Is equity research from large banks reliable?
"If by ""can we trust the analyst recommendations"" you mean ""are they right 100% of the time"" the answer is absolutely no.  Analysts are human and make mistakes, some more than others.  There are many stories of ""superstar managers"" that make killings for several straight years, then have a few bad years and lose it all back. However, don't take ""you can't trust them"" to mean that they are nefarious in some way. While there may be some that recommend stocks for selfish purposes, I suspect that the vast majority are just going off what information they have, and can't predict market behavior or future performance with perfect accuracy.  Look at many analysts' recommendations.  Do your own analysis. If you're still not comfortable buying individual stocks, then don't buy them.  Buy index funds if you are satisfied with market returns, or other mutual funds if you want to invest in specific sectors.  Or at the very least make sure you are sufficiently diversified so that you don't lose your entire investment by one bad decision.  One rule of thumb is to not have more than 10% of your entire portfolio in any one company." "They aren't necessarily trustworthy. Many institutions claim to have a ""Chinese Wall"" between their investment banking arms and analysis arms. In practice, these walls have sometimes turned out to be entirely imaginary. That is, analysis is published with an eye to what is good for their investment banking business. One of the most notorious cases of this was Henry Blodget, an analyst with Merrill Lynch during the dot-com bubble. Blodget became a star analyst after he correctly predicted Amazon would hit $400/share within a year. However some of his later public analysis dramatically conflicted with his private comments. Famously when he started covering GoTo.com, rating it as ""neutral to buy"", he was asked  ""What's so interesting about Goto except banking fees????"" Blodget replied, ""nothin"". Eventually he was permanently banned from the securities industry."
Yes, Lending Club is the biggest of the bunch, which to date have helped originate $1B of loans. LC just raised more money (bringing total to $100M) and Mary Meeker joined the board. There's a novelty aspect to it b/c it's new but it's just the beginning of parts of the banking industry/process/institutions being disintermediated.   Low vol is an easy sell, actually. If investors aren't being paid for risk, why assume it? There are forums online (Wall Street Oasis, Poets and Quants) that cover what you need to know for a Wall Street interview. That's the most efficient way.  But it's also important to research the company that you're interviewing for. Do they invest in equity or debt? Are they in a specialized industry (e.g., real estate, oil &amp; gas)? A model for a equity research firm is going to have different priorities from a LBO model for a private equity firm or a cash flow model for a bank/lending company. "Though you're looking to repeat this review with multiple securities and events at different times, I've taken liberty in assuming you are not looking to conduct backtests with hundreds of events.  I've answered below assuming it's an ad hoc review for a single event pertaining to one security. Had the event occurred more recently, your full-service broker could often get it for you for free.  Even some discount brokers will offer it so.  If the stock and its options were actively traded, you can request ""time and sales,"" or ""TNS,"" data for the dates you have in mind.  If not active, then request ""time and quotes,"" or ""TNQ"" data. If the event happened long ago, as seems to be the case, then your choices become much more limited and possibly costly.  Below are some suggestions: Wall Street Journal and Investors' Business Daily print copies have daily stock options trading data.  They are best for trading data on actively traded options.  Since the event sounds like it was a major one for the company, it may have been actively traded that day and hence reported in the papers' listings.  Some of the print pages have been digitized; otherwise you'll need to review the archived printed copies. Bloomberg has these data and access to them will depend on whether the account you use has that particular subscription.  I've used it to get detailed equity trading data on defunct and delisted companies on specific dates and times and for and futures trading data.  If you don't have personal access to Bloomberg, as many do not, you can try to request access from a public, commercial or business school library. The stock options exchanges sell their data; some strictly to resellers and others to anyone willing to pay.  If you know which exchange(s) the options traded on, you can contact the exchange's market data services department and request TNS and / or TNQ data and a list of resellers, as the resellers may be cheaper for single queries." Thanks for the info.  I am quite familiar with FAs and I definitely do not want to go that route.  I highly doubt I can get an equity research role considering my lack of real experience.  I was just trying to get an entry-level position and given my resume, I'm having a tough time doing even that :\  It's really unfortunate, I wish I articulate my experience to a hiring manager BEFORE they looked at my resume! From Dimson, Elroy, Paul Marsh, and Mike Staunton. Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, N.J: Princeton University Press, 2002: Disappointingly, the small firm effect has not proved the road to   great riches since soon after its discovery, the US size premium went   into reverse. This was repeated in the United Kingdom and virtually   all other markets around the world. Despite their disappointing performance in recent years, the very   long-run record of small-caps remains one of outperformance in both   the United States and the United Kingdom. Furthermore, mid- and   small-size companies are still an important asset class. Their   differential performance over long periods of history shows that there   is useful scope for investors to reduce risk by diversifying across   the “large” and the “small” capitalization sectors of the market.   Furthermore, given the pervasiveness of the size effect across the   entire size spectrum, it is important to all investors since the   size tilt of any portfolio will strongly influence its short- and   long-run performance. This holds true whether there is a size premium   or a size discount. The size effect has certainly proved persistent   and robust. What is at issue is whether we should continue to expect a   size premium over the longer haul. And accompanying charts:    And one chart from BlackRock: I actually don't have a finance/accounting background but a much more technical background within my sector and had some general finance knowledge. However, most have finance/accounting degrees I work with, and then learn their sector.  Many (a third?) straight out of school, most associates with just a few years of experience in finance/accounting related jobs, not necessarily equity research.  Don't fret about not having much luck so far, keep looking for a good opening and understand that a lot of jobs in finance/accounting fields can lead you to other positions. "Sure, Yahoo Finance makes mistakes from time to time.  That's the nature of free data. However, I think the issue here is that yahoo is aggregating several line items into one.  Like maybe reporting cash equivalents plus total investment securities minus loans as ""cash equivalents.""  This aggregation is done by a computer program somewhere and may or may not be appropriate for a particular purpose and firm. For this reason, if you are trying to do top quality research, it's always better to go to the original SEC filings, if you can.  Then you will know for sure which items you are looking at.  The only mistakes will be the ones made by the accountants at the firm in question. If there's a reason you prefer to use yahoo, like if it's easier for your code to scrape, then spend a little time comparing to the SEC filing to ensure you know where the numbers really come from before using it." So my Question is this, in reality is investment in equities like the   stock market even remotely resemble the type of growth one would   expect if investing the same money in an account with compounding   interest? Generally no as there is a great deal of volatility when it comes to investing in stocks that isn't well represented by simply taking the compounded annual growth rate and assuming things always went up and never went down. This is adding in the swings that the market will take that at times may be a bit of a rude surprise to some people. Are all these prognosticators vastly underestimating how much savers   need to be socking away by overstating what is realistic in terms of   growth in investment markets? Possibly but not probably. Until we know definitively what the returns are from various asset classes, I'm not sure I'd want to claim that people need to save a ton more. I'll agree that the model misses how wide the swings are, not necessarily that the averages are too low or overstated. "This is the best tl;dr I could make, [original](http://www.imf.org/en/Publications/WP/Issues/2017/06/09/ABBA-An-Agent-Based-Model-of-the-Banking-System-44916) reduced by 60%. (I'm a bot) ***** &gt; The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.  &gt; A thorough analysis of risks in the banking system requires incorporating banks&amp;#039; inherent heterogeneity and adaptive behavior in response to shocks and changes in business conditions and the regulatory environment.  &gt; ABBA is an agent-based model for analyzing risks in the banking system in which banks&amp;#039; business decisions drive the endogenous formation of interbank networks.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6gegcw/imfabba_an_agentbased_model_of_the_banking/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~140832 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **banks**^#1 **IMF**^#2 **risk**^#3 **view**^#4 **author(s**^#5" Please use the sharing tools found via the email icon at the top of articles. 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Dismiss cookie message Accessibility helpSkip to navigationSkip to contentSkip to footer    Financial Times MYFT HOME WORLD UK COMPANIES MARKETS OPINION WORK &amp; CAREERS LIFE &amp; ARTS Portfolio My Account    HOME WORLD UK COMPANIES MARKETS OPINION WORK &amp; CAREERS LIFE &amp; ARTS MYFT Bank stress tests  Add to myFT US banks pass first round of annual stress tests  Clean bill of health from Federal Reserve opens door to increased shareholder payouts Read next Week in Review Week in Review, July 1   © AFP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Email4 Save JUNE 22, 2017 by: Alistair Gray and Ben McLannahan in New York and Barney Jopson in Washington US banks have big enough capital buffers to keep trading through an economic meltdown, regulators said on Thursday, in a finding that improves their chances of boosting payouts to shareholders.  In the first round of this year’s stress tests, the Federal Reserve probed how 34 banks would fare in a financial and economic slump in which the unemployment rate doubles and the stock market loses half its value. The central bank calculated that the banking sector would endure $493bn in losses in the simulated downturn.  Yet officials concluded that the banks would emerge from the crash “well capitalised”, with cushions of shareholder funding still above the Fed’s minimum required levels.  The largely upbeat results augur well for US banks as the Fed prepares to unveil the results of the tests’ second round next week, when investors will learn how much capital they can return through dividends and share buybacks.  However, the figures released on Thursday do not foretell what the Fed will say about payouts, not least because regulators can approve or block US banks’ capital plans on qualitative as well as quantitative grounds.  Lex Bank stress tests: chilled The once-vital check on the industry’s health is outliving its usefulness   UBS analysts estimate that the four biggest by assets — JPMorgan, Bank of America, Citigroup and Wells Fargo — will be able to return a net $59.8bn this year, rising to $72.3bn in 2018.  Citi and Morgan Stanley could be among about a dozen banks that will make requests to return more than 100 per cent of their annual earnings to shareholders, according to Goldman Sachs analysts.  Despite the positive stress test results, not all investors would be comfortable with such a bonanza. Bill Hines, a fixed-income investment manager at Aberdeen Asset Management in Philadelphia, said the prospect of payouts in excess of profits “does scare us a little bit”.  “If the safety blanket is pulled away . . . that may come to the detriment of capital and safety.”  Across-the-board passes for the stress-test are “a good thing,” he said, as it shows that banks have rebuilt capital levels substantially since the crisis. “But from a creditor’s standpoint you don’t want to see all the profits go out the door.”   While banks have already told the Fed what they propose to do on dividends and buybacks, they are now able to make more conservative payout plans if, based on the first-round results, they think it will reject them in the second round.  Related article Regulators back Trump on looser financial rules Officials endorse Volcker rule revamp and bank relief from burden of ‘stress tests’   The regulator’s simulated downturn lasts for nine quarters. Banks’ overall loan losses and declines in capital under the worst crisis scenario were smaller than in last year’s stress tests, Fed officials said.  Still, the test found that some banks would come close to breaching regulatory minimums during the meltdown on some metrics. For instance, Morgan Stanley’s “supplementary leverage ratio” — a new measure of financial strength that takes effect in 2018 — would drop as low as 3.8 per cent compared with a required level of 3 per cent.  The results also drew attention to banks’ exposure to credit card lending. The Fed found banks would suffer the biggest losses in their card portfolios in the hypothetical crisis.  Fed officials said that partly reflected a rapid expansion in the size of banks’ credit card assets and rising delinquency rates in the real world.  Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web. Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Email4 Save Latest on Bank stress tests Week in Review Week in Review, July 1 Fed stress tests give $1.6bn boost to Buffett Fed gives nod to ‘payout party time’ for banks Lex US banks: feeling special Premium Stress tests clear big US banks for $100bn payout Read latest Week in Review Week in Review, July 1 Latest on Bank stress tests Add to myFT Week in Review Week in Review, July 1 US banks pass test; Google, Takata, Fox and M&amp;A also in the news   Banks Fed stress tests give $1.6bn boost to Buffett Investor is one of the largest holders of US bank stocks and will reap big dividends Analysis Bank stress tests Fed gives nod to ‘payout party time’ for banks Buybacks and dividends set to soar after industry passes latest stress test Latest in Banks Add to myFT Central Banks BoE successfully tests new payment method ‘Interledger’ programme synchronises transactions between two central banks 3 HOURS AGO   US banks US consumers set to be given power to sue banks Financial institutions express fury at CFPB proposal that could spur class actions UK banks BoE warns UK banks on accounting practices PRA chief Sam Woods says lenders should ‘expect questions’ on balance sheet trickery Follow the topics mentioned in this article JPMorgan Chase &amp; Co. Add to myFT Companies Add to myFT Banks Add to myFT Wells Fargo Add to myFT Citigroup, Inc. Add to myFT Follow the authors of this article Barney Jopson Add to myFT Alistair Gray Add to myFT Take a tour of myFT Support View Site Tips Feedback Help Centre About Us Accessibility Legal &amp; Privacy Terms &amp; Conditions Privacy Cookies Copyright Slavery Statement Services FT Live Share News Tips Securely Individual Subscriptions Group Subscriptions Republishing Contracts &amp; Tenders Analysts Research Executive Job Search Advertise with the FT Follow the FT on Twitter Ebooks UK Secondary Schools Tools Portfolio Today's Newspaper (ePaper) Alerts Hub Lexicon MBA Rankings Economic Calendar News feed Newsletters Currency Converter More from the FT Group Markets data delayed by at least 15 minutes. © THE FINANCIAL TIMES LTD 2017. FT and ‘Financial Times’ are trademarks of The Financial Times Ltd. The Financial Times and its journalism are subject to a self-regulation regime under the FT Editorial Code of Practice. CloseFinancial Times UK Edition Switch to International Edition Top sections Home World  Show more World links UK  Show more UK links Companies  Show more Companies links Markets  Show more Markets links Opinion  Show more Opinion links Work &amp; Careers  Show more Work &amp; Careers links Life &amp; Arts  Show more Life &amp; Arts links Personal Finance  Show more Personal Finance links Science Special Reports FT recommends Lex Alphaville EM Squared Lunch with the FT Video Podcasts Blogs News feed Newsletters myFT Portfolio Today's Newspaper (ePaper) Crossword Help Centre My Account Sign Out "Also here's a source for the $3.7 trillion number.      http://www.bloomberg.com/news/2011-12-08/u-s-municipal-bond-market-28-larger-than-estimated-federal-reserve-says.html    It's not 'incorrect data'.        EDIT:  Furthermore, in order to know the ""extent"" of the crime (your own admission) we NEED to know the size of the entire market otherwise you can't have any perspective or determine extent.  So there's no reason it shouldn't be mentioned in the article." "There is actually a recent paper that attempted to decompose Buffett's outperformance. I've quoted the abstract below: ""Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.""" ETFs don't need sell-side research (yes they do, no they don't).  They need to keep their fees minimal.  Mutual funds need equity research and they charge beefy fees to pay for it.  Look at the flows into mutual funds and the flows into ETFs and make your own mind up.  However, bear in mind that there will always be *some* demand for really good research.  It just probably isn't a growing field.  It will be a shrinking field where the best of the best do well and everyone else is playing a game of Survivor trying not to get kicked off the island. Buy and sell orders always include the price at which you buy/sell. That's how the market prices for stocks are determines. So if you want to place a buy order at 106, you can do that. When that order was fulfilled and you have the stock, you can place a sell order at 107. It will be processed as soon as someone places a buy order at 107. Theoretically you can even place sell orders for stocks you haven't even bought yet. That's called short selling. You do that when you expect a stock to go down in the future. But this is a very risky operation, because when you mispredict the market you might end up owing more money than you invested. No responsible banker will even discuss this with you when you can not prove you know what you are doing. I am going to speak in general, as this has also been the case in europe.  First of all QE is an increase of money supply but using non conventional measures(there might be exceptions) some examples of this measures are changing interest rates or TLTRO.  As to why this hasnt transitioned into more inflation, which in the end has but years after, has been a question that people have asked a lot. One of the reasons for this is the transmission mechanism not working properly, which implies that despite the fact banks have received money, they havent been able to move it to the real economy hence not increasing prices.