Jack Grubman, Analyst : Salary: US$25,000,000 Jack Grubman, Analyst CiticorpTelecom Analyst
Henry Blodget, Analyst : Salary: US$15,000,000 Henry Blodget, Analyst Merrill Lynch Internet analyst
Robert Zielinski, Analyst : Salary: KW10,000,000 Robert Zielinski, Analyst UBS Bank analyst
Death Of An Analyst : Death Of An Analyst ROBERT ZIELINSKI PRESENTS
My “Life” as an Analyst : My “Life” as an Analyst 1983: Prudential-Bache Securities Tokyo, Junior Analyst
1987: Jardine Fleming Tokyo, Bank Analyst
1992: Jardine Fleming Thailand, Head of Research
1994: Jardine Fleming Singapore, Asian Bank Analyst
1998: Lehman Brothers, Asian Bank Analyst
2000: ABN Amro Securities Japan, Financials Analyst
2001: UBS Global Asset Management, Analyst
Deep Conclusions About Analysts : Deep Conclusions About Analysts Analysts are underqualified
Analysts don’t analyze
Analysts contribute little to decisions
Analysts are tools of investment bankers
Analysts are overpaid
Analysts are in oversupply
Analysts live a dog’s life
Conclusion 1: Analysts are under-qualified : Conclusion 1: Analysts are under-qualified
Qualifications of a Brain Surgeon : Qualifications of a Brain Surgeon 4 Years studying biology at college
3 Years at medical school
2 Years as in intern in a hospital
3 Years as a resident in a hospital
Talent, Skill, Steady Hand
Qualifications of an Analyst : Qualifications of an Analyst
Breathing
Qualifications of an Analyst : Qualifications of an Analyst
Breathing
The CFA Program : The CFA Program 3 weeks of staring at study notes
6 hours of watching L.A. videos
18 hours of exams
PLUS
3 YEARS of Work Experience
RECOMMENDATION of a Friend
DONATE $198 to AIMR
Slide13 : Year Qualification Research Report
1965 Be there “Sony makes TV”
1980 College Toshiba, Hitachi
1987 MBA The TV Industry
1990 Experience HDTV “the future”
1997 CFA Friend of Fidelity
2002 Low Cost “Sony makes TV
(in China)” The Lifecycle of Analyst Qualifications
Slide14 : The Past
Information gatherers
Printed
Eager youngsters
Broad coverage
Serve client
Use a salesman
Pioneer The Present
Industry experts
E-mailed
Tired veterans
Limited coverage
Serve bankers
Direct contact
Bureaucrat The Future
Data Provider
Live Online
Salarymen
All companies
Independent
Interactive
Mechanical Evolution of Analysts
Bloomberg, CFA : Bloomberg, CFA
Conclusion 2: Analysts don’t analyze : Conclusion 2: Analysts don’t analyze
Ideal Investment Analysis : Ideal Investment Analysis Read Annual Reports
Meet CEO
Ask Deep Questions
Talk with Suppliers, Customers,
Analyze the Industry
Forecast 5-years of Earnings
Cash Flow Analysis
Credit Analysis
Value shares with dividend discount model
Actual Investment Analysis : Actual Investment Analysis Read company handbook
Look at share price chart
Listen to IR
Buy!
Slide19 : Information service
Daily news
IB deal reports
Results e-mail
Read newspaper Entertainment
Travel agent
Interpreter
Golfing partner
Dinner companion Research
Visit a company
Write a report Marketing
Meet client
Roadshow
Talk to salesman
Phone client
Morning meeting Sell-side analysts: No time for analysis
Slide20 : Make Data Requests
Income Statements
Earnings Models
Industry Facts
Get Entertained
Drinking
Dining
Dancing Research
Visit a company
Write a report Get Marketed To
Analyst visits
CEO visits
IR visits
Buy-side analysts: No time for analysis
Things given away for free : Things given away for free Air
Advertising
Research reports
Slide22 : Buy Buy Strong Buy Hold Hold Typical History of Recommendations
Slide23 : Analyst value added = Commission Rates
Conclusion 3: Analysts contribute little to the decision making process : Conclusion 3: Analysts contribute little to the decision making process
Slide25 : Decision Process Flow Chart (Pre-1990) Analyst Salesman Fund Manager
Slide26 : Idealized Process Flow Chart Analyst Salesman Fund Manager Idea Idea Orders Compliments
Slide27 : Actual Process Flow Chart Analyst Salesman Fund Manager Idea Nonsense Nothing Complaints
Slide28 : Process Flow Chart (Post 1990) Sell-Side Analyst Account Manager Fund Manager Data Relative Rankings Votes Requests Buy Side Analyst Trading Desk Order Complaints Girlfriend Order
Slide29 : Difficulty of providing truth in research Pressures on an analysts’ opinion Governments Listed companies Salesmen Strategists Management Investment
bankers Clients
Slide30 : Basic Decision Tree Analyst Says Fund Manager Does Opinion Truth Lie Contrarian Consensus Analyst Thinks
Slide31 : Decision Tree Level 1 Analyst Says Fund Manager Does Buy Contrarian: Buy Consensus: Buy Analyst Thinks Buy Sell
Slide32 : Decision Tree Level 2 Analyst Thinks Salesman Says Fund Manager Does Buy Contrarian:Buy Contrarian: Buy Consensus: Buy Consensus: Buy Buy Sell Buy Buy Sell Sell Analyst Says
Conclusion 4: Analysts are tools of investment bankers : Conclusion 4: Analysts are tools of investment bankers
2001 Goldman Sachs P/L : 2001 Goldman Sachs P/L Investment banking $3,677 million
Trading $6,254
Asset Management $1,163
Securities Services $942
Commissions $2,482
Interest income $1,293
Total $15,811 million
Compensation $7,700
Net Profits $2,310
What Investment Bankers Do : What Investment Bankers Do Build relationship with corporations
Devise unique financial solutions
Due diligence
Create investment opportunities
Contribute to capitalism
Simplified Role : Simplified Role Give widows’ savings to greedy CEOs
Generate fat fees for investment banks
Quiz: What is the basic tool of an investment banker? : Quiz: What is the basic tool of an investment banker? A Mask A Gun A Get-Away Car
No, it is the Analyst, CFA!!! : No, it is the Analyst, CFA!!! Help
Conclusion 5: Analysts are overpaid : Conclusion 5: Analysts are overpaid
2001 Compensation : 2001 Compensation Average Top 10%
CEO $264,000 $1,550,000
Head of Equity $245,000 $1,100,000
CIO $229,000 $775,000
Sales $200,000 $675,000
Fund Manager $180,000 $610,000
Analyst $165,000 $590,000
Analyst Pay vs. Performance : Analyst Pay vs. Performance
Value-Added of CFA Charter : Value-Added of CFA Charter CFA Holder Non-CFA
Compensation $250,000 $200,000
Value of CFA: $50,000 per year
Present value over 20 years at a 5% discount rate is $623,110
New AIMR Annual Dues : New AIMR Annual Dues
Original Dues: $200
Revised Dues: $20,000
Conclusion 6: Analysts are in oversupply : Conclusion 6: Analysts are in oversupply
Number of CFA Charterholders : Number of CFA Charterholders
Number of CFA Candidates : Number of CFA Candidates
Conclusion 7: Analysts’ life is miserable : Conclusion 7: Analysts’ life is miserable
Slide48 : How Analysts See the World Analyst Salesman Fund Manager (Brain) (Mouth) (Hand)
Fund Manager vs. Analyst Life : Fund Manager vs. Analyst Life FUND MANAGER
Eat
Drink
Speculate ANALYST
Writes Reports
Visits Company
Analyze Announcements
Make Phone Calls
Attend Meetings
Grow Old Quickly
Dog Life vs. Analyst LIfe : Dog Life vs. Analyst LIfe DOG
Always Ready for a Walk
Sniffs Around A Lot
Happy with a Bone
Always Wags Tail
Likes Garbage ANALYST
Always Ready for a Marketing Trip
Snoops into Companies
Happy with a Bonus
Always Wags Tongue
Likes “Value” Stocks
Deep Conclusions About Analysts : Deep Conclusions About Analysts Analysts Therefore
Are Underqualified Get CFA, New Skills
Don’t Analyze Write Creative Research
Contribute little to decisions Make Money for Clients
Tools of investment bankers Get Paid for It
Overpaid Save Your Money
Oversupply Find Niche Market
Live a dog’s life Move into management
Slide52 : I’m Okay, I’m CFA