Wall Street Research Has A New Problem

You probably know the story — in the ’90s Wall Street got carried away (to say the least) with the tech boom and the Chinese wall between its analysts’ research and investment banking was crossed.

Since then, the Street’s research has slowly won back some of its credibility, but former hot-shot Merrill Lynch analyst, Richard Bernstein — who now oversees $1.3 billion at his own firm, Richard Bernstein Advisors — still doesn’t buy it. His interview in last weekend’s issue of Barron’s breaks down his thoughts.

To Bernstein, the problem isn’t credibility. Now the problem is that Wall Street research is all basically the same stuff.

From Barron’s (this is a Q&A, the italicized questions are from Barron’s reporter, Lawrence Strauss):

You can show me a report, you can take off the banner, and I would have no idea who wrote it. It is very hard to differentiate one person’s research from another’s. “We don’t care about individual names. We care about getting size, style, country, and sector right.”

Is there anyone, in particular, whose work you like?

Michael Goldstein at Empirical Research Partners was one of my biggest competitors when I was on the sell side, and now we subscribe to his work. He is very good. But most of the Street research is remarkably similar, with very little value added, so we don’t use a lot of outside research. About 95% of what we do is our own research, and there are only maybe three or four people whose work we subscribe to.

Has Wall Street research changed a lot since you started your career in 1981?

It has. If I want to find a strategy report on Botswana, I can find it on the Street now. Wall Street has a strategist for every country and product you can name. So the research has gotten broader. However, the depth has gotten so shallow, it is absolutely ridiculous. The strategists I always looked up to — people like Chuck Clough of Merrill Lynch and Lee Cooperman and Steve Einhorn of Omega Advisors — weren’t necessarily tremendously broad. I am not sure they could tell you what was going on in industrial production in Botswana. But the depth of their research was fantastic.

So there you have it — one bank’s research may be just as good as another.

The lesson here is, as ever, do your own homework.

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