Understanding analyst research, who writes it and what it tells you
Over the past 15 years, DIY investors have enjoyed some notable improvements in the availability of market data and sophisticated execution capabilities. But while the tools to make investment decisions have got better, one issue that continues to divide opinion is the usefulness & availability of analyst research.
Most investors are familiar with the ‘buy’ and ‘sell’ recommendations from City analysts that routinely crop up in the financial press. Journalists feast on these signals without necessarily giving them much thought or context, and bulletin boards buzz about their meaning. But the detailed research behind these recommendations is often either hidden away or leaves the investor wondering about its reliability, accuracy and value.
In this mini-series of articles we are going to explore some of the reasons why analyst research is both loved and loathed by investors and whether trading off recommendations it a viable strategy. We will also show you how you can profit from analyst research by using the tricks, tools and screens available at Stockopedia to get a new insight into what it really means.
Who writes this stuff?
If the stockmarket is an engine and information is the oil then analysts are best thought of as the mechanics. They may not enjoy the glamour or compensation of the traders and investors who drive the car, but without analysts the engine would soon grind to a halt. When Richard Wyckoff wrote Studies in Ticker Tape Reading back in 1910, he not only introduced the world to the science of market analysis but he also kicked off increasing academic and professional interest in how markets and companies can and should be analysed.
Since then the role of the analyst has become more defined and more influential – but has also come under major scrutiny from regulators and academics. Research notes are routinely produced on the day of company results (final and interim), trading updates and major news. Analysts enjoy special access to management teams when discussing events, forecasts and in the development of their financial models, which means that their insight and opinions ought to be of interest to any investor, although often it is restricted to a privileged few.
Who is research produced for?
Market players – from investment banks to boutique brokers – employ analysts to cover companies, advise clients and ultimately encourage them to trade…