Inside the Changing World of the Sell-Side Analyst

Tracy Alloway (0:08)

Hello, and welcome to another edition of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:12)

And I'm Joe Weisenthal.

Tracy Alloway (0:14)

So Joe, what are we talking about today? Oh yeah, analysts.

Joe Weisenthal (0:19)

Wait, wait, wait. Before we get to that, can we just say this is not just another edition of the Odd Lots Podcast, and that this is a special edition of the Odd Lots Podcast?

Tracy Alloway (0:28)

Why is it special?

Joe Weisenthal (0:29)

Because I am in the same room with you. I'm looking at your face as we're talking.

Normally, we're in other studios around the world. And so it was a very special moment where you happened to both be in the same city at the same time. So I just want to take a moment to appreciate how nice this is.

Tracy Alloway (0:47)

I like how you say we're in the same studios when in reality I'm sitting on my living room floor.

Joe Weisenthal (0:52)

Right. I was trying, I didn't know if you wanted that information normally to get out there. So I use that as euphemism, but yes, normally I'm in a studio, you're in your living room floor. But this time we're in the same studio about 10 feet away.

Tracy Alloway (1:05)

Right, we are reunited and it feels so good, I guess. Okay, all right.

But in all seriousness, let's get down to business. We are discussing a topic that I think is kind of close to both our hearts today, analysts and analyst research.

Joe Weisenthal (1:20)

Yes, I don't think it's intuitively obvious when someone says, oh, analyst research is close to your heart, maybe that's like not the kind of thing that makes a lot of sense to people. But I think, as people will see in the course of our discussion, for both of our careers, analyst research has played an important role.

Tracy Alloway (1:38)

Absolutely. So I think a lot of people will have noticed by now that there is a significant segment of financial media that zeros in on the sell side research being produced, and that kind of gives people ideas for stories or sometimes the stories themselves. You write up an analyst note and it can be a big deal.

Joe Weisenthal (1:58)

And just so people understand, when we talk about analyst research and the sell side, for those who don't know what those terms mean, we're talking about when you've seen those stories like Goldman Sachs is bullish on Tesla, or Goldman Sachs upgrades Tesla to a buy, or Morgan Stanley downgrades its forecast for the third quarter GDP, or whatever it is. And you see those headlines, you see those stories, and that refers to the people at the big banks typically, though not always, who write up reports on various things in markets and the economy that both traders and investors, and of course journalists, we like to pour through it. So why are we talking about this today?

Tracy Alloway (2:42)

All right, so analysts and their research have been a big part of our lives, but at the same time, the industry has been going through its own, I guess, existential crisis and also business crisis in the same way that the media has struggled to monetize the stories that we're producing. There's a similar question facing the analyst community right now. There's also a big, big change coming in the form of new regulation called MIFID, which is basically going to force the people that produce research to charge for it in a way that hasn't been done historically. And this is key.

Lots of people get research reports for free because they trade with the bank and they give them commissions in that way. And then the research is kind of a free bonus for them.

Joe Weisenthal (3:27)

Well, I've never understood the business of analyst research, like how analysts get paid, how banks make money on it. And I certainly don't understand what the new regulations are all about or what they're intended to do.

So I'm very excited about this episode. Who are we going to talk to?

Tracy Alloway (3:42)

All right, so we actually have one of my all time favorite analysts. It's Steven Abrahams. He used to be head of mortgage bond and securitization research over at Deutsche Bank, but he recently left to go found or co-found Milepost Capital Management. And he is now CEO over there as well.

So shall we bring him on?

Joe Weisenthal (4:03)

Let's do it.

Tracy Alloway (4:13)

Steven, welcome to the show.

Steven Abrahams (4:15)

Hi Tracy. Hey Joe, how are you?

Tracy Alloway (4:18)

So maybe just before we begin, do you want to give a sort of analyst job in a nutshell kind of description?