Real Consultants and Real Analysts Take a Hit
September 12, 2011
The Washington Post must have had a bad experience with self appointed experts. Read “The investor’s Dilemma: Earnings, Valuation and What to Do Now.” As you work through the write up, think about Microsoft’s purchase of Fast Search for $1.2 billion, Oracle’s purchase of InQuira for an estimated $66 million, Palantir’s recent intake of another $68 million, and Hewlett Packard’s interesting $11 billion purchase price for Autonomy.
Now think about the write ups from the “real” consulting companies, the trade magazines with lists of “top” companies, and the speakers on some conference programs with three or more slots in a two day period. What’s going on? The write up in the Washington Post seems to have pinpointed an important change in “analyst” behavior. Here’s the snippet I noted:
… I suspect the error is about something else. Structural changes at Wall Street firms are just as likely to be the cause. Research analysts used to work for trading and asset management divisions of big Wall Street banks. Since the 1990s, they have mostly migrated to underwriting. That’s where all the money is made. This change has changed the job of the analyst. They do far less critical analysis and far more “cheerleading.” Robert Powell, editor of Retirement Weekly, confirms it: Regarding the stocks that make up the S&P1500, Powell noted that not a single one has a Wall Street consensus “sell” rating on it. This is pretty damning proof that forecasting errors may be because of inherent structural bias.
I have a simpler way of explaining what’s going on. First, in an effort to generate revenue, analysts are now in the “pay to play” business. But wait. Conferences are also selling speaking slots for booth / exhibit purchasers or sponsors who provide “bags” for give aways, drinks at receptions, or logos for giant banners that identify who is silver, gold, or platinum. What about lists? These are hooked in to speaking, ads, or the fraternity of the trade show.
Now keep in mind that I run content for clients. We even produce information services that explain the ins and outs of financial services, rocket science technology, and silliness about social media. When I give a talk, I get money, a free meal, and, if I am lucky, two nights at a hotel without stars.
The point is that I am an addled goose, dabbling in odds and ends. The folks touched upon in the Washington Post article try to generate an aura of analytic objectivity. None of these poobahs, satraps, failed Webmasters, and unemployed English majors would dare to suggest that their work is little more than a clumsy payola, old style advertorial, or flat out fluff.
The disconnect between facts and value is fascinating. Can one believe anything from anyone in the advisory business? I hope so. I think I can filter the goose feathers from the giblets. My hunch is that others cannot, will not, or do not think goose feathers are anything by gold. Believe me, goose feathers are not gold. Goose feathers can absorb a hit. Worth having a few around if you are a “real” consultant.
Stephen E Arnold, September 12, 2011
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