Thursday, May 24, 2007

Top Sell Side Clichés

So I worked on the buy side for nine years and like all buy side people, I read my fair share of sell side research reports. After a while, they all began to blur together into an unending mass of paper. I noticed that there was a common set of terms or cliches that all the analysts used. Here is my list and my spin on them

“Management gave an upbeat presentation.”

Well, what the hell else are they going to say?

“The session was well attended.”

The herd is stampeding into the room so what are you waiting for.

“The meeting was constructive.”

Another confidence boosting cliché designed to whet our appetite for the stock.

“We are cautiously optimistic.”

This is used when something bad is about to happen but the analyst can't do anything about it except watch.

“Valuation is compelling.”

This cliché is for classic value traps that are cheap because they should be cheap, or for highflying stocks that are selling at ridiculous valuations, but look cheap compared to their peers or history. (i.e. a technology stock trading at only 40 times earnings)

“The company is hitting on all cylinders.”

A vehicle hitting on all cylinders means it is going pretty much close to its fastest speed. If you apply this to a stock, doesn’t that mean it’s time to sell?

“We view the deal as positive.”

Is there ever a deal that is not positive to them?

“We still like the company.”

A disaster has just occurred but I can’t change my opinion in writing because the company will kill me.

“Long-term fundamentals are still intact.”

Used primarily for companies where it is so obvious that fundamentals are declining, along with the stock price, but the analyst must still say something positive about it so the company will still talk to him.

“At the margin.”

I’m not sure where to put this because I don’t even know what the hell it means. It seems to signal that whatever follows is really not all that important but is incremental news. Well, if that’s the case, then why mention it at all.

“We believe the company is at an inflection point.”

An inflection point is a point on a graph at which the sign changes concavity or curvature. That means the stock can go either way.

“The company has reached the sweet spot of the cycle.”

Just the time to sell, so change your rating before the stock goes down 60%.

“No new news”

Terrible news has just come out on a stock and it is selling off but the analyst is trying to convince anyone who is listening that the market already knew this.

“Our thesis is still intact”

Ninety-five percent of sell side analysts don’t have a thesis so stop pretending, you’re not fooling anyone.


Adventures In Money Making said...

excellent post!

Eric J. Fox said...

Thanks...I like your blog too.

William said...

As to the last one, half the sell siders can't even spell and write out "in tact" as if there were something called a tact in which they were going to put their thesis.

Jason said...

Awesome write-up. As to be expected, they are "selling" their research. When one buys a report, chances are they are looking for reasons to purchase the stock, not sell. No one would buy reports if they were all pragmatic-realism :)

fifty said...

you forgot my personal favorite: "outlook is murky." translation: "management stopped providing guidance."

Eric J. Fox said...

I also forgot "the company is well positioned." Well maybe if I do a sequel.

John said...

My favorite is right before an earnings release where they write some variation of "we expect to be surprised" or "we do not expect a surprise".

Anonymous said...

I'm a sell-side analyst.

You obviously don't understand a sell-sider's job.

It has NOTHING to do with picking stocks. We have to generate commissions and banking deals; and get companies to 'market' with us (read: kiss your buy side asses by bringing lunch and ABC Manufacturing's CFO right to your conference room.)

Sell-side reasearch is bullshit and marred by a million conflicting forces. When a buy side analyst criticizes the sell side, it tells me he is dumb, because he doesn't understand our role.

Ignore written research and ratings. CALL and get to know an analyst. Use us for models and access to companies. Read the research? HAH!!!

Criticizing a sell side analyst's research (written)is like criticizing a national league pitcher for not being a good hitter. You don't understand that it's not really what we're there to do.

Funny post by you - very entertaining -- maybe you can be a comedy writer after you get blown up for relying on sell side research!!!

Eric J. Fox said...

Well first, lighten up a little...the post was a joke. Second, I understand the role of the sell side and have spent a fair share of my career ignoring them. The problem is that millions of investors don't understand the role of the sell side and when an analyst goes on TV and shills for a stock, some tend to believe it.

Eric J. Fox said...

One more thing. Did you ever market in the Southeast? I may have met you.