Friday, August 25, 2006

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.

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.


zentrader said...

Dear Dali,

"Some just go through the template of coming up with a report"

You are the best! I long have a feeling that some of these so callled experts simply fill in the blank with their Excel template and then put in some very fancy term to make the report looks very 'real'.

Personally, I find that those broking firm based in Singapore (ie Kim Eng, DBS) their reports are more solid. Just my view.

Keep up the good work. And also thanks for the headline coverage for Zentrader. :)

Have a nice day. We always respect you as our best teacher.


kchim26 said...

hi Dali,

Any comment on the recently announcement by YTL for the rewards of discounted YTLpower @ RM1 each for every 10 share of YTL ?

What is ur take on this recent move by YTL board ?


Salvatore_Dali said...


Both are good companies, though as a company YTL Power is more solid. Its just a reward exercise for YTL. Plausible reasons - to increase free float of YTL Power; or to allow for control via YTL. The latter looks to be a longer term objective as YTL Power will be used to raise a lot of funds, better to control it via indirect source. Still not an either or situation.

kchim26 said...

thanks for the reply, just puzzled by the way they reward the YTL shareholder. It is like punishing the YTLPower shareholder. :D

8percentpa said...

I have written something on this topic before, basically the idea is that sell-side analysts are good for nothing.

Brokers cannot be trusted

8percentpa said...

Brokers cannot be trusted