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Street Research Is Unoriginal; Opinions Conform

Everything the Street publishes or communicates is excruciatingly reviewed for approval by legal compliance. Research is hamstrung, emasculated, and diluted. Pithy or controversial content is often eliminated from the research. Analysts run in packs—they herd, imitate each other, and find it uncomfortable to stand alone. The Street tends to have similar opinions on most stocks. Analysts identify and underscore the macro industry trends in the stock groups covered, which puts them all in the same boat. If the sector is in favor, almost all of us recommend just about every stock. We love a stock when fundamentals are healthy, regardless of excessive valuation. The same is true on the negative side. After major disappointments or shortfalls, we all belatedly change over to negative views.

Further diminishing the relevance of brokerage investment research and opinion ratings is the fact that research reaches individual investors late. Analyst contact priorities are first the sales force and traders, then the press. Stocks react when events occur and news breaks. The analyst immediately jumps on the squawk box and makes comments to the sales force. Traders get a call about the same time. (They are not supposed to be first, but sometimes they are.) After phone calls are returned from institutional sales, the next priority is the press. We love to see our remarks running across the Dow Jones newswire—and Bloomberg, Reuters, and the next day’s New York Times, too. Then we might start chatting with the key institutional clients like Fidelity. By the time most investors hear of or read our research views, it is way too late. Its tardiness renders it worthless for near-term trading. Individual investors are low in the analyst’s pecking order and need to treat Street research accordingly.

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