How to Build an Impressive List of Industry Sources

When I was a kid, we put together a seasonal pool each summer in our backyard, and every fall came the undesirable process of taking it down (more of a drain on our emotions than of the pool).  Draining the pool required siphoning out the water with a garden hose, but in my neighborhood back in those days electric pumps were non-existent and so you had to use lung power.

I use this as a metaphor to help equity research analysts cultivate information sources, which is imperative for creating great stock calls.  No, not because the process sucks, but because manually siphoning a pool requires significant upfront effort, literally taking your breath away and sometimes leaving a bad taste in your mouth (imagine drinking chlorinated pool water), but once it gets started, it’s magical (how does the water travel up the hose and out of the pool on its own?).

Based on my experience, I find the best analysts are continually looking for new sources of insight, which requires a tremendous amount of up-front time, but once they’re found, they often pay dividends repeatedly over the analyst’s career.  If you’re following our other work, this post focuses on Step 2 of our ASPIRE™ framework, specifically cultivating sources of insight.

As farmers must plant seeds to reap a harvest, analysts must proactively take steps to cultivate unique sources of insight

There are activities that can help analysts make new connections (e.g. attending a target-rich conference), or at a minimum, bring the names of industry thought leaders to the analyst’s attention (e.g. reading an insightful industry blog). For all of the methods below, focus on those where your involvement will help gain insights that clarify the assumptions surrounding your stocks’ critical factors (the first step of the ASPIRE™ framework). Don’t forget this important concept: reading an industry blog or attending a conference that offer contacts with no expertise surrounding your stock’s critical factors is a waste of your time.

• Proactively read relevant industry trade blogs and journals (if possible, have these automatically sent to you or set time aside each week to read). Start by throwing the net wide by subscribing to everything that might be a good source (use “trial subscriptions” when possible) and quickly drop any that are clearly not focused on the 1-4 critical factors for each of your stocks.  If you notice insights that may help another analyst within your firm, make sure to pass them along, because that’s a key step to getting other analysts to pass insights your way in the future (the highest profile stock call early in my career came from a tip from my firm’s chemical sector analyst who said one of my railroads was providing poor service to one of his companies).
• To continually cultivate new information sources, participate in industry events attended by key decision makers, such as conferences, trade shows and annual award banquets. But make sure to…
  • Pre-screen to ensure you don’t waste your time at an event that doesn’t have key decision makers or focus on the assumptions for your critical factor(s)
  • Try to get an advanced list of speakers and attendees to set up meetings with contacts before the event and for emailing them afterward
  • Approach good speakers after their presentations — they are usually looking to network
  • Attend social events if there’s the opportunity to work the crowd (attending a conference’s standard evening entertainment for 90 minutes may be fun, but isn’t likely to yield as many insights and having one-on-one conversations)
  • If appropriate, find the senior event coordinator and offer to speak at the next upcoming event to provide the financial community’s perspective of the industry (this makes the advanced list of attendees, mentioned above, much easier to get)
• Join relevant online groups (LinkedIn, industry forums, user groups, etc.)
• Join relevant industry trade groups (you may need to join as an “associate” or “affiliated” member because you’re not in the business of selling products or services in that sector)
• Subscribe to relevant industry consulting firms that publish industry reports and white papers
• If you are very specialized and cover only one or two sectors: participate in industry task forces, committees or philanthropies that are likely to include key decision makers (you can often find these via industry associations)
• If you’re not sure where to start on the lists above, contact the Investor Relations managers of two to three of the companies that are major players in the sector(s) and ask the following questions:
  • Which trade journals do the company’s managers subscribe to?
  • Which trade associations does the company belong to and which are the most powerful in lobbying for regulatory change?
  • Which conferences are attended by company management and the financial community?
  • Which industry task forces do company management belong to?
  • Which industry consultants produce the most insightful reports?
• For the stocks you cover, search Google for the names of COOs, Chief Marketing Officers and other senior executives besides the CEOs, to see if they are quoted by a blogger or speaking at a public event
• It’s also helpful to ask for industry contact names from other analysts within your firm, including those who cover sectors that are further up- or down-stream as the sector being researched (e.g. the analyst covering the pharmaceutical sector may find benefit in asking for contacts from the analyst covering the healthcare sector)
• As discussed in our Detailed Reference Card, “Utilize the PRACTICE™ Framework to Influence Others,”  the “E” of the framework (“Ensuring needs are met”) recommends periodically contacting the information source to offer to help, not just when you need information

Following these steps above to cultivate information sources requires significant time and will undoubtedly result in some dead ends and rejections, or the equivalent of a mouthful of chlorinated pool water when starting the siphon.  But if you incorporate these into your weekly research routine, over time you’ll develop the key information sources required for generating the unique insights so critical for stock picking.  After I developed these types of relationships, I found at times, they would proactively contact me with insights that helped my stock picks, which was as magical as water traveling uphill.

I would be remiss to suggest everything you need to know about generating unique insights can be conveyed in one post.  If you want to delve further into the topic, I encourage reading these related posts:

• 6 Steps for Generating More Insights Than Your Competitors
• 8 Tips to Win Over Information Sources and Influence Your Boss/Clients

This Best Practice Bulletin™ targets #1. Generate Informed Insights of GAMMA PI™, within our Pathway to Success Framework.

Let me know if this Best Practice Bulletin™ helps and how I can improve upon this best practice. If you’re interested in exploring this topic further, AnalystSolutions provides equity research training with a specialized workshop to help Generate Differentiated Insights Through Better Discovery, Questioning, and Influencing.

Improve you or your team’s stock picking and communication skills with our equity research analyst training tools which include workshops, such as the one mentioned above, as well as our GAMMA PI™ assessment and one-on-one coaching.  Also, consider ordering the book that inspired both the founding of AnalystSolutions and the Best Practices Bulletin: Best Practices for Equity Research Analysts.

Visit our new Resource Center to find more helpful articles, reference cards, and advice towards your growth as an Equity Research Analyst.

©AnalystSolutions LLP All rights reserved. James J. Valentine, CFA is author of Best Practices for Equity Research Analysts, founder of AnalystSolutions and was a top-ranked equity research analyst for ten consecutive years