Issues & Opinions

Michael Moe has an interesting post up on the subject of securities analysis, at AlwaysOn.

A snippet:

One of the bizarre realities of Wall Street is the generally random process security analysts use to evaluate investment opportunities. I was an analyst at Lehman Brothers when it had the number-one-ranked research department on Wall Street. I was Director of Global Growth Research at Merrill Lynch when it was ranked #1. I was Director of Growth Research and Strategy at Montgomery Securities when that firm did better research than the other two top ranked firms. And at all three places, the instructions were essentially the same: ”Here’s a laptop. This is your industry. Go write research and recommend companies.”

{…}

But it’s not their fault because they haven’t been given a process. If Starbucks hired kids off the street and told them, “Go make a latte” very few people would have ever heard of Starbucks.

(ellipsis mine)

Before your next opportunity to rely heavily on the work of an analyst with whom you’ve got no history, I’d recommend spending a minute or two and reading Mr. Moe’s “Think 10 Commandments” philosophy, and deciding whether your analyst shares any of its tenets.

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