Zentrader's Question On Analysts

Zentrader asked:
Dear Dali
I think a lot fund managers and analysts are 'visiting' your blog for insider trading idea. BTW, do you think we should trust those analysts employed by firms? As sometimes I think they are writing for the big boys instead of small boys like us.
Zen

First of all, I don't think FMs and ANALs care very much for blogs. Should people trust ANALs. There are those who by virtue of whom they work for, their work will get read and promoted more, e.g. US houses by virtue of their reach and size. Hence they produce market moving reports. But eventually good research has to stand the test of time, so good ANALs do stand out no matter which houses they are from.

Secondly, research is for big boys, fullstop. At times its a two way thing. You look at the top ten volume stocks, everyday, you'd be lucky to find two with research reports on them - this means people are trading blind everyday. How do you expect broking houses to cater to people who do not wish to read too much? Of course, its a growing up process also. The local bourse is probably 60-40 dominated by individual investors against institutional trading wise. Most developed markets have that ratio 80-20 favouring institutional side. So, you can see that we have a very long way to go, its part of a normal exchange development curve. As the capital markets develop further, the amount of individual investing will ease in favour institutionalised investing. There is a caveat though, Asian investor by and large prefer to do individual investing, given the chance. Just look at HK, where the markets are more developed than ours. So, in reality, Malaysia can look forward to a 60-40 trading ratio in favour of institutions ultimately, and not the normal levels exhibited by the Western world.

Can ANALs be trusted? Some just go through the template of coming up with a report, there is no feeling or passion or even obsession with the various numbers, so the buys or holds that come out is reflected in the writing and the justifications are not sufficiently convincing enough. You can tell a good report - intimate knowledge of figures, and able to identify the "determining factors" moving the stock up or down, can identify the probable catalysts, good industry knowledge (following deep industry data and even anectdotal evidence, if you only go to the company for info, you can be misled sometimes) - and the writing is easily persuasive because they themselves are convinced.