The counterparts to the "buy-side" portfolio managers are those on the "sell-side" who offer advice. Tbe "sell-side" is represented by the research, sales, and trading departments of the major brokerage houses. If the focus of the money managers is on quarterly performance, then that of the sell-side is increasingly on daily commissions.
As the time horizon of the clients has narrowed and especially as commission rates have plummeted, the brokers have become more short-term-transaction oriented. What has changed since yesterday, or earlier today, they wonder, and what should portfolio managers buy or sell because of it?
Sell-side analysts, in general, are an impressive, accomplished group. A first-rate analyst, however, needs to be a gifted workaholic, and few people in this world are either. They must keep up-to-date on what has just happened or will soon happen, and they must be attuned to the shifts in the underlying trends of a company, an industry, and an economy.
They must also write about all these things, so that the buy-side will have the hundreds of reports on which to base their prudent decisions and barricades to hide behind if the market acts "imprudently." Meanwhile, sell-side analysts are trying to be visible, which in a people business means talking and meeting and getting along with people, particularly with those people who vote for the "best" analysts in the annual Institutional Investor and Greenwich Research Polls.
Most analysts find the time to become experts on their companies, but accurate stock-picking is still a formidable challenge. An in-depth knowledge of a company and a close relationship with management can often hurt the valuation decision. It is easy to lose the forest for the trees when your world is dominated by a single industry or two, and your information comes from company managements.
Even those few analysts who make the time for serious independent research, however, may not reach the correct conclusions as it relates to the long-term value of their stocks. The significant details might get lost in the chaos of the data. Or perhaps a new trend seems too remote in the future to be of importance to a portfolio manager obsessed with the next three months. Perhaps these facts seem insignificant, since they are inconsistent with the general consensus. Perhaps all of this implies a new conclusion that is too controversial to be comfortably marketed.
It's not easy.