Boyd has news today of an analyst at Banc of America Securities, Frank Pinkerton,
who dares to rate companies without meeting with corporate management.
Boyd’s take seems to be that this is a cost-cutting measure: BofA gets to rate
more companies since its analysts aren’t tied up in meetings. And it’s probably
the case that, ceteris paribus, an analyst who doesn’t talk to management
adds less value than an analyst who does talk to management.
But it’s also worth asking who these analysts are really serving. Boyd talks
to one money manager and one hedge fund manager, neither of whom think much
of what Pinkerton is doing. But my guess is that neither of them would pay much
attention to Pinkerton’s research even if he did talk to management.
Rather, Pinkerton’s research is likely to get read much more by BofA’s individual
retail clients – the kind of people for whom his market knowledge and
expertise has a lot of value when it’s applied on a stock-by-stock basis like
Money managers have been complaining for years that they don’t get much value
out of sell-side research. There are two responses to this: the posher sell-side
banks, without a retail network, are cutting back on their printed research
and getting their analysts to spend more time on the phone, one-on-one, with
important clients. Meanwhile, the second-tier firms, like BofA, will start targeting
their research much more at their retail clients. Both responses make sense.