsible for in our sector. Because they cover 10-15 companies extremely closely, they have a better grasp on the intracacies (that doesnt mean they are better investors...but generally they are better analysts).

Can you explain the difference?

jb7049's picture

As a buyside analyst - you

 
Points)
 on 7/12/12 at 11:07am

As a buyside analyst - you are typically assigned to a sector group with a few other analysts and the industries are split up. So maybe you are in the Technology Group, but you cover Semiconductors, Infrastructure Software, Componenents and Displays....That's a lot of companies!! Particularly if you are an all-cap global manager. One analyst can't possible know every little detail about all those companies nor do they talk to them on a regular basis. He/she probably follows industry trends and closely follows the companies he/she owns.

Sell-side, on the other hand...there is typically one analyst per industry. So there is one guy at Goldman...Morgan Stanley...whatever...that covers semiconductors. He spends all his time talking to the companies...industry experts...on the model. Actually in truth...the associate does most of that and the analyst spends his time marketing/talking to investors and companies.

buyside---mile wide...inch deep
sellside ---inch wide...mile deep

valiant7002's picture

Thanks for the

O
 
Points)
 on 7/12/12 at 11:15am

Thanks for the explanation.

So what makes a buy-side analyst a better investor than the sell-side analyst? The fact that he has more options (and more potential good deals) to choose from?

jb7049's picture

This is my opinion... Because

 
Points)
 on 7/12/12 at 11:27am

This is my opinion...

Because the buy sider is an investor....he's experienced losses....he's experienced big gains...

The sell side analyst isn't investing...he's selling a product to buyside investors.

And the sell-sider plays a relative gain. They have to have a certain # of their coverage buy rated at all times. Ever see an analyst that has a sell rating on every single stock he/she covers? No. Even when the industry is at the peak and valuation is stretched and investors shouldnt be buying anything in that coverage area? No. Because they need to generate commission for their firm.

A true investor, in my opinion, has a differing perspective.

Go back to 2002 and read sell-side expectations for oil prices. No one on sell side wanted to go out on a limb and put themselves out there to be laughed at.

On the buy side...there are plenty of examples of guys that called for $50/bbl and more because they did their homework and saw rising capital intensity of wells combined with severe decline curves.

I'm off topic now...so I'll end it

Shorttermbuy's picture

Yes - this is called the

ER
 
Points)
 on 7/15/12 at 1:18am

Yes - this is called the corporate access service that the sell-side offers to the buy-side.

For instance, if a buy-side client wants to visit oils & gas companies in Asia to get some updates on his sector, his broker will customize a company visit trip for him throughout say, Thailand, Japan, Korea, and Taiwan to meet with the managements of companies involved in the supply chain - drilling, refineries, etc. Of course, this is a very high-touch service and its only offered to big clients that have a lot of trading commissions or pay a lot.

Clients don't really care about buy, sell, or neutral ratings. What they value is getting industry insights/information or connecting them with people that have, eventually helping them make better investment decisions. Usually these come from the sell-side analysts' industry contacts, and clients are willing to pay more for it.

Its much more differentiated and value add compared to your typical equity research report.

Just think about it, if you are the 45th analyst to write a buy on Apple, its a useless report - seriously.

But if you can take a client to visit companies in their supply chain in Asia to get insights on the hardware specs used for iPhone 5 (or whatever) there's a lot more actionable items you can learn from that trip.

===========

I'm also working on a project to give people insight into the sell-side, would love to have your input in a short 20-s survey:

http://www.surveymonkey.com/s/F8SBV9K

tiger2012's picture

Sell-side is all about access

ER
 
Points)
 on 7/17/12 at 11:00pm

Sell-side is all about access to management, especially at the BB level. There are some independent boutique (what does that even mean these days) sell-side shops that provide more contrarian research but they are few and far between. Unless they have a small brokerage arm its not worth throwing them in the same bucket.

There is definitely pressure to not stray too far from consensus estimates and a sell-side analyst has to really dislike an company to put a sell rating on them. Neutral/Hold is usually as mean as an analyst is willing to get. Any worse than that and all of a sudden management isn't picking up your phone calls (main source of value-add).

bearing's picture

I think this is the first

ER
(Neanderthal, 2,082
 
Points)
 on 7/20/12 at 2:42pm

I think this is the first time the author of the article heard of a "non-deal" roadshow. Look at any II, Extel or Greenwich survey and one of the key criteria is "access to management".

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