Sunday, 24 February 2008 00:00

Are blogs the replacement for Sell Side Research?

I came across an interesting story in, and am including an excerpt. I would like to hear your feedback:

Henry Blodget of Silicon Alley Insider, Barry Ritholtz of FusionIQ, Nouriel Roubini of RGE Monitor and Jonathan Glick of Gerson Lehrman Group were on a Money:Tech panel chaired by Paul Kedrosky called Blogs, Analysts and the Future of Equity Research. Part of the discussion was about the value of research being largely related to how much trust a reader will place in a writer. Years ago it was believed you could only trust the recommendations of an analyst employed by a well-known sell-side shop. Now a blogger can established a track record as a knowledgeable analyst and can develop trust and an audience. And Gerson Lehrman will connect a trusted blogger, who has a specific area of expertise, with a hedge fund or private equity investor for private consultation.

The last few minutes of the session focused on research monetization and it struck me that the sell-side research business is displaying a number of similarities to the music business. Leaving aside the fact that both are/were "hits" businesses - Institutional Investor rankings and Grammys tend to drive revenue of the analyst, artist and their "label" - it seems as if sell-side firms and majors labels can no longer monetize their investment in equity research and artist promotion as they have in the past - through commissions, deal flow or CD sales. Bloggers (independent research producers) and increasingly independent musicians monetize their product/talent through page views, subscriptions to special services and through public or private appearances.

Last modified on Sunday, 24 February 2008 00:00


  • Comment Link Reggie Middleton Friday, 07 March 2008 04:16 posted by Reggie Middleton

    Thanks for the encouraging words, shuttle. I am no closer now than I was when I made the post. I may adopt an ad model if it passes legal muster.

  • Comment Link George Hadley Thursday, 06 March 2008 23:55 posted by George Hadley

    Hello Reggie

    I have only recently found your website and have spent the last few days reading through all your messages since you started on the 1st September 2007. There's no doubt in my mind that the information that you have given out is easily the best available on the web.

    Are you any nearer to having a solution to being able to provide buy/sell recommendations to the private investor without incurring any problems with the SEC?

  • Comment Link Brian McEvoy Monday, 25 February 2008 04:55 posted by Brian McEvoy

    I go one step further: I trust no one but myself. I enjoy reading what's available in the blog-o-sphere, particularly those sites which function as a counterpoint to the hucksters in the "mainstream" media. But I never forger that these bloggers have their agendas as well, and those agendas might not be in line with mine. I'd say what my strategy is, but then I could be accused of proseletyzing for my book too! So I'll just crawl back into my cave and trade, keeping my blogging friends as arm's-length companions.

  • Comment Link Reggie Middleton Sunday, 24 February 2008 16:22 posted by Reggie Middleton

    I have been following Calculated Risk, and some others closely. I feel they have a good product, an intelligent audience and a lot of traffic. There are some big differences between them and this blog, though. For one it appears that they are retired and/or on sick leave from corporate America, where I am entrepreneurial in that I am starting a business that comes under the purview of the SEC, and is unregulated as long as I do not hold myself out to the public as a paid advisor. It is under so much scrutiny that my lawyers state that I can't even tell you what the business is - which goes to show how silly the rules can be since anyone smart enough to peruse this blog can easily guess what it is that I do.

    These restrictions lead to the second big difference. I cannot sell research to non-institutions without endangering my start up business. This is to the detriment of the small and individual investors, in my opinion since they are the ones that can most benefit from it. Since the guys at CR do not have a similar start up (at least to my knowledge), they can explicitly sell to others (ex. like a paid newsletter).

    The third major difference is that I concentrate primarily on focused fundamental and financial analysis (usually at the company or industry level), where they perform more of a macro research perspective. This I am sure you have noticed.

    I am kicking around a few novel ideas on how to keep this going, though.

  • Comment Link Jon Pearlstone Sunday, 24 February 2008 12:09 posted by Jon Pearlstone


    One path that might be worthy of your time would be to study the ways other blogs are benefitting financially from their efforts.

    Ticker Forum has a "star" system that are given in exchange for donations of varying volume.

    Calculated Risk recently started a "fee based" research subscription service. They offered a free sample.

    Of course many blogs go the way of pay per click and other advertising methods to make revenues.

    You have a unique asset here in my opinion. I value your blog more than the others I frequent because you are bringing far more information than just today's headlines analyzed (although you do a good job of that too).

    So studying what other successful blogs in your world do and the results they have achieved should assist in creating a good model for you.

  • Comment Link Reggie Middleton Sunday, 24 February 2008 10:25 posted by Reggie Middleton

    especially the part about this blog (just kidding ;D)

    One salient point that you made which is under appreciated by many is the cost of good research. It is, by nature, very expensive and highly proprietary. It costs me a fortune in time just to produce to the public what I have in this blog, and deep into 5 digits per month. Eventually, this expense needs to be monetized in some form or fashion. The question is, how? The most obvious way is to outright sell it, but that would run afoul of SEC regulations that deal with investment advisors and reaching out to the public. Personally, I feel this rule needs to be changed or at least modified.

    Nobody should take the advice of anyone who does not take their own advice. If I have any research that is worthwhile, I should be acting on it and not preoccupied with selling it. If I make more money selling my research than acting on it, that goes a long way in telling the consumer how much that research is truly worth. I have always been a staunch believer in such.

    Yet, on the other hand, once proprietary research is acted upon by the researcher, it actually goes to waste simply sitting on someone's desk. Why not monetize this sunk cost and make it a profit center as well? Now we come round robin back to the beginning of the circular argument of holding one's self out as an unregistered investment advisor. For the smaller institutions and individual investors, the only one's you really would want investment advice and/or research from or the one's who are either unmotivated to, or barred by SEC rule from, giving it to you. It's a catch 22. I'm actually working on a business model that can deliver both though. Give me some time...

  • Comment Link ralph allen Sunday, 24 February 2008 10:07 posted by ralph allen

    I think that the blog spear is the greatest thing to hit the small investor since the real-time reporting of stocks and the discount broker. After my short time as an investor I have come to believe that the market is full of snake oil salesmen. Either yelling fools like Cramer or incompetent organizations like Motley Fool. Many of these are tainted by connections in the industry and are hyping stocks for their clients or are bashing stocks that their friends (hedge funds) are shorting. In many cases the small investor is left holding the bag one way or another. Being able to separate the lie from truth like a divining rod used by a dowser is the best tool a small investor can have as an investment finder. In short a BS detector that can’t be bought in any software package.
    The financial news media is an example of the worst abuses of investment advice. In many cases they are front runners for their big paying clients. The large media are guilty of these kinds of acts not just the small publishers and small web media. The small analysts that give buy/sell recommendations are notorious for their misleading basing/pumping of stocks all to the detriment of the small investors. The BS detector can be most effective here as a counter indicator.
    In the blog spear many investors from varied background and different levels of expertise can come together. Their combined talents in many cases exceed anything that a recommendation from an investment house can provide. The free exchange of ideas and analysis is the crucible than can turn lead into gold for the sharp investor able to use his BS detector effectively. Free is the operative word. Many analyses are prohibitively expensive for a small investor. Even if a small investor were to buy an analysis for a couple of thousand dollars he cannot share this information for discussion/analysis with other investors without violation confidentiality agreements. He is then stuck with only his own opinion as to whether the investment recommendation is a good one.

    A huge advantage of these blog is to add to the knowledge to the small investor. Without trying to suck up I can say that this blog has provided a wealth of investment knowledge and ideas for investments that 99% of the blogs fail to achieve. That is not to say that in many cases I use knowledge and analysis from other sources to verify and support recommendations made here.

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