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Poll: Wall St. Research Panned

Light Reading
News Analysis
Light Reading
8/27/2002

Wall Street analysts come in for quite a pounding in Light Reading's August Research Poll. Results so far indicate that many people have a low opinion of analysts, considering them overpaid and over-influenced by the sales side of the investments banks for which they typically work.

When asked about analysts' stock picking ability, a full 59 percent of respondents checked "We'd be better off with monkeys throwing darts."

Not surprisingly, 53 percent of respondents also say that Wall Street research is "largely mediocre," while a further 27 percent go further and say it's "terrible" and has "led the entire industry astray."

Blame seems to fall on conflicted interests: A full 88 percent of the first 76 respondents say there should be a legal separation between analysts and other divisions in the investment banks they often work for.

What's more, 87 percent think there should be no link between analyst pay and banking or brokerage fees. And 67 percent think the fact that Wall Street analysts often work for investment banks "makes all of their opinions worthless."

The multimillion-dollar payments made to top analysts during the bubble years are viewed as "outrageous" by 55 percent of respondents. Only 3 percent consider this "totally in reason."

The results aren't surprising. The industry downturn has focused attention on Wall Street analysts and their role in the hypefest that preceded the fall (see Cool Hand Vik and Jack Grubman Goes).

To take the poll and view the latest results, click here.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

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opticalfiberman
opticalfiberman
12/4/2012 | 9:52:02 PM
re: Poll: Wall St. Research Panned
I have not taken the poll, but have known several Wall Street analysts (not Mr. Grubman, but others) for as long as ten years. I also know the definitions of "scapegoating," "greed," "sour grapes," "not cutting your losses," and "irrational exuberance" -- Nobody can claim they weren't warned.

I would observe what Wall Street analysts do is:

1. Carry out their jobs, as defined [there are different definitions among different Wall Street firms, bulge bracket and boutique; and, there is a reason they are called "sell-side" analysts - do the math.]

2. Conflicts of interest or the appearance of conflicts often exist.

3. They sometimes cross lines -- or venture too far into gray areas -- to increase their income [see "greed," above].

4. All of us do 1, 2, and 3 to some extent.

For example: I try to meet my sales quota; I sometimes promise a customer something we don't have yet in their area (e.g., dual-homing), and work hard with other staff to make it happen as soon as possible; and will go to restaurants which competitors' staff frequent and try to eavesdrop on their conversations (expecially about customers that are complaining about service, pricing, etc.) Maybe it's just me and all those analysts that have issues.

As for surveys, my own unscientific survey on Light Reading revealed that 100% of respondents believe Light Reading staff are under-payed and over-influenced [be advised of my use of a general term -- "over-influenced" -- here, as LR did in its article] by the sales (advertising) side of Light Reading, for whom they typically {or ostensibly, anyway) work.

When asked about Light Reading's top ten list picking ability, a full 50% of respondents said "We'd be better off with darts throwing monkeys."

In Light Reading's favor, 75% of respondents said Light Readings research is "excellent," and the fourth respondent {not me), despite family problems, said it was "very good" anyway.

Credit seems to based on Light Reading's extensive contacts throughout the industry. A full 100% of the first (and only) four respondents said "I wish I had *their* Rolodexes," in some cases preceded by and/or sprinkled with expletives, which I had the sensitivity to delete.

What's more [ed. note: the opposite of "less"], 100% think there should be a link between Light Reading staffer's pay and its owners' whims.

The multi-thousand dollar payments made to top LR staffers during the bubble years are viewed as "appropriate" by 3 of 4 respondents. I think they should have gotten more money.

The results of my unscientific survey aren't surprising. The other three respondents think like me; they even like the same brand of beer. The survey upturn has focused attention on surveys and their role in the surveyfest that is preceding the Fall (that is, occuring during this Summer).

To take my poll, just add your thoughts on Article Talk. I will tabulate the results as soon as I can. Employees of Light Reading, their families and friends, and those of Publishers' Clearinghouse cannot take the survey or win any prizes. No one else win prizes, since there are none.

OFM

metroshark
metroshark
12/4/2012 | 9:51:41 PM
re: Poll: Wall St. Research Panned
It is not too difficult to understand how analysts mispredicted the market growth when you consider that most of them operate on (higly dubious) data provided by corporate executives. However, there has been some shameless examples of complete ignorance.

One case was from the days Worldcom was claiming that Internet traffic was doubling every 3-months. A quick back-of-the envelope calculation quickly proved that even if you assume that all households in US would have braodband (DSL or Cable Modem) and all businesses had average or 100Mb/s access, it was still not possible to justify the bandwidth numbers you would reach by compounding 1600% annual growth in just a couple of years.

Another interesting case was analyst reports from 2000 (not too long ago) that predicted 10 Gigabit Ethernet port pricing will drop to $2000 by the end of 2002 (this year!). Clearly, the people who made these predictions did not understand about the technology trends, sustainable margin models, cost overhead associated with low-volume early production, etc.
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