Equity guys, what resources do you use for your research process?

Hey guys, so I'm currently at a boutique asset manager w/ enough AUM scale that we can afford nearly all of the bells and whistles when it comes to the research process. For instance, we have SS research (including SS requests & analyst calls which cost $$$$$), databases like Mintel, expert networks like Third Bridge, and traveling to meet with management. And using these resources and some unconventional thinking, our performance has been in the top quartile. To be fair, our research budget is nothing like Millenniums (w/ hundreds of millions a year allocated for this stuff).

However, it's made me wonder, how would we have done if we didn't have these resources? If we were a smaller shop with much less scale and had to ration ourselves to virtually no SS requests, and very little expenses on high-priced databases like Mintel. So I was curious, what kind of resources do you fundamental equity guys use on a day to day basis, and how effectively does your shop generates alpha over the long term as a function of that? Do you feel you can maintain the same performance with less resources? What is the bare-bones that you think you need to beat the market over the long term?

Comments (22)

Jan 31, 2019

hedgehog9, bummer your thread hasn't had a response yet. Sometimes bots are smarter than humans anyways:

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  • More suggestions...

I hope those threads give you a bit more insight.

Feb 9, 2019

deleted

Feb 9, 2019

They may be interested in hanging their own shingle with friends and family money. With a small AUM base, you don't have the same resources, so you want to make sure your ability to make money isn't tied to those resources before you take the plunge.

Funniest
Feb 17, 2019

It's not a flex. I'm explaining the resources I have access to, and trying to understand how shops without those resources manage to outperform. Being from an asset manager with AUM scale like I mentioned isn't remotely uncommon.

Jesus, can't even explain things factually without getting some kid trying to use the "weird flex but ok" line that he's heard his friends say 100 times before and he's finally excited to use it for the first time on an online forum

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Feb 9, 2019

Well, how many ideas that you've gotten in the book had a critical component of the thesis be realized as the result of one of these services, and were they things you could've done yourself?

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Feb 17, 2019

We use these services for every one of our ideas. And when I say we use them, we each every single one every single time.

That's why I wanted to ask this question. Frankly, all I think we'd absolutely need is access to SS, including requests. Although over time, this is probably the most absurdly overpriced service I could think of, considering many of the requests cost 5k-10k a pop.

The rest of it though, such as traveling to meet with management, Mintel, Third Bridge, etc. all add extra layers of conviction that I frankly would feel uncomfortable without, primarily because of our long-term time horizon (2+ years).

May I ask what services you use? And what time horizons you target as well as how long your average research process on an idea is? I suspect it's a function of this that dictates the amount of services you might use or avoid.

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Feb 23, 2019

What's SS?

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Feb 21, 2019

I like to read the back of every can of soda in Walmart. Stuff that those megafund guys just don't take the time to do. It's all in the footnotes baby. At the moment I'm long Coke.

Remember, the grass is always greener on the otherside because it's fertilized with bullshit.

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Feb 25, 2019

My finance 101 textbook, Quora, Yahoo Answers, and Ask Jeeves

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Mar 1, 2019

We use all of the ones you mention. I wasn't aware there were many funds that don't use these resources. How else do you do fundamental research???

Feb 17, 2019

Well, I was particularly curious about the smaller funds ($1bl< AUM). Managers with scale like Millennium for Point72 will never want for resources, but I don't imagine that to necessarily be the case for the small guys

Mar 3, 2019

Paid data and meeting with management is an obvious edge, but I'm surprised by the emphasis/love for SS research here.

ive found that you can/should get to the same level of understanding as the SS analyst by your own unaided research. Of course, 10% of the time, they'll give you something helpful but I feel sometimes the probability they mislead you is somewhat equal and cancels it out.

That being said, I think SS is definitely useful in terms of corporate access, getting a feel for what other buysiders are thinking, and my personal favorite: pushing your opinions on others - but I'd say you're probably putting too much emphasis on the research.

Mar 3, 2019

I actually use sell side research the most, especially at the beginning of forming an investment thesis, since I don't have the time to research something from scratch that an analyst would have spent years working on. And I don't feel they mislead me at any point, they give me their views and forecasts and I decide whether to agree with them or not.

On your last point, how often has your plan on pushing your opinions worked with sell side? Have you seen any movement in prices/volumes?

Mar 4, 2019

Depends on the strategy. My first buyside job was sector-focused value investing with an investment horizon anywhere between 6 months and 3 years. In that role I agree I'd get to the same understanding as SS analysts.

My current role is generalist, and has an investment horizon as short as a couple of weeks, and the window of opportunity to trade is often as short as a day or two. With those constraints, it's hard to beat doing a couple of SS analyst calls to get up to speed on a new name.

Agree they are very useful for understanding what competitors are thinking, and the occasional reverse-broking.

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Feb 9, 2019

What is your current investing role? Curious because my current role is more akin to your first one with some smaller trade horizons mixed in and I have come to really appreciate the sector-focused nature of it.

I would imagine that if I worked in your current role that I'd be running around like a headless chicken and never develop any real understanding of what I'm investing in so I'm curious to learn more

Also - what is reverse-broking

Mar 3, 2019

Are you trying to say SS as in sell side research? You pay for this? I thought this was free. Maybe different for equity than credit?

Feb 9, 2019

You pay it through trading commissions. I think I read in another thread that you work in a pod at a platform. In that case either the platform eats the trading costs, charges it to your pm/bonus pool, or charges it to their lp's. The cost of sellside products (research, corporate access, etc.) is bundled up into that

Mar 3, 2019

Yes, of course. The original poster was implying that its a cash payment - or that's how its reads. I've never "paid" for ss as to your point its bundled - hence the confusion to the below comment.

"including SS requests & analyst calls which cost $$$$$"

Mar 4, 2019

If I could only choose one, it would be expert networks. Their views tend to be more objective and less polluted because they're more detached from markets. SS is still very useful though. I find most databases somewhat redundant because between SS and expert network calls I can usually get all the datapoints I need anyway.

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Mar 10, 2019

So in my opinion, it all depends on your team and your strategy. Some strategies rely heavily on outside input, some rely on little. Most are somewhere in between. In my experience, the general minimum is that everyone is getting the same sell side research, which is somewhat simplistic and outdated. But it moves markets when published. So important to get sell side research, to at least understand what the majority of the street is looking at.

More importantly in my opinion is your own work/research. From that, you are developing your own modeling assumptions. If your own work/research matches up with consensus, your model will be similar to everyone.

If you develop a differentiated view through your work/research, this is when access helps. At conferences, you can get group meetings. Depending how differentiated your view is, you might be ok drilling down into detailed questions. But if it very differentiated view, you probably don't want to ask the question in a group meeting.

So your funds size becomes important. If investor relations will give you a call, you can ask detailed questions. To be clear, these aren't material non-public info that investor relations is giving out. This is small, minute detail that is non material for 99% of people.

So that is one aspect of research that changes based on fund size. The other is data sets you have access to, but that is a whole other convo.