Death of an Analyst Final 1

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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