By Financial Trader Research

There are three primary types of analysts with three distinct business drivers briefly detailed  below.

1... Sell-Side Analysts and Research

Sell side analysts work for brokerage houses and their business driver is simple: create reports that generate investment activity and hopefully produce a commission (sales) for the brokerage firm.  The reports are designed to "sell" an investment idea to individuals or institutional clients.  Institutional investors (clients) obtain research from the analysts' in house institutional brokers.

Sell side reports are notoriously quantitatively based, and operate under the assumption that the numbers tell most of the story.  For instance, these reports contain a stock valuation and an earnings model that usually provide some sort of forecast.  These reports often provide reasoning by analogy with comparisons to other publicly-traded peers.  Given that sell side reports are expensive most brokerages will not perform the research without a significant investment banking relationship, or pending deal with the company being researched.

2...Buy Side Analysts and Research

Buy-side analysts work for large investors (Fidelity, Pension funds, etc) and their business driver is the following: produce research for the investor that can be acted on for either profitable buys, or for jettisoning losing positions. The buy side analysts reports are for in-house use only...for obvious reasons. 

The sell-side analysts work with buy-side analysts given that the business driver for the sell side is the commission on large trades.  Thus, buy side analysts buy and sell stocks with brokerage firms that provide superior information.

3... Independent Analysts and Research

Most independents serve either institutional clients or are paid by the company being covered for a flat fee, which by law requires disclosure usually found in the disclaimer section of the research report.

FinanicalTrader.com does not accept flat fees from the companies we cover, nor are we compensated by them.  We operate solely for the benefit of the investor.  We rarely hold any positions in the equities we research, but on the rare occasion that we do, we disclose that in our reports too.  

Neither the firm, its principals, nor the assigned analyst trade any shares of any company covered during our lockout period which includes at least one month prior to an initial research report publication, and one month after publication of report.  

Analyst Objectivity

Our standard is higher and more transparent than the street.  We do not believe that an objective research report is possible if there is a any sort of remuneration provided by the company being covered. Who would issue a mediocre report, or a strong sell for a company that is paying the researchers bills?

In other words, most independents are reputable and do provide value, but their objectivity is often in question.

Read the legal disclosures carefully, and research rationale.  If they are not provided that is a red flag in itself.  The quality and tone of the research report will usually reveal the rest.

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 2007 FinancialTrader.com Inc. All rights reserved.  Copying and redistribution prohibited. Financial Trader Research obtains information from sources deemed reliable, but does not warrant its accuracy and disclaims for itself and its information providers all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities.

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