I've seen multiple people on this site state that 90% of the ER reports they read are shit. Can anyone explain the reasoning behind the shit status and what puts a report in the top 10% as opposed to the bottom 90%?
I would've asked the members who said it but the original threads were a bit dated.
A lot of reports have inherent problems associated with them: 1) A lot of them just echo what management says, so it becomes biased 2) Since many research houses are integrated departments within IBs, often times you have (at least indirectly) pressure to "talk-up" sectors since the real money for the bank comes from the transaction work (IBD) 3) Even if you are an independent research house, there still is some conflict simply because one of the biggest value-adds for clients is the corporate access to company management, thus you have to think carefully as to what you write since some indirect bashing could shut you off for a bit. 4) Many buy-siders also argue that the sell-side guys simply don't think lie investors (i.e. are not really good stock-pickers), however and don't really buy this argument given that it's not what the sell-side researchers are meant to do. Obviously it's a nice addition to your research franchise, but by no means a make or break deal. 5) Reports might be quite superficial in nature - i.e. just providing some data points (latest macro data etc.) without actually doing much analysis or interpretation of said data
Finally, it is generally quite fashionable to bash the sell-side researchers - normally because of the lack of understanding of the role they play in the industry.
I hope from the above you can sort of get a feel as to what makes a good or a bad report. Use Google and find some PDFs of reports from different houses (part of IB vs. independent boutique) and you'll likely see the difference instantly. The integrated within IBs departments are much more about over-the-phone service than putting the information out on paper.
Interesting, thanks for the feedback! Given the above points, can you elaborate on the role sell side analysts play in the industry? How does ER stay relevant if 90% of published reports are BS?
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