As you’ve probably surmised by now, I have a love/hate relationship will sellside research.
On one hand, it’s written by people who are ostensibly very smart. Further (and this I can say definitively) the authors can tap into a cornucopia of market data that retail investors simply can’t access (that gap can be narrowed with a terminal but it’s never completely closed). In the same vein, analysts can communicate with traders which obviously gives them a window into what’s actually driving markets. Finally, I take some comfort in seeing the alphabet soup (CFA, PhD, MBA, etc.) next to the authors’ names – sorry, I know I often deride the profession, but old mental habits die hard.
On the other hand… well, I don’t think I even need to go through the long list of “on the other hands.” The cynicism and skepticism that pervade my writing along with my explicit rebuke of “forecasts” and “predictions” (see here and here) convey everything you need to know about where I stand and how I lean.
But whereas I can find some redeeming qualities in Wall Street research, I can’t find very many in some of the “news” I see garnering hundreds of thousands (and in some cases millions) of clicks and social media shares these days. More specifically, a number of popular “alternative” media platforms have succeeded in convincing quite a few gullible netizens that “fake news” (the brand they push) is real and real news is fake. It’s yet another manifestation of the bizarre shift America has taken over the past six or so months. Here’s an excerpt from a piece I wrote earlier this month:
There’s something terribly ironic about capitalizing on the publication of sensationalist articles while simultaneously bemoaning the dishonesty of the “mainstream liberal media” (a favorite target of the alt-right). Everything you read on one of these websites should have a giant, red “caveat emptor” stamp in the header and in case that’s not clear enough for some readers, perhaps there should be a “consider the source” warning in the margins. In short, the idea that these websites should criticize the mainstream media for being biased is the very definition of hypocrisy.
Now, perhaps more than ever, it’s important to scrutinize what you read (the same goes for what appears in these pages). Thankfully, SocGen is here to help. In a hilariously ironic twist that, when I first read the headline I assumed was someone’s idea of humor, the bank is out with a pocket guide called “4 Tips On How To Read Research.”
SocGen calls it a “gift for the new year.” Well, thanks SocGen. We assume we are free to apply the following “tips” to your research as well.
Check the numbers. A recent study by Cunningham and Cage in the Journal of callipygian statistics has shown that close to one in every eleven statistics published in research papers is incorrect. At a time when the data collection side of business is more and more outsourced, caution really is necessary. Careful interpretation too, as how one presents data is as important as the data themselves. Public transportation services tend to communicate in terms of average waiting time for example. If the publicised average waiting time for a bus on a given route is five minutes, the frequency of the buses is not five minutes…
Check the source. In a world where time is scarce, unfamiliar surnames or words are typically left unchecked by readers. Our own experience suggests that when authors resort to these, at times it may be to twist the original conclusions of the quoted papers in order to support their own thesis, comfortable in knowing that few if any will make the effort to go to the source. Have you googled for the above-mentioned Cunningham and Cage paper, for example?
Get out more often. Hopefully you haven’t googled it, as you are amongst those who know that Merce Cunningham was a leading choreographer of the last century, and John Cage a pioneer composer and Cunningham’s partner. As a distinguished Hellenist, you will have also noticed that being callipygian is not really an attribute of statistics. So our word of advice to young readers: get your season ticket for Sadler’s Wells or the NYC Ballet, and to all: tell your kids not to give up on learning ancient Greek and Latin. Curious and open minds make better readers, and investors.
Mind the tricks. An amazing on-line experiment shows that some sell-side analysts sometimes use tricks to increase the readership numbers of their publications. Beware when they use a combination of self-references and catchy words such as ‘amazing’. Although, in fairness, a recent presidential candidate has done just this, with tremendous success.
***As an aside, I do enjoy SocGen’s work very much – much more so than I enjoy what comes out of some of the other shops.