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Smart Blazers, Bad Advice: Whose Recommendations Do You Follow?

Sep 27, 2017

Richa Agarwal, Research analyst

Smart blazers, shoes shined to perfection, and the latest data at their fingertips... Admittedly, I was a little bit in love with the glamour of equity research analysts when I was just a student.

When I had started business school, straight out of engineering college, I was not looking to become an 'equity research analyst'. But the finance batch in B-school was dominated with CAs and veterans of the finance industry passionately discussing the stock markets.

Their passion was contagious. I longed to participate in these conversations. To blow people away with my 'brilliant insights'.

Of course, at that time I had neither the money to invest in stocks, nor the know-how to maneuver these discussions.

Lucky for me, I had one thing in spades: youthful determination.

The library became my retreat. The first investing related book I remember reading that made complete sense to me - no hot air, no jargon - was The Little Book That Beat the Markets by Joel Greenblatt. A book, by the way, you should definitely read.

Soon, I had devoured the words of legendary investors such as Warren Buffett, Benjamin Graham, and one I was most influenced by, Peter Lynch.

Two years later, I strode into the sleek offices of a much sought after MNC. Finally, a bona fide Equity Research Analyst.

But the glamour quickly faded away, and my dream unraveled...

I was hardly doing anything meaningful. Assisting analysts covering companies based outside of India. Studying companies at a distance.

I longed to meet managements of companies. To grill them and really understand their businesses. To tour the factories and see where the real potential in our country lies. I wanted to get my 'boots on the ground'.

I was bitterly disappointed... Worse, I felt wasted.

Then, I got the chance to make a trip to the UK to work with the lead analyst I had been assisting. Over the course of that two-week trip, I made a decision that changed my life.

You see, I learned that even when analysts in brokerage firms get to meet managements, it is just a charade. The final view is neither unbiased...nor independent. Models are tinkered with to accommodate the predecided views.

It's like a candidate I once interviewed said:

  • In a brokerage, analysts are not allowed to give outright 'Sell' recommendations. At most, we are allowed to give a 'Hold' view. At any point in time, we must have at least 70% 'Buy' calls.

Learning this was the last straw. I decided to get out of there.

I didn't care that the biggest financial crisis had taken the world in its grip. That the job markets had slowed down and would be punishing.

My aim was to get into Indian equity research. And to work with and for someone who values integrity and unbiased views, just like I do. So I quit.

And then, fate landed in my email inbox, in the form of Equitymaster's free newsletter - The 5 Minute Wrapup. Reading the wrapup was such a refreshing break from the run-of-the-mill junk that media and other research reports churn out. Something resonated. I applied for a job. A few rounds of interviews, and I was in.

Unlike some of my seniors here, Equitymaster wasn't my first job. I often wish it was. But I'm glad at least I have been on the other side and know the difference.

Here I'm associated with a small cap recommendation service.

Discovering Opportunities Across India

Armchair investing is out of question. No stock is recommended without meeting the management and boots-on-the-ground research. There is no pressure to come up with Buy recommendations. No one directs the 'view' on the stocks. The process rules. Long term and value investing that have gone out of fashion for others are still followed here.

And all this is reflected in our recommendation track record that has consistently offered market beating returns.

I was home.

It's been seven years. A lot has changed over that time. New services have emerged to fill in the gaps for you, our readers. We are communicating more and walking with you through the ups and downs of your investing journey.

But one thing has not, and will never, change: We will only give you unbiased, credible opinions that will empower your investment decisions.

And the change I'm truly excited about...? This newsletter.

For almost a decade, we have been writing to you about safe, conservative, investing ideas through The 5 Minute Wrapup.

But my mentor, Rahul Shah, has now launched this new free e-letter, the Smart Contrarian. You see, Rahul believes that to make the most profit from the markets, an investor should set aside a portion of capital to aim for 'big returns from small investments'.

And I believe the same. In fact, he wants me to write to you about the stuff that you are unlikely to know from anywhere else.

And I am going to grab this chance to happily debunk every possible myth about small caps and investing I can. I will share updates on management meetings; on what's really going on in the markets - not withstanding what the media loudmouths are saying; and the biggest potential opportunities I come across in my travels.

I'm excited about this new beginning. And I hope you are excited about how profitable this could be for you. Do write to tell me what you think about my ideas - remember, I am an equity research analyst, but the kind that, first and foremost, cares about you, dear reader.

Good investing,

Richa Agarwal
Research Analyst

Editor's Note: Richa is not kidding when she says she likes to get her 'boots on the ground' for research. She is rarely ever at the office - traversing the country discovering hidden companies with huge upside before the markets ever get wind of them. With these backdoor opportunities - timing is everything. Make sure you never miss a single one by getting on her list.

Brain Food for the Day

The Little Book That Beats The Market

When it comes to value investing, most people are either in the Benjamin Graham camp or Warren Buffett camp.

They either want to buy cheap or they want to buy quality.

But Joel Greenblatt's The Little Book that Beats the Market isn't willing to give one up for the other. It wants to have the best of both worlds. It wants to marry the philosophies of both the legends.

So, what you do is rank companies based on the cheapest to the most expensive and likewise you rank companies based on their quality i.e. the returns they generate on their invested capital.

Combine the rankings and pick the top ranked 30 companies from the list. Hold for one year and then repeat the process and voila, you have a market beating strategy right there.

The strategy is known to have beaten the markets comfortably over a long-term period.

Though there have been debates about the magnitude of the outperformance, the outperformance itself over a sufficiently long-term period has not been questioned.

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1 Responses to "Smart Blazers, Bad Advice: Whose Recommendations Do You Follow?"


Sep 29, 2017

Cannot agree more. It is easy to be carried away by the glitz and glamour, but at the end of the day if you are able to deliver credible, honest
and unbiased advice to subscribers you will always be assured of customer support, besides the satisfaction of not being a part of the financial shenanigans.

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Equitymaster requests your view! Post a comment on "Smart Blazers, Bad Advice: Whose Recommendations Do You Follow?". Click here!