In his article yesterday on Frank Quattrone and the state of Wall Street research, Andrew Ross Sorkin gets at the real value sell-side analysts add:
Ask any big institutional investor about what makes good research analysts and the answer is rarely the buy, sell or hold ratings. It is the information they can provide, the details they model and understanding the nuance of the executives. Those aspects of research don’t always end up in reports, but that’s what separates the good analysts from the not-so-good. [Emph. added]
Correct! Which is why I don’t get it when the financial wires (and web sites, for that matter) so often make a big deal of analysts' upgrades and downgrades. The only people who care are short-term trading types, and even they only care for a minute or so. Note, however, that the value-add Sorkin describes, basically incremental information and nuance, isn’t necessarily expensive to produce. . . .