Best Practices Bulletin
Providing best practices for equity research analysts using our GAMMA PI™ framework
Top 11 Sources of Insight for Great Stock Calls
When planning dinner and a movie with someone special, you could select the restaurant that runs the most advertisements and the movie that has been the most promoted by its studio, but I suspect most analytic-types (like research analysts) don’t use either of these approaches. The odds of a bad meal or movie are relatively high because these…
Do You Know the Key Ingredient Found in the Best Stock Calls?
#1. Generate Informed Insights, #2. Accurately Forecast, #3. Make Accurate Stock Recommendations, #4. Motivate Others to Act
Would you offer to cook someone rack of lamb if you had no lamb? How about offering to prepare chicken Kiev but you have no chicken? Presuming most everyone would note such an essential missing ingredient, I then ask: why are so many stock calls missing a unique insight? I have reviewed hundreds of stock…
How to Cope With Bad Stock Calls Without Self-Destructing
Do you prefer Coke or Pepsi? Steak or chicken? Blaming others or taking all the blame? The last question pertains to coping strategies—our innate psychological self-defense mechanism to reduce stress in the face of adversity, such as how an analyst would respond after making a bad stock call. Certain coping strategies are important for good…
10 Steps for Equity Research Analysts to Perform Better
#1. Generate Informed Insights, #2. Accurately Forecast, #3. Make Accurate Stock Recommendations, #4. Motivate Others to Act, #5. Acquire Buy-Side Votes (Sell-Side Only), GAMMA PI™ Area
According to Reuters, one of its sister companies, Lipper, finds that roughly 85% of active large-cap stock funds are lagging their benchmarks year-to-date through late November. Investors are voting with their feet as shown by the $206 billion of inflows into ETFs through the first 10 months of 2014 vs. only $36 billion for the…
Portfolio Managers’ #1 Frustration With Equity Research Analysts
While I was studying the Japanese language during college, I initially didn’t take notice that the word “chigau” (ちがう) is used to convey both “different” and “wrong.” But after moving to Tokyo and learning the importance of conforming to the group, I developed a newfound appreciation for why these two English words require only one…
14 Mind Traps Afflicting Equity Research Analysts (Part 3 of 3)
When you’re reading reviews of a product that has your interest on Amazon.com, do you first go to the positive or negative reviews? When I poll students in my classes they almost always say “positive,” which is also the conclusion reached in similar psychological studies. But if equity research analysts are striving to be rigorous…
14 Mind Traps Afflicting Equity Research Analysts (Part 2 of 3)
Early in my career, I recall watching my sector (transportation) suddenly take off. Soon after, with the sector up 10%-15% despite no change in fundamentals (it was actually driven by portfolio managers attempting to get more exposure to cyclicals), I suddenly starting seeing reasons to get on board the bandwagon, which later turned out to…
14 Mind Traps Afflicting Equity Research Analysts (Part 1 of 3)
How do you avoid making bad stock calls? Being thorough in your research goes a long way, but it doesn’t defend from the most menacing force…your own mind. I’m talking about the psychological biases or “mind traps” that even the most seasoned portfolio managers make. Before you say, “I’m smarter than everyone else and don’t succumb…
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