Apple and Amazon have become trillion-dollar companies. S&P 500 is riding the bull into the rainbow. This will lead to many articles stating stuff like if only one had invested in Apple 20 years ago. That’s where good investment research comes in!
Investment research for cycles
Bull markets, like right now, have a way of creating excesses through overvaluation that can easily be overlooked. While the market cyclicality is a self-perpetuating truth, their effect on research evaluation can be huge. One must consciously and deliberately pursue a disciplined approach. Bull markets, as right now, over-emphasise on “hot-markets” like the tech companies in the 90s, leading to over-allocation.
Equity research is continuously evolving to take benefits of the swings in market conditions and taking expert third party research is a leap in that direction. In an institutional setting, MiFID II calls for unbundling of research and execution services. In our opinion, this model of fee-based research brings in much needed accountability and transparency.
Why is research important
Research can help you identify the underlying patterns in the investment markets. A good research analyst will provide you an objective, accurate and independent analysis. Carries out systematic and reliable procedures to ensure that the research represents reality. Works in tandem with you, the investor or the investment manager, so that your investment strategy is well understood and translated into research objectives.
Research can also help in steering through specific investment styles such as value, volatility, momentum, or quality. In such investment styles, scope creep can occur between the investment styles and the investment objectives, i.e. achieve better risk adjusted returns. External research aligned to your investment thesis can help in bridging the gap and mitigating the risks of scope creep.
What is a good investment research
Data speaks the truth. It is the research provider’s responsibility to find, collate, churn and understand a wide variety of data to substantiate the recommendation itself. There is healthy evidence that good investment research banks itself on qualitative as well as quantitative analysis. Such in-depth and rigorous analysis can help you spot smart-betas and alphas in the market.