QOTD: Birinyi on Wall Street research
By Barry Ritholtz - October 28th, 2011, 10:30AM
Interesting quote from Laszlo Birinyi on Wall Street research:
“One of the dark secrets of the market is we don’t really do much research on Wall Street. I started off on the trading desk. I worked at my job. There were a lot of people who really hadn’t done the work, and what they were saying was very compelling and saleable, but it wasn’t right.”
-Laszlo Birinyi
Things have improved, but not all that much.
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October 28th, 2011 at 10:45 am
Caught him after his second martini on a good day?
So much for his bull market marketing on CNBC.
October 28th, 2011 at 11:32 am
Sell-side ‘research’ is about as professional as an analysis of the housing market from a Realtor(TM). Ninety-nine percent of the time, the song remains the same: “BUY NOW, BEFORE PRICES GO UP!’
That’s why market valuations based on ‘forward earnings’ estimates are so laughably useless — the input data is tendentious garbage to begin with.
If Glass-Steagall is ever re-enacted, brokers should be prohibited from engaging in research and offering market advice. There’s a hopeless conflict of interest, and it can’t be fixed except by making research a standalone, hard-dollar product from independent sources that do not offer brokerage services.
As I always tell cold-calling brokers, ‘If you were any good at predicting the market, you’d be a rich money manager, not an order-taking shill. So f*ck off!’
October 28th, 2011 at 11:56 am
As near as I can tell, Wall Street analysis goes something like this. An analyst calls a CEO, gets his estimates, cuts them by 5 or 10% to ensure an earnings beat and all the silly little investors rush to buy on the “beat” as if it has some signifgance. Good for business, not so much for credibility.
October 28th, 2011 at 12:08 pm
” what they were saying was very compelling and saleable, but it wasn’t right.”
That describes most of what is offered in the media..
October 28th, 2011 at 12:19 pm
Surprise, surprise!!!
October 28th, 2011 at 12:47 pm
I am an engineer. It must be nice to be in finance or politics where you can simply create alternate universes to live in and speak from. If you are wrong, you just say that you were right and you move on. If something really bad starts to happen, the money printers will step in and solve your problems.
In my engineering world, alternate universes can only exist for short periods before Newtonian physics and other such things come in and take over. The recent earthquake in Turkey is a classic example: a bunch of contractors and regulatros decided that they could exist in an alternate universe that didn’t have earthquakes and therefore the steel and cement required in the building codes was unnecessary. Then the real world intruded and a lot of people lost their buildings and lives.
It appears that in the finance and political world, one can simply declare after the fact that the earthquake never happened or was inconsequential, but whatever it was won’t happen again, and then everything is fine. The stock market skyrocketing yesterday around the world seems to indcate that the major financial subduction fault with volcanoes and earthquakes in the PIIGS has now been determined to not actually exist and therefore everybody can just go back to watching sports.
October 28th, 2011 at 5:01 pm
It’s been a CON for 30 years.
October 29th, 2011 at 1:11 pm
Well, Eureka!
October 30th, 2011 at 12:28 am
Bloomberg Business Week, News Analysis, Dec-31-2007:
“Despite 2007′s letdown, many analysts remain surprisingly optimistic about corporate earnings in 2008″.
Dept. of Commerce, Bureau of Economic Analysis, Aug-2011: 2007 Corporate Profits: $1.738 T and 2008 Corporate Profits: $1.359 T. A mere 22% miss. For more data in Excel form, see:
http://www.bea.gov/national/xls/technote_tax_acts.xls
October 30th, 2011 at 12:31 am
Compare WS corporate profits predictions with actual data from Dept. of Commerce, BEA:
http://www.bea.gov/national/xls/technote_tax_acts.xls