The Loss of the Best Analysts to the Sales Desk

The Loss of the Best Analysts to the Sales Desk or to Portfolio Management

My fourth argument against the profession of analyst is a paradoxical one: Many of the best security analysts are not paid to analyze securities. They are either very high-powered institutional salesmen or efficient new-business getters, successful in bringing new underwriting business to their firms; or they get promoted to be prestigious portfolio managers.

Brokerage houses that pride themselves on their research prowess project an aura of respectability by sending a security analyst to chaperone the regular salesman on a call to a financial institution. Institutional investors like to hear about a new investment idea right from the horse’s mouth, and so the regular salesman usually sits back and lets the analyst do the talking. Thus most of the articulate analysts find their time is spent with institutional clients, not with financial reports and corporate treasurers. They also find that their monetary rewards are heavily dependent upon their ability to bring commission business to the firm.

Another magnet pulling analysts away from the study of stocks is the ability of some to attract to their firm profitable underwriting clients, that is, companies who need to borrow money or sell new common stock to raise funds for expansion. The analyst on a field trip who is looking for new, small, expanding companies as potential investment recommendations may put a great deal of effort into selling his firm’s investment banking services. I have seen many a security analyst make his reputation by his ability to attract such clients to the firm. He may not come up with good earnings forecasts or select the right stocks for investment, but he brings the bacon home to his firm and that is the name of the game.

Finally, both the compensation and prestige structures within the securities industry induce many analysts away from research work into portfolio management. It’s far more exciting and remunerative to “run money” in the line position of portfolio manager than only to advise in the staff position of security analyst. Small wonder that many of the best respected security analysts do not remain long in their jobs.

Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.

Paul Kane Park. Paul Kane purchased this property and built a stucco cottage in 1855. Enlarged in the late 1850`s, and again in 1875 with the addition of buff brick and a porch, the house was owned by the Kane family until 1903. From 1925 to 1975 it was used a church hall by the evangelical church of the deaf. In 1978 the city of Toronto purchased the property, assisted by province of Ontario Wintario Funding. In 1979 it was designated under the Ontario heritage Act and a city park was established. The Church-Isabella residents co-operation Inc. leased the land in 1985 and Paul Reuber, architect, incorporated the original house into the residential development opened in 1986, the preservation of this house in the park is a tribute to the persistent efforts of local citizens and heritage organizations. Toronto historical board, 1986.Paul Kane House Parkette. 56 Wellesley Street East, Toronto. A city within a park. Photo by Elena.