Reading Wall Street research like a pro with Steven Cress
Nov 1, 2023
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Steven Cress, Head of Quantitative Strategy at Seeking Alpha with 30 years of Wall Street experience, discusses the driving force behind Wall Street research (1:20), the evolving nature of research goals (13:30), and how Seeking Alpha's Quant Ratings validate stock picks (15:50).
Wall Street research drives trading and banking business via positive recommendations and access to management.
Quant Ratings provide data-driven validation for stock picks, enabling informed investment decisions beyond traditional analyst views.
Deep dives
The Objective of Wall Street Research
Wall Street research aims to generate trading commissions, validate fee structures, promote investment banking relationships, support trading activities, and maintain access to top management through positive recommendations. Analysts prioritize maintaining strong relationships with management teams to secure access to CEOs and CFOs for meetings with key clients, resulting in a majority of buy or hold recommendations over sell ratings.
Challenges in Trusting Wall Street Analysts
There is natural skepticism towards Wall Street firms due to conflicts of interest arising from investment banking relationships, potential bias towards generating commissions, lack of transparent ratings, and underperformance in research recommendations compared to market benchmarks like the S&P 500. Investors may find it challenging to trust analysts who often mirror management guidance, leading to a bias towards positive ratings and minimal sell recommendations.
The Role of Quant Ratings for Individual Investors
Quant ratings offer a data-driven methodology to validate professional analysts' recommendations by providing instant characterizations of a company's financial health relative to sector peers. The quantitative approach incorporates historical and forward-looking financial data, offering comparisons on valuation metrics, revenue and earnings growth, and profitability against sector medians and company histories. This tool helps hold analysts accountable and assists individual investors in making informed investment decisions beyond traditional analyst views.
Steven Cress, head of Quantitative Strategy at Seeking Alpha, weighs in with 30 years of Wall Street experience on calls from analysts and strategists. He talks about how research is there to drive trading and investment banking business (1:20), why the goalposts keep moving (13:30) and how Seeking Alpha's Quant Ratings can validate those stocks picks. (15:50)
For full access to analyst ratings, stock quant scores as well as dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions
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