If you are taking advice from bankers be very careful indeed. In our experience you are better off doing your own due diligence than relying on a fat and happy banker to advise you.
Analyst Blogs Versus Investment Bank Research
Traditionally, investors, investment managers and fund managers had relied on advice from industry and company analysts at investment banks and stockbrokers to make sound investment decisions.
Then, as high-profile corporate scandals (Enron, Tyco etc) rocked financial markets after the internet bust, the ensuing collapse of share prices around the world brought the impartiality/neutrality of these advisors into question in a way never witnessed before.
If you're an investment bank and one of your major fee-earning clients also happens to issue shares that your analysts cover, supposedly providing neutral advice on whether to BUY, HOLD or SELL those shares, aren't there inherent potential conflicts of interest?
The investment/fund management community certainly thinks there are. Subsequently, they've been turning elswhere for research, analysis and recommendations on which sectors are hot, which are not and ultimately, which shares to buy or sell.
New, independent boutique advisories have sprung up in all the world's major financial centres to plug this gap and demand for their impartial advice is growing strongly.
But there is another source of truly independent industry sector advice that has, up until only very recently, been overlooked by Wall Street et al. But this may all be about to change.
James Enck, a Telecoms analyst at Daiwa Securities SMBC Europe is also a blogger. In his blog, EuroTelcoblog, Mr Enck describes, with some level of passion, how he feels that the insights he gains from the blogs he reads are highly complementary to the research he increasingly carries out for himself, rather than relying on that pumped out by the investment banks.
He selects these three:
"because they, to my mind, demonstrate the highly individual qualities of blogs which collectively deliver what brokers' research typically lacks. All three have very sensitive BS meters, and are not afraid to court controversy. All three possess wide expertise and that rare quality of 360-degree, joined-up thinking, which allows them to consider the broader implications of what Company A is saying/doing, rather than the all-too-typical broker treatment: "Company A announced X. This is line with our expectations. STRONG BUY." The former quality is what good fund managers increasingly seek out, the latter is something they find oppressive (because their in-boxes are full of it) and irrelevant."
Mr Enck then goes on to imagine a not-too-distant future when someone or some entity will pull all the uniquely diverse opinions on telecom, internet, media, hardware, applications and chips from these bloggers together, "incorporate some hard financial and technical analysis, and build a cross-sector investment research platform incorporating realtime tools (I mean blogging, IM, video conferencing and collaboration) rather than .pdfs and spam."
He believes that there is a business model that could monetize this aggregation of expertise, but isn't too sure who will be the first to exploit it. The financial media (Reuters, Bloomberg etc) are too trapped in "a walled garden mentality". The brokers are "dismissive of alternative points of view, risk averse". So, there is a gap for a newcomer, but none has yet to appear.
However, Mr Enck may be looking in the wrong direction.
There is no need for any existing organization to do this. The bloggers could do it for themselves, with a little marketing and technological support.
What might this involve?
- Agreement between a network of mutually compatible sector expert bloggers to form a consortium, or co-operative entity
- Technology tools to enable the syndication of their news and analytical postings through a single branded platform
- Integration of online collaboration tools, such as Instant Messaging (IM), Video-Conferencing and VoIP both for co-operative workflow management between the network members and for delivering real-time advice to clients
- Marketing and sales expertise to craft the business model (e.g. payment via a subscription) and sell the bundled knowledge to clients
Subscribers would pay for access to daily news/analysis, participation in webinars, ability to IM or VoIP with the experts from time to time, and also access to their reports and other in-depth analyses - as part of the subscription or as an extra cost.
The opportunity here, for anyone who understands how this can all fit together and work as a successful business, is in providing the infrastructure. Many independent experts (e.g. freelance journalists/analysts) still do not blog. They write articles and features for the traditional media (newspapers, trade magazines, specialist - and expensive - journals). Many do not understand how online collaboration tools could add value to their work. None of them, probably, would know how to aggregate their outputs with those of team-mates to produce integrated feeds. Most wouldn't believe you could actually make a successful living from it.
Now, if somebody could offer these types of independent experts with the unified platform and technological expertise to enable all this, well, that would put a different perspective on it.
As Mr Enck says:
"Investment banks: you have competition, whether you know/believe it or not. It behaves differently from you, uses different tools, and takes no prisoners. More importantly, its mindshare is growing, and you ought to be scared. What happens when one day your client base wakes up and feels confident enough to say they don't want your research?"
Indeed the blogs can really help you in the financial decisions because the angle of view is very large and the decisions will come from a person that read a lot about the topic and can make objective financial decisions for their own.