Equity research
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Equity research is important for investors to make informed decisions. It involves in-depth analysis of companies to evaluate their fair value and estimate earnings and valuations. Good research identifies growth and decline trends to help maximize returns by solving for the "right time" and "right price" to invest. While companies now provide more information to researchers, individual investors are unwilling to pay for research themselves. They should learn from institutional investors, who spend heavily on research and analysts to gain an edge. Relying on research rather than broker tips allows individual investors to take informed actions.
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Equity research
- 1. Let Markets Work For You!!!
- 2. While I talked about the importance of individual investments in equities or broader financial markets in my last blog, I probably didnt emphasize on the requirement of quality equity research. Why everyone consider equity as a riskier investment? Investing in a companys equity cannot always be at high risk; if that is the case no bank will be willing to give such leverage to companies. From where I look at it, its a problem of perception due to lack of information. And thats why we need good research to educate investors and help them identify right businesses to associate with.
- 3. Lets try to base the importance of research from this argument - In a perfect market, the correlation between the equity analyst prediction and overall market performance will be close to 1. None of the markets are perfect and even time does not help in making them perfect but my argument is trying to refute only the known devil. Equity research involves critical in-depth analysis to evaluate the fair value of stocks of a particular company. Also, analysts use best of their expertise to analyze a company, its industry and its peer group to provide estimated earnings and valuation multiples. A good research should clearly signify the possibility of growth or decline in a share price. The primary objective is to identify trends through which investors can maximize returns. The two things which investors always look at are right time and right price. A good research should cover all aspects of the company from macro to micro level to help investors in solving the two wants.
- 4. As companies have started to understand the importance of Equity research analysts, they have taken steps to provide greater information to the community by arranging various site visits, seminars, and conferences. Since equity analysts meet the management of companies and attend regular briefings along with other research analysts they are better placed to understand the true picture of the company and to estimate future earnings.
- 5. The challenge is that while research has proven to be valuable, individual investors are not willing to pay for it. Its very important that investors realize that fee-based research helps in increasing the market effectiveness and bridges the information gap specifically for the companies who are not sponsoring their research by large broking houses. Individual investors should learn the value of research from institutional investors. Institutional investors spent huge amount on research and even hire their own analysts to gain a competitive edge over other investors. Its time that individual investors stop reacting to broker tips and start relying on the research to take informed decisions!!!