The entire sell side business is filled with sycophant analysts being paid under the table for producing good reports. The entire training set is bullshit if all you have as your "correct" dataset are these corrupt fuckers.
No. He's describing one side of the equation, which is companies forcing you to produce a favourable report. That is almost common knowledge at this point in the industry and he's absolutely spot on.
What I'm including beyond that is stuff like your brokerage arm asking you to produce a favourable report so clients will buy more of the stock. That's just one example. There are blatant and flagrant floutations of rules and procedures in these markets.
One recent example is Goldman producing a Buy report on tesla during the same week that their investment banking arm was placing shares on the market for tesla. Ideally you'd want a complete blackout on any sell side reports if your firm is placing the fucking shares, but goldman just didn't give a fuck and got away with it for that quarter (far as I remember, I didn't follow up beyond the next quarter).
I disagree in part with this. I had complete freedom to publish a report in contradiction with the firm's interest, which is also backed up by regulation. Investment banking and equity research on the sell-side is firmly divided by compliance and I could never ever speak with my colleagues in investment banking without the explicit supervision of my compliance department. That said, unless I was extremely highly convicted in an idea, it was usually better not to burn any bridges long term with the bankers or the companies.
Edit add-on: You're restricted on what you can publish while your firm is doing banking business with the covered company. The restrictions are stipulated by a mix of regulation and compliance departments. Typically during an offering you either can't publish at all, or you can only discuss points factually without changing your opinion or estimates. That however means that if you publish a report and you're buy rated, even if you're publishing a factual update on a stock you're effectively reiterating your rating. I'm not sure of Goldman's specifics, but they know what they need to do to meet research compliance requirements.
> but they know what they need to do to meet research compliance requirements.
Yes sir. And they were caught wrong footed. But I mean, the number of these "misdemeanours" they get away with has always been pretty high so it isn't surprising. They almost got away with 1MDB for fuck's sakes.
I don't know where you worked, but I was buy side, so I had full freedom to publish my own recommendations. However, my PM was a smart man and always wanted me to get on a call with the sell side analyst if I was disagreeing with him. But since I was very junior, a senior analyst used to lead the call (and was already tuned into the stock and following my models on the side because he was my mentor). Man the senior analyst (an ex sell side analyst from goldman) used to grill the ever loving shit out of the sell side guy on the call. Threw him charts from my report, charts from bloomberg / factset, news links etc on email while he had him on the call.
Like 3-4 emails exchanged just when we were on the phone. Sell side guy was also highly fucking experienced. Never fucking gave ground and admitted that he was being forced by the brokerage to mark it a buy. Always a stalemate and it was wondrous to me when I was new.
Then I understood they both knew it was going to be a stalemate long before the call starts. My senior analyst is cursing the sell side guy to me, and the sell side guy is probably cursing the two of us to his colleagues. We both agreed to disagree, but he never could fully justify his position in my eyes.
We had total freedom to give any rating we could justify. We downgraded banking names under coverage, or gave unfavorable ratings to some of the names that bankers wanted us to add to coverage. These sometimes led to calls from banking (moderated and monitored by compliance) demanding to know why we did such a thing, or my director of research receiving emails from companies that thought they deserved more favorable ratings that would personally insult my team. We nevertheless made the right calls for our investors to the best of our abilities, and I'll always stand by that.
I've been on a bunch of aggressive calls and they always get my pits sweaty. I was on a few with the senior analyst I started working under that I really remember. We had a contentious sell call on a stock and one of their top 10 holders wanted to speak with us. We hopped on the conference call and they brought every one of their covering analysts, PM's, and even a trader onto the call just to try and talk us out of our rating. It was one of those calls where we knew neither side would find an agreement, but ultimately we both got a better understanding of where our disagreements lay, which helped better inform both sides about debates in the stock. The cursing and aggression from these clients made that call especially tough.
On a different note, I found the former sell-side turned buy-side analysts to be the toughest clients to work with. They know exactly how the research game is played, but several seemed to have an especially large chip on their shoulder and wanted to badger the sell-side guys since they had taken that beating for years.
> On a different note, I found the former sell-side turned buy-side analysts to be the toughest clients to work with. They know exactly how the research game is played, but several seemed to have an especially large chip on their shoulder and wanted to badger the sell-side guys since they had taken that beating for years.
Very, very accurate from what I've seen. Especially from the former aggressive sell side people like the senior analyst I worked with. They somehow get redirected to the most aggressive current sell side people as well (despite stock coverage being assigned however).
My coverage finally didn't have too many contentious names (I took up defensives in fucking 2014 thinking the bull market was ending), but the ones that did had very mellow sell side guys. Whereas the sell side guys handling big tech and consumer discretionary names were aggressive as fuck. For instance, the same senior analyst took like 2-3 hours reading up on my stock before a sell side call, but with the consumer discretionary guy, he used to read up from the night before because (a) the stocks were more complicated, and (b) the sell side guys for these stocks were always super charged dudes with a ton of info directly at their fingertips. You needed to adjust your entire demeanour to deal with them differently.
