The best equity research reports rely on three important components, according to James J. Valentine, CFA. In his article “Do You Know the Key Ingredient Found in the Best Stock Calls?,” Valentine explains how these components combine to provide a unique insight: they pertain to a critical factor, are out of consensus, and are more accurate than consensus. When constructing insightful analysis, Valentine deeply discourages reliance on company management for information — it’s likely not unique, and cannot be objective.
Valentine is the principal and founder of training organization AnalystSolutions, and he consistently provides valuable advice for analysts in his work. His book, Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts, synthesizes his extensive experience and draws upon the expertise of other industry professionals to inform analysts on topics such as improving stock-picking techniques, making ethical decisions, and effective message communication.
In his article “Beyond Stock Picking,” Valentine discusses other essential practices for analysts to differentiate themselves. Among these are self-assessment, improved time management, and better ethics training to build trust in team members — all of which are crucial for an industry that Valentine sees as “investing too little time and resources in training analysts.” Valentine lays out his suggestions in a problem-solution format, with the goal of improving investors’ ability to meet clients’ needs.
Valentine also takes on the question of “what makes great analysts so great” in his article “The Proper Care and Feeding of Great Analysts.” Skills that he discusses include identifying and monitoring critical factors, communicating your insight, and knowing your strengths and blind spots. He advises analysts to identify which of their skills are strengths and which need improvement, and says that the key to analyzing stocks is “to be armed with the skills and knowledge to ensure you’ve arrived at the more accurate conclusion.”
At the 2015 European Investment Conference, Valentine will lead a master class on improving equity research, exploring some of these ideas in greater detail.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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