What sources do you use for primary research?

In a world where information advantage is so little, how do you do differentiated primary research? And what are the most reliable sources (in your opinion)?

 

bs sometimes it helps, but most of the time g trends by itself can be very misleading

 

When I have done networking calls or just talked to other analysts this is always something I ask about. The majority of people think that GLG calls are primary research, but that just isn't going to provide you any kind of edge if everyone does them. Other responses have been that you get a really low return on the time and effort required to conduct primary research sufficiently enough to be able to trust in the mosaic, because for the most part no one can tell you anything of value anymore that isn't already public. The only funds that find this type of work worthwhile are ultra-concentrated, like 10 or less names. The last response I get is that meeting with management and actually visiting the companies is their primary research. I personally think that forming this kind of close relationship with management biases you. I have never met a CEO I didn't like or who told me something negative about their company. If the investment comes down to your gut feeling on someone or how nice their corporate headquarters are it's probably not an investment that was worth making in the first place. That type of analysis is superficial. 

The only time I ever got an interesting response in regards to the primary research question was one guy told me he will just cold message people on linkedin in different departments at his target companies. Low hit rate but said it gives him an interesting perspective on the company, the culture, and perhaps some of its specific functions. I have not personally tried this. 

 

Using a wide variety of alternative data sources is pretty good primary research, especially if you enrich the data yourself after joining tables and sharding. However this approach requires both $ and creativity, and YMWV based on the specific company.

Also good luck getting anyone to tell you HOW they're using the data. At best they'll tell you which ones they use.  

 
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no need to overcomplicate this or give people too much credit lol

primary research at most long/short funds is mostly copying what your friends are doing but making it sound like you got it from an expert call or other differentiated source

if you want to actually do primary research then I'd recommend you look at some of the famous activist short seller pitches. they do great primary research. nobody actually does this kind of work at most long/short funds though, but sometimes they pretend to 

 

Something that people here overlook is that if you work at a small to medium sized fund, you won't even have access to some "basic" things that many people here mention, such as GLG, credit card and alternative data, certain sellside research (if your fund doesn't have a relationship with a bank, good luck getting that research report that you need), getting sellside analysts to take your call, access to inustry reports, access to third party research services, etc. I get contacted all of the time by these service. For example, I recently spoke to a 3rd party forensic accounting service that was started by the foremost expert in the field. There are firms out there who have his team on retainer to work on anything and everything. I have never worked at a large fund, but I can only imagine how much of a luxury it is to be able to have access to all of this information at your fingertips. 

 

Have you guys heard of Tegus at all?  Really interesting take on primary research.  Tegus.co

 

Simplistically, there are two buckets of primary research, company and industry. I think from an industry perspective, especially if you're new to a sector, its important to verify info in decks/materials. Government sites, US and also international organization, provide lots of good data on a host of subjects. Much of it you can download too. For sector specific, there is typically at least 1 industry rag (paper or digital) if not more that can provide good insight. Yea you might not be unlocking unknown truths but at a minimum you're getting smart on a sector doing these types of things and at best many people aren't so there is some edge in that regard. For company specific, local papers tend to have way more informative articles/interviews. Often time a company is a big deal in town so there is just much better access and information, hidden gems can be found. For things like retailers, you can go to malls/stores and see the condition they are in and try to talk to the sales manager. I've done this a lot. Or I've also called sales departments inquiring about certain products to hear the pitch, see if any issues have come up, whatever random questions I might have to get an understanding of how thinks work. I don't think any of these things are ground breaking but any little bit helps you're understanding of an industry/company - might not give you edge per se but certainly will help you make an informed decision, which is really all that matters in my view. "Edge" is kinda a bullshit thing 90%+ of the time in my view (speaking fundamentally, not trading). 

 
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IMO there are three steps to research: 1) getting informed, 2) organizing information, and 3) following hunches.

  • Getting informed typically starts with reports from ER/Industry Orgs/etc. and I like to follow a PESTEL/SWOT framework to know what's up in an industry/industry group. This can take a few days -- it really depends on how familiar I am or my team is on an industry group (and how old our last run through is). 
  • Organizing information means linking across the value chain by understanding the general relationships, cost structure, and end users of the various types of companies within the industry. This can take a few days too, and can be challenging for people new to research (mainly because they want simple answers). This requires familiarity with information-- reading the company 10-k (item 1), website, reviews of products or services, gartner/consulting works, company presentations, etc.
  • Finally, you then create a theory to describe what's happening, test that theory (both quantitatively and qualitatively), and then seek opportunities to exploit. This is the fun stuff! -- however, it requires step 1 & 2 in order to be meaningful. This is ad hoc, and good managers will be able to develop a hunch intuitively and figure out a path to find answers (which usually changes a lot in the course of research). 

Being able to find and exploit alpha opportunities requires a ton of creativity and a willingness/eagerness to grow. Therefore, get to know as many tools/approaches as possible, and be creative/"flexible" about getting the information you need. For example, if you cannot afford an expert network, conduct an informal survey/interview with the company you are researching, reach out to professors at universities to get their opinions, cold email vendors and ask general questions (payment terms, are they seeing growth, etc.), read-through other research reports or economic indicators to get a feel for a company/industry as well. Personally, I avoid the canned alpha sources because anyone with a budget can get access to the same data. Therefore, I prefer the networks of information I create, as those are harder to replicate, give me more control over the information, and are closer to the source. 

 

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