Originally Posted by
Muse
Interesting tangent. Some instos & indeed private investors can create their own unique insights through commercial due diligence but with respect to publicly available stuff they have a huge time advantage in how they assess it.
Take for instance a reasonable sized manager like Fisher or Milford. For a particular fund or active strategy they’d have a portfolio manager who calls the shots but supplemented by a number of in house buyside research analysts whose job is to do deep dives on the commercial, financial and valuation aspects of a listed company. They will have access to a Bloomy, CapIQ, Reuters Ikon or Iress Terminal. Those are pretty powerful - providing access to all the sell side research, industry research, comparable company valuations and transactions in a heartbeat. You can suck the financial statements right out of the platform into excel including breaking out all the subtotals at the front of the pack with the details in the notes. Get all P&L, BS and CF statements, structure it how you like, make in half year summing to annual, in about 5 minutes. Something looks curious you can click on it, and it takes you directly to the source and all the notes on that one line. Plus a whole lot more.
Some platforms let you download the sell side analyst models. Say a firm holds Joe Blog analyst at Barclays in high regard but doesnt like the assumptions or wacc noted in the research report. So they can download the model and play with the inputs or use it as a head start on building or supplementing their own.
They’ll usually have an annual subscription to a commercial due diligence service like Third Bridge or GLG where they can talk to industry CEOs, CFO, strat managers or operational managers - both past and present - within a week of submitting a brief to the agency. So if you had a big position in say MFT you could get the low down on port volume movements in key ports, the strategic direction of competitors, who is building what capacity where, the sentiment or level of activity from competitors. Its fast and reasonable way some of these firms can stay on top of industry issues and supplement their own networks which one would hope are extensive and used.
That doesnt mean instos are necessarily better investors than those without those resources - it may just save them a lot of time or, cynically, allow them to operate with less staff per investment or as a % of FUM which could have drawbacks.
And at the end of the day the portfolio manager makes the call - and they are just as fallible as the rest of us with their own pre determined views, biases, and subject to all the same heuristic traps. They could very well ignore or rationalise away what their analysts are saying because of some strongly held belief. Who here hasnt done that at some point - ignoring their own research or better sense? The older I get the more I come to believe unused information is useless information.