Analysts are salesmen too

When you are part of a Conference call with other ANALysts it is easy to see the ‘favorite’ analysts being praised by the management, and the reverse too. Some companies (mostly Mumbai based and privileged) can make it so obvious that it is easy to  predict how many times the words ‘great’, ‘very good Quarter’ , etc. is repeated by the Analysts.

Why do analysts have to do this? Well they also need to organize some ‘top clients meet’ where the company has to come and make a presentation. So if it is a Mumbai based, privileged old economy, old wealth company, it can act as high and mighty as they wish. These cos. shares are widely held and some of its shareholders (largely Govt) can be ‘persuaded’ not to sell. Well they behave like Yale University – holding period perpetual! So immaterial of how these companies are doing you will only hear: Hold, buy, strong buy. The worst you will hear about them is “a couple of bad quarters may be in the offing, but that should not worry the real long term investor” – read ’22 years’!!

Also if an analyst has come from an IPO seeking Merchant Banker mindset he speaks very differently from an analyst who has ONLY represented investors. However even an analyst on the sell side usually grovels MORE than the buy side analyst (see investopedia for sell side analyst vs buy side analyst). Obviously the sell side analyst has a lot to gain from the report – he is seeking to see some business – a buy or a sell. However it is easy to ask a client to buy at 20, 40, 90….whereas a sell report can be used only once. So it is true that every one likes a Bull market.

Analysts need to make a career in analysing companies – and rarely do they jump industries. So one analyst would be a FMCG analyst, one a cement analyst, and one a digital media analyst. Rarely do you see them do all 3 industries!

This puts pressure on analysts to lick up to the best companies and make reports saying ‘buy’ or ‘hold’. Putting a sell report on the same company seems to be scary and almost like eating your own words. So analysts who are also hit by biases – like confirmatory bias CANNOT see the negatives once they have a buy on a company.

Well this is a long never ending story. Was revisiting this space when I read a research report on one of our top widely head engineering company. Report said BUY. Other than the word ‘buy’ I did not like the report at all.

And I am happy to sell.

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