Speaker 1: Hello, and welcome to another edition of the Odd Lots Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't so, Joe? What
Speaker 1: are we talking about today? Analysts? Wait wait, wait before
Speaker 1: we get to that, can we just say this is
Speaker 1: not just another edition of the Outlaws podcast, and that
Speaker 1: this is a special edition of the Outlaws podcast. Why
Speaker 1: is it special because I am in the same room
Speaker 1: with you. I'm looking at your face as we're talking.
Speaker 1: Normally we're in other studios around the world, and so
Speaker 1: it's a very special moment where we happen to both
Speaker 1: be in the same city at the same time. So
Speaker 1: I just want to take a moment to appreciate how
Speaker 1: how nice this is. I like how you say we're
Speaker 1: in the same studios when in reality, I'm sitting on
Speaker 1: my living room floor. Right. I was trying. I didn't
Speaker 1: know if you wanted that information normally to get out there,
Speaker 1: so I use that as euphemism. But yes, normally I'm
Speaker 1: in a student you your in your your living room floor.
Speaker 1: But this time we're in the same studio about ten
Speaker 1: feet away. Right, we are reunited and it feels so good.
Speaker 1: I guess, okay, all right, But in all in all seriousness,
Speaker 1: let's get down to business. We are discussing a topic
Speaker 1: that I think is kind of close to both our
Speaker 1: hearts today, analysts and analyst research. Yes, I don't think
Speaker 1: it's intuitively obvious when someone says, oh, analyst research is
Speaker 1: close to your heart, Maybe that's like not the kind
Speaker 1: of thing that makes a lot of sense to people.
Speaker 1: But I think as people will see and the course
Speaker 1: of our discussion, for both of our careers, analyst research
Speaker 1: has played an important role. Absolutely so. I think a
Speaker 1: lot of people will have noticed by now that there
Speaker 1: is a significant segment of financial media that zeros in
Speaker 1: on the cell side research being produced, and that kind
Speaker 1: of gives people ideas for stories or sometimes the stories themselves.
Speaker 1: You write up an analyst note and it can be
Speaker 1: a big deal. And just so people understand and um,
Speaker 1: when we talk about analyst research in the cell side,
Speaker 1: for those who don't know what those terms mean, we're
Speaker 1: talking about what you've seen those stories like Goldman Sachs
Speaker 1: is bullish on Tesla and and and or Goldman Sacks
Speaker 1: upgrades Tesla to a buy or Morgan Stanley downgrades its
Speaker 1: forecast for the third quarter GDP or whatever it is,
Speaker 1: and you see those headlines, you see those stories, and
Speaker 1: that refers to the people at the big banks typically
Speaker 1: though not always, who write up reports on various things
Speaker 1: and markets in the economy that both you know, traders
Speaker 1: and investors and of course journalists we we like to
Speaker 1: pour through it. So what are we talking about this today?
Speaker 1: All right? So analysts and their research have been a
Speaker 1: big part of our lives. But at the same time,
Speaker 1: the industry has been going through its own i guess,
Speaker 1: existential crisis and also business crisis. In the same way
Speaker 1: that the media has struggled to monetize the stories that
Speaker 1: we're producing, there's a similar question facing the analyst community
Speaker 1: right now. There's also a big, big change coming in
Speaker 1: the form of new regulation called MiFID, which is basically
Speaker 1: going to force the people that produce research to charge
Speaker 1: for it in a way that hasn't been done historically.
Speaker 1: And this is key. Lots of people get research reports
Speaker 1: for free because they trade with the bank, uh and
Speaker 1: they give them commissions in that way, and then the
Speaker 1: research is kind of a free bonus for them. Well,
Speaker 1: I've never understood the business of analyst research, like how
Speaker 1: analysts get paid, How banks make money on it, and
Speaker 1: I certainly don't understand what the new regulations are all
Speaker 1: about or what they're intended to do. So I'm very
Speaker 1: excited about this episode. Who are we going to talk to?
Speaker 1: All right, so we actually have one of my all
Speaker 1: time favorite analysts. It's Steven Abraham's. He used to be
Speaker 1: head of mortgage, bond and securitization research over at Deutsche Bank,
Speaker 1: but he recently left to go found or co found
Speaker 1: mile Post Capital Management and he is now see EO
Speaker 1: over there as well. So should we bring them on?
Speaker 1: Let's do it. Steven, Welcome to the show. Hi, Tracy,
Speaker 1: Hey Joe, how are you so? Maybe just before we begin,
Speaker 1: do you want to give a sort of analyst job
Speaker 1: in a nutshell kind of description? Well, I think a
Speaker 1: good analyst actually is probably a lot like any good journalist. Really.
Speaker 1: You are always basically out there trying to chase the
Speaker 1: biggest possible story that you think might exist in your market.
Speaker 1: You want to get there first, You want to get
Speaker 1: there with the best information, and you want to deliver
Speaker 1: it with all the style you can muster. How you
Speaker 1: do that really depends upon what part of the world
Speaker 1: you're focusing. On. If you're an equity analyst, then you're
Speaker 1: trying to understand the latest about how your company's markets
Speaker 1: may be evolving or the strategies that you're rolling out.
Speaker 1: If you're in fixed income, which is where I've spent
Speaker 1: my career, then uh, you may be focused on the economy.
Speaker 1: You may be focused on what the FED is doing.
Speaker 1: You may be focused on specific twists in your own market.
Speaker 1: Mortgages have been mine, and you just want to get
Speaker 1: there first and get that information out to your audience.
Speaker 1: I have a feeling we're gonna be talking about the
Speaker 1: parallels of journalism and being an analyst a lot on
Speaker 1: this because just hearing you talk, I already have so
Speaker 1: many questions. But you know, one of the questions that
Speaker 1: comes up for a journalist is like, what is a
Speaker 1: job well done? And so I'm curious for you what
Speaker 1: what you during the course of your career have considered
Speaker 1: to be like a job well done? Is it having
Speaker 1: correct calls? Is it wanting people? Is that having people
Speaker 1: want to read your stuff first versus other analysts? Like
Speaker 1: when you look back and I say, okay, I was
Speaker 1: successful at X, what are the how do you benchmark
Speaker 1: yourself well I think it's parts of both what you mentioned.
Speaker 1: I think the audience that you're speaking to UH desperately
Speaker 1: wants UM to be the first to know what is
Speaker 1: changing in their marketplace, and sitting on a trading floor
Speaker 1: or sitting at one of the larger banks usually gives
Speaker 1: you access to tremendous information flow. That information flow can
Speaker 1: come through the traders, because especially at larger places, they're
Speaker 1: seeing the various types of institutions that are buying and
Speaker 1: selling UH. It can come through the salesforce, who can
Speaker 1: often share information about UH, the views of their clients, UH,
Speaker 1: the kinds of assets that they may or may not
Speaker 1: be enthusiastic about. And you can often find in the
Speaker 1: midst of these streams of information little tidbits that you
Speaker 1: suspect are not broadly known in the marketplace, and those
Speaker 1: are the pieces of information that end up moving the market,
Speaker 1: essentially changing the price of one or a sector of
Speaker 1: assets when all other parts of the market, for practical purposes,
Speaker 1: may be standing still. That's the kind of information that
Speaker 1: can make or break an investment portfolio. And that's the
Speaker 1: kind of information that any good member of the by
Speaker 1: side audience wants to hear. So if that's the game,
Speaker 1: you really want to keep your ears open for those
Speaker 1: tidbits of information that you think signal things that could
Speaker 1: move the market. Sometimes they're small, sometimes they can be huge,
Speaker 1: and when you find that, that's a good day, that's
Speaker 1: a job well done. So I've always been curious how
Speaker 1: are analysts perceived within south side banks, because externally, we
Speaker 1: in the financial media zero in on a couple like
Speaker 1: rock star analyst names like Peter Oppenheimer at Goldman or
Speaker 1: Marco Kolonovitch at JP Morgan. Do they have the same
Speaker 1: cashe internally or is analysts and analyst research viewed as
Speaker 1: basically a cost center for the bank? Well, um, I
Speaker 1: think most firms, most firms, at least the places that
Speaker 1: I've worked, and I think this is just broadly true.
Speaker 1: Recognize that that good research and a good analyst just
Speaker 1: separates you from your competitors. If you imagine a market
Speaker 1: where they're really were no good, aggressive, compelling analysts, then
Speaker 1: essentially you have a market where there is simply price
Speaker 1: execution that the bank could offer their clients if the
Speaker 1: analysts brings good information, or if the analyst is able
Speaker 1: to take lots of information and synthesize it in a
Speaker 1: way that allows the audience of investors to understand and
Speaker 1: react to it. That's extremely valuable, and it is a
Speaker 1: service that the bank can provide that many of of
Speaker 1: their clients in turn value and over time will direct
Speaker 1: progressively more of their business towards the providing bank. And
Speaker 1: I think in a well run institution, that's the way
Speaker 1: good research um helps the investor and helps the bank.
Speaker 1: So your last answer there really gets to a question
Speaker 1: that I think a lot of people have about the
Speaker 1: business model Becau has. Let's say you unearthed some great
Speaker 1: negative insight. I want to trade on that a why
Speaker 1: can't I just go trade with a competitor use the
Speaker 1: information that you've get that you've provided me. I have
Speaker 1: a big trade idea. Go trade with a competitor or
Speaker 1: maybe a place a little bit of a trade through
Speaker 1: your bank to sort of show that Okay, thanks for
Speaker 1: that information, but then trade do the bulk of my
Speaker 1: trading somewhere else. There seems to there doesn't seem to
Speaker 1: be a mechanism that naturally connects the bank that offered
Speaker 1: you the really compelling information and a reason to actually
Speaker 1: execute orders through that bank. Yeah, I agree. Um. That
Speaker 1: has always been a problem with with sell side research.
Speaker 1: There's always the issue of free riders. I have never
Speaker 1: seen a completely satisfactory solution for it. I think a
Speaker 1: well organized bank does have the ability to UH roughly speaking,
Speaker 1: track and understand the proportion of the trading business that
Speaker 1: the account is providing to the bank, and that is
Speaker 1: the best way of looking at the ability of the
Speaker 1: analysts to help the bank generate trading revenue and effectively
Speaker 1: pay for the service provided. But it's a imperfect mechanism,
Speaker 1: so it's always been a problem. UM. Talk to us though,
Speaker 1: how the industry has changed over the years, because there
Speaker 1: is a sense nowadays that analysts are facing a little
Speaker 1: bit of maybe crisis is a strong word, but that
Speaker 1: they're struggling with this monetization issue, and it feels like
Speaker 1: that concern has been growing. Has it actually changed well, Um,
Speaker 1: I think that on the equity side, I think it's
Speaker 1: the change is clearer and it seems like we're about
Speaker 1: to go into, you know, arguably a third chapter in
Speaker 1: the equity search model. I'd say the first chapter was
Speaker 1: pre Internet crisis, if you remember that one, UH and
Speaker 1: pre Internet crisis, equity analysts routinely had um special access
Speaker 1: to corporate management, and what they learned in the course
Speaker 1: of those conversations often could be shared with a limited
Speaker 1: range of clients, and it was clear to the bank,
Speaker 1: it was clear to the clients, it was clear to
Speaker 1: the analysts that that was a clubby form of information flow.
Speaker 1: After the crisis, I think regulation stopped that, which created
Speaker 1: frankly fairer markets, and the market is essentially operated in
Speaker 1: a post Internet crisis mode until recently with the introduction
Speaker 1: in the EU at least of the method regulations and
Speaker 1: method obviously is trying to put a very specific price
Speaker 1: on the provision of of research. Whether it will do
Speaker 1: that successfully is still to be determined at an't I
Speaker 1: contrast that though with fixed income research, I would say
Speaker 1: that in many respects fixed income research, since it is
Speaker 1: often focused more on macro issues than on the particulars
Speaker 1: of a management team or a specific balance sheet, Fixed
Speaker 1: income research, at least in terms of its method, the
Speaker 1: way that it interacts with uh internal and external clientele
Speaker 1: hasn't really changed as much over the years. UM. You know,
Speaker 1: obviously there's there's constant awareness of abiding by the evolving
Speaker 1: regulations that need to provide fair and accurate research, and
Speaker 1: there's always been an overriding I think premium attached to
Speaker 1: analysts that provide straight down the middle views of their markets. Um,
Speaker 1: that's not always obvious, but still I think the investing
Speaker 1: side has always been able to identify and appreciate those analysts,
Speaker 1: and and the fixed income and the more macro side
Speaker 1: of the research enterprise has had much less changed than
Speaker 1: the equity side. I think that that's still probably the case.
Speaker 1: I'm so glad we're having this conversation because now I'm
Speaker 1: remembering like millions of questions I've always had about the
Speaker 1: business that I'm so uh that I've always wanted to
Speaker 1: ask someone. So here's your last answer. Why is it
Speaker 1: that by side clients need analysts to understand the markets
Speaker 1: that they're us that they're trading in that they're ostensibly
Speaker 1: get paid quite a bit for to determine, you know,
Speaker 1: what the best stuff to buy and sell us. So,
Speaker 1: in the fixed income space, if someone is a fixed
Speaker 1: income portfolio manager, what is it that you offer them,
Speaker 1: or that fixed income analysts offers that it would be
Speaker 1: uneconomic for them to sort of understand themselves or put
Speaker 1: in the work themselves to figure out well. UM, I
Speaker 1: would say the simplest example, uh, really is the place
Speaker 1: where I started my career, and that is in the
Speaker 1: mortgage space. Analyzing the behavior of homeowners that influence sometimes significantly,
Speaker 1: the value of of those securities. UM. It's a market
Speaker 1: that's particular to the United States, but all mortgage securities
Speaker 1: in the United States give the borrower the right to move, refinance,
Speaker 1: or otherwise pay their loan back early in most cases
Speaker 1: without any kind of penalty. So that creates uncertainty in
Speaker 1: the stream of cash flows that you would get from
Speaker 1: holding that security, and depending upon the nature of the security,
Speaker 1: how it structured, those can have either minor or major
Speaker 1: influence on security value. That really is an exercise in
Speaker 1: gathering tremendous amounts of data and statistically modeling that data.
Speaker 1: So it is far more efficient for that activity to
Speaker 1: occur in a centralized place and for the results of
Speaker 1: that activity to be than delivered to clients, as opposed
Speaker 1: to having every single client separately aggregate the data and
Speaker 1: then do the statistical modeling on their own. So that's
Speaker 1: probably the easiest case. I would also say that it's
Speaker 1: far easier for an analyst even if an analyst is
Speaker 1: just trying to aggregate broad information about the types of
Speaker 1: buyers and sellers in the market. Uh, it's far easier
Speaker 1: for an analyst sitting on a trading floor to aggregate
Speaker 1: that information than it usually would be from most buy
Speaker 1: side analysts. The sell side analysts, in many cases can
Speaker 1: literally walk up and down a couple of aisles, have
Speaker 1: a handful of conversations with sales representatives or traders that
Speaker 1: are interacting with dozens of various accounts over the course
Speaker 1: of just you know, that particular trading day, and get
Speaker 1: a very clear read on what's happening. It would be
Speaker 1: a lot more work for a sell side analyst to
Speaker 1: collect that kind of information over the phone. Now that's
Speaker 1: not always true. If you're at an extremely large asset
Speaker 1: manager UM, they would often have information flow analysts. The
Speaker 1: ability to aggregate data, the ability to analyze that data
Speaker 1: equal to, if not better than, some of the cell
Speaker 1: side shops. But shops that large are few and far between.
Speaker 1: So the provision of that kind of information from the
Speaker 1: cell side, if you want to think of it this way,
Speaker 1: is really kind of a democratizing influence. It captures that
Speaker 1: information in an efficient way, and then it spins it
Speaker 1: out into the marketplace in many cases for investors that
Speaker 1: would be too small and too focused on other things
Speaker 1: on their own to to to do it themselves. I
Speaker 1: want to go back to the media a parallel for
Speaker 1: a little bit. Yeah, more naval gazing. Um well, I
Speaker 1: don't think it's a secret that you know. Traditional journalism
Speaker 1: or media has struggled over the past few years, especially
Speaker 1: in light of the growing influence of the Internet, which
Speaker 1: has made news sort of more commoditized. So a scoop
Speaker 1: only exists for what five or ten minutes before someone
Speaker 1: else is disseminating it to the world arguably one second.
Speaker 1: And it also means that you just have more competitors
Speaker 1: in a variety of forms. Um So, I'm curious when
Speaker 1: it comes to research, did you observe the same things
Speaker 1: and how did you feel? For instance, if you wrote
Speaker 1: a really good note and someone like myself or Joe
Speaker 1: would immediately write it up at say FT Alphabel, my
Speaker 1: old employer or Joe's old employer business insider, well, I
Speaker 1: would say, uh. In most cases, a good analyst loves
Speaker 1: the bullhorn of the media. You love to get magnified
Speaker 1: that way. In many, many cases, the first recipients of
Speaker 1: your work are the institutions that are the clients of
Speaker 1: the firm, and they're typically going to get that information
Speaker 1: on direct distribution. Uh, there's nothing better than having that
Speaker 1: story picked up. In most cases, it won't be picked
Speaker 1: up immediately, but let's just say it's picked up with
Speaker 1: some lag and then magnified in the broader press. It
Speaker 1: kind of sends a couple of messages to the clients
Speaker 1: of the firm. It says you really should pay attention
Speaker 1: when the information arrives because it's it's valuable, it's of
Speaker 1: interest to a broad audience, it has the potential to
Speaker 1: move the market, and it gives you an opportunity to
Speaker 1: act on it. And it sends a broader message to
Speaker 1: entities that may not be dealing with your firm that
Speaker 1: there there are there's a good information flow, a valuable
Speaker 1: information flow coming out of out of UM the Bank.
Speaker 1: So I think that ends up being in positive in
Speaker 1: most cases. In fact, I can't think of a case
Speaker 1: where a media follow through wasn't good news on the
Speaker 1: things that I was working on or that my team
Speaker 1: was working on. All right, but there are some perverse
Speaker 1: things that can happen in this cycle, and so media
Speaker 1: often gets criticized for being hyperbolic or being you know, uh, sensationalist.
Speaker 1: And I'm not gonna name any names, but we all
Speaker 1: know that there are some popular sell side analysts who
Speaker 1: have been wrong on things for many years, predicting recessions,
Speaker 1: predicting crashes, and they're extremely popular, and they're really popular
Speaker 1: in the press because we like to write up bold calls,
Speaker 1: but they are completely everything that nothing they say ever
Speaker 1: comes to pass. And I'm curious whether the cycle but no,
Speaker 1: I no needs to name names, but whether this media
Speaker 1: cycle can encourage people to say provocative things that will
Speaker 1: get picked up in the press but that aren't necessarily
Speaker 1: correct or grounded in good data. I think it does.
Speaker 1: I think it depends upon the market sector and who
Speaker 1: the analysts believes the audience is. If it is a
Speaker 1: retail audience, then you have to find a way of
Speaker 1: penetrating the same clutter as any other provider of information
Speaker 1: to that audience. And we all know that there is
Speaker 1: just a tremendous number of channels that are fighting for
Speaker 1: the attention of somebody sitting in front of a TV,
Speaker 1: in front of a broker's audience or somebody who is
Speaker 1: walking past the front of a store. If your audience
Speaker 1: is an institutional audience, it's not clear to me that
Speaker 1: the same approach works because the institutional audience if the institution,
Speaker 1: the institution ultimately needs to produce a return that will
Speaker 1: justify its fees. Generating that that return is really hard work.
Speaker 1: That's what all the research shows. I think in many
Speaker 1: ways that's the story of asset flows of the last
Speaker 1: few years, that there is steady pressure on asset management fees.
Speaker 1: So you need to find sources of information that are thoughtful, reliable, actionable,
Speaker 1: And if you're an analyst and you can provide that
Speaker 1: kind of information, then your audience is gonna look for
Speaker 1: you rather than necessarily uh considering you as just part
Speaker 1: of the general clutter that comes over the wires. Um.
Speaker 1: So we mentioned mythid a couple of times before, but
Speaker 1: this is the big European regulation coming in that's gonna
Speaker 1: unbundle research from training commissions. Essentially, how do you think
Speaker 1: that's going to change the world of analyst research? We
Speaker 1: can before you answer, can you also explain what the
Speaker 1: reason why? Before? Like what was the situation? Because I
Speaker 1: don't even understand this still, so what what was the
Speaker 1: situation that prompted the EU to think that this regulation
Speaker 1: was necessary? And then also and then of course, how
Speaker 1: that's going to change your world. I can't say that
Speaker 1: I know exactly what was of the EU regulator UM,
Speaker 1: but I will happily read that crystal ball all so
Speaker 1: I would assume that what the regulator is trying to
Speaker 1: do here is unbundle trade execution from the provision of
Speaker 1: other services by a sell side bank. And I suppose
Speaker 1: at some level you could say that UM that will
Speaker 1: create transparency in the marketplace, because then you will be
Speaker 1: able to compare execution as a separate service compared to
Speaker 1: UM research itself. I don't know if we necessarily are
Speaker 1: going to see that result. In the US. We do
Speaker 1: not have at this point regulators taking the same view,
Speaker 1: So there is no effort so far in the US
Speaker 1: to try to unbundle that. And I do have some
Speaker 1: questions about whether that will produce the amount of change
Speaker 1: that the regulators anticipate. One thing that seems relatively clear
Speaker 1: to me is that it's more likely to have an
Speaker 1: impact on the BYE side then it will on the
Speaker 1: cell side, and The reason I suspect it could have
Speaker 1: an impact on the buy side is that it will
Speaker 1: tend to favor institutions large enough to bear the separate
Speaker 1: cost of research. That provision of research, as I indicated earlier,
Speaker 1: in many ways, is a really valuable democratizing influence. Many
Speaker 1: small institutions that may not do a tremendous amount of
Speaker 1: trading with a sell side bank still have access to
Speaker 1: the research flow, and once the sell side starts requiring
Speaker 1: those institutions to pay UH for that provision of service,
Speaker 1: it might become prohibitive. It's certainly I can tell you
Speaker 1: that as somebody who is in the middle of of
Speaker 1: building an asset manager now, you always keep your eye
Speaker 1: on costs, and you're sensitive to the competition over fees
Speaker 1: that exists in the marketplace, and so if you have
Speaker 1: to pay additional fees to buy research, it's something that
Speaker 1: you're going to do very very carefully. So my assumption
Speaker 1: is that at least for institutions that are dealing primarily
Speaker 1: in the EU or that fall under the EU jurisdiction,
Speaker 1: the rules are going to tend to favor concentration of
Speaker 1: asset management UM. In the US, those rules don't really apply,
Speaker 1: and so I think research in general is still going
Speaker 1: to be broadly available to a wide set of investors
Speaker 1: under the same protocols that have existed in the past.
Speaker 1: And so for the time being, provision of research and
Speaker 1: the model in US markets I think is not going
Speaker 1: to change substantially. Yeah, this gets to another sort of
Speaker 1: business model, parallel with media, which is that, you know,
Speaker 1: it's great to talk about we're going to restrict the
Speaker 1: provision of research and only if you pay for it
Speaker 1: you get it. But as everyone knows, you know, there's
Speaker 1: it's hard to stop people from forwarding things, copying things,
Speaker 1: taking screenshots of things. Anyone in the news business has
Speaker 1: seen how difficult it is to put up paywalls. The
Speaker 1: music industry has seen, how seen how difficult it is
Speaker 1: to uh, you know, sell music as opposed to deal
Speaker 1: with piracy. Uh is that really Like? Do people think
Speaker 1: that's realistic that shops that don't want to pay for
Speaker 1: it won't be able to surreptitiously get access to research. Well,
Speaker 1: I think you're absolutely right. Um, I guess the old
Speaker 1: saying was information wants to be free, and the people
Speaker 1: who will be getting the research, I'm sure will be
Speaker 1: quite careful to make sure that they don't violate their
Speaker 1: agreements with the cell side institutions. But people talk at
Speaker 1: the very least east Um. In many respects, information can
Speaker 1: be shared at the very least informally as part of
Speaker 1: just conversations with colleagues and peers in the course of
Speaker 1: doing business. And if information circulates outside the purview of
Speaker 1: the MiFID rules, I'm not sure how you control the
Speaker 1: flow of that information if it comes outside and then
Speaker 1: goes back inside the EU jurisdiction. I understand the the
Speaker 1: aspiration of the regulations and the desire to provide transparency.
Speaker 1: I just think, as you're pointing out, it's really hard
Speaker 1: to do it um in practice. So a few people
Speaker 1: have commented that the era of analysts and analyst researches
Speaker 1: effectively dead. Uh do you agree with that statement? And
Speaker 1: how much can we read in to your own departure
Speaker 1: from the analyst community if you will, Well, I wouldn't
Speaker 1: read too much into my own decision. I think that, um,
Speaker 1: there will always be need for good information. I mean
Speaker 1: that's what makes markets work. In fact, that, in part
Speaker 1: was what I always found to be the most fascinating
Speaker 1: part about Uh, being an analyst. Information and good information
Speaker 1: really is the core of portfolio management, and it's the
Speaker 1: core of investing. And any good investor will tell you
Speaker 1: that a substantial part of their time and effort goes
Speaker 1: into getting their hands on good information and using it
Speaker 1: to make good decisions. So that will not go away. Uh,
Speaker 1: And so there will always be this core need for
Speaker 1: that information. And I suspect there will always be analysts
Speaker 1: of some sort uh that are sitting in the chair
Speaker 1: and trying to generate and disseminate that information. So how
Speaker 1: it gets monetized may change, Uh, the nature of the
Speaker 1: distribution may change, but the core need for that information
Speaker 1: won't go away. I mean, it's impossible for a market
Speaker 1: to function without that, you know. Speaking of the ways
Speaker 1: in which media is getting disrupted, we've seen a lot
Speaker 1: of sort of data journalism or people opening up their
Speaker 1: models and things like that are sort of like attempts
Speaker 1: to open source the gathering of news and stuff like that.
Speaker 1: Do you see that happening in your world? Into your
Speaker 1: world where you know, rather than a sort of pure
Speaker 1: research report, you're providing more tools to access the underlying data.
Speaker 1: Things like that basically just sort of offering ways of
Speaker 1: giving people to manipulate and understand the news themselves. Well,
Speaker 1: I think those kinds of tools have really been certainly
Speaker 1: available in the fixed income world for decades. And again
Speaker 1: back to my own little parochial playground, Um, it was
Speaker 1: routine starting in the late nineteen eighties for the cell
Speaker 1: side to do the kind of data analysis and statistical
Speaker 1: work that I described and then post those models out
Speaker 1: for public consumption. Solomon Brothers was doing it. Uh First Boston,
Speaker 1: which eventually became Credit Suisse was doing it, and eventually
Speaker 1: every shop that wanted to be considered a serious player
Speaker 1: in mortgage securities ended up with their own team of
Speaker 1: modelers and their own efforts to make the results of
Speaker 1: those models available. Uh So, I think that that has
Speaker 1: been out there for a while. There have been some
Speaker 1: private providers that have popped up over the years that
Speaker 1: have become real specialists and providing some kind some of
Speaker 1: these central data source is. But I guess the broader
Speaker 1: idea of crowdsourcing information I haven't seen that used in
Speaker 1: a way that I would consider really effective. I think
Speaker 1: the problem is that in any market, the value of
Speaker 1: information UH quickly degrades, and so if you genuinely believe
Speaker 1: that you have information that nobody else has and that
Speaker 1: it's information material enough to affect the value of an
Speaker 1: asset that you're buying or selling, You're going to use
Speaker 1: that information and transact on it long before you ever
Speaker 1: turn around and start telling your pals at the next shop.
Speaker 1: So by the time the information would get into a
Speaker 1: crowdsourced environment, I'm not sure it really has the zip
Speaker 1: that it that it that it had when the first
Speaker 1: recipient got it all right, Uh, Steven Abraham's CEO and
Speaker 1: co founder of mile Post Opitualt Management, Thank you so
Speaker 1: much for joining us today. Thank you, Tracy, Thank you Joe.
Speaker 1: It was fun. So Joe, I found that conversation fascinating
Speaker 1: partially because, as you know, both of us have been
Speaker 1: so close to the world of analyst research for years
Speaker 1: now totally. I mean both of us sort of started
Speaker 1: our careers blogging more or less, and a huge part
Speaker 1: of that was pouring through all the endless research that
Speaker 1: would hit our inboxes, typically especially at the beginning, through
Speaker 1: surreptitious sources, people who were not officially at banks. Now
Speaker 1: it's now we're sort of more respectable and we get
Speaker 1: stuff from banks, But in the beginning, at least I
Speaker 1: had to like, you know, mooch them from third party sources,
Speaker 1: finding the analysts that had the interesting calls, writing them up,
Speaker 1: posting their charts. So actually learning more about how that
Speaker 1: business works is very enlightening. Yeah, and I guess it's
Speaker 1: kind of comforting as people in journalism to know that
Speaker 1: the issues that we struggle with, everyone who handles information
Speaker 1: seems to be struggling with. And it's difficult because, as
Speaker 1: Steven said, information is the lifeblood of the industry, and
Speaker 1: yet it seems so difficult to monetize that absolutely, and
Speaker 1: that tension between wanting to have you know, as you said,
Speaker 1: at the very end, information loses its value very fast.
Speaker 1: So the tension between wanting something out there but also
Speaker 1: wanting to maintain that exclusivity is something interesting to hear about.
Speaker 1: We were talking before, but in my career in the beginning,
Speaker 1: when we would write about sell side research, often the
Speaker 1: banks would complain that like, oh, you didn't have the
Speaker 1: right to write about that, you weren't authorized to see that.
Speaker 1: And then two years later, those same people at the
Speaker 1: banks with like reach out in the day, why don't
Speaker 1: you ever write about our research anymore. So everyone is
Speaker 1: all navigating the same back and forth tensions. I don't
Speaker 1: think there's some clear answer about what the correct model
Speaker 1: is and how much to keep internal, how much to
Speaker 1: publicize so forth. Yeah, exactly right. The same issues that
Speaker 1: we kind of struggle with, others are struggling with. Two
Speaker 1: all right, shall we call it a day information sharing.
Speaker 1: Let's let's leave at that, and uh, next time we'll
Speaker 1: be uh next episode, we'll be back to you on
Speaker 1: your on your couch or on your floor. All right, Well,
Speaker 1: this has been a special edition of the aw Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway
Speaker 1: on Twitter, and you can follow me on Twitter at
Speaker 1: the Stalwart and follow our producer Sarah Patterson on Twitter
Speaker 1: at Sarah patt With two teas. Thanks for listening.