Skip to main content

What is Investment Research And Why Is It Broken?


What is Investment Research And Why Is It Broken?

Investment research studies of the performance of stocks, bonds, metals, mutual funds, and other assets. This is done, most often, to influence investment decision making. It seeks to "produce a guide to what investments to make.”

With the capture of regulatory authorities (who are, supposedly, looking out of the public interest) by financial institutions, the number of investment "assets" has increased. There are now more than 5,000,000 different types of investment vehicles. Many have little actual value.

A new investment class with actual value may be cryptocurrencies. A cryptocurrency is a digital program or asset designed to work like currencyBitcoin is a cryptocurrency.

What is Investment Research?

As we note in our online class, investing is "the process of spending money in order to increase the original dollar amount." Investment research provides timely information that, combined with expertise, provides advice." One goal is to reduce or eliminate information gaps and to reveal "potential issues and dangers associated with specific investments, known as risk." In other words, "investment research is designed to..make investors more profitable."

The current era of investment research started with "the Amsterdam Stock Exchange established in 1602.." Key issues included fraud, information validity and accuracy, and understanding true risk.

With the growth of the "market culture", in the 20th century, one set of investments, the stock market, "became a common way to invest, and because of longstanding issues investors have faced for centuries, banks began delivering equity research to their customers through private mail.

Beginning in the 1990s, investment research was provided through email newsletters and other online channels. Advanced research portals like the Bloomberg Terminal, which actually dates back to the early 1980s, have become widely used by serious investors looking for sound advice and reliable data."

(While employed by Merrill Lynch, we had dinner with Michael Bloomberg in 1987. We discussed our research paper on the future of market information systems.)

Many "investors have accessed research through paid subscriptions. As of 2017, the aggregate size of the global investment research market is $16 billion, with more than 40,000 pieces of content delivered each week by bigger banks and brokerages."

Investment Research Is Broken

Our position with respect to capital markets regulation recognizes the primacy of protecting investors. Investor interests, broadly speaking' are not served by fraud and malfeasance. Securities laws and traditional investment research have failed both to protect investors and to promote efficiency, if efficiency is defined as lowering aggregate losses.

Investment analysts issue biased research reports to curry favor with management. Rating agencies, like Standard and Poor's, Moody's and research providers like Bloomberg and Morningstar, issue defective investment research reports. The former are supposed to “base their ratings largely on statistical calculations of a borrower's likelihood of default,” but one news report noted that:

“Dozens of current and former rating officials, financial advisers and Wall Street traders and investors interviewed by The Washington Post say the (NRSRO) rating system has proved vulnerable to subjective judgment, manipulation and pressure from borrowers. They say the big three are so dominant they can keep their rating processes secret, force clients to pay higher fees and fend off complaints about their mistakes.” (See: https://www.sec.gov/rules/proposed/s71005/wcunningham5867.pdf). 

In response, the European Union (EU) "implemented new rules in 2018 requiring asset managers to pay directly for their own research." This is also an attempt to correct flaws in the investment research field: "a study from Bespoke Investment Group in 2015 examined 12,122 ratings in the broad market index. Just 6.67% had a 'sell' label, with the rest either being 'buy' or 'hold.' ” This is clearly indicative of a lack of objectivity.

Also, one study noted that, "in 2012, 49% of (Wall Street Investment) analyst ratings on Dow 30 stocks were incorrect..."

The industry has long been due for reform. Banks, large asset managers, hedge funds and others have controlled the investment research industry for their own benefit.

If you want to learn more about the most objective, insightful and independent research available for investors of any size or strategy, please see: https://www.creativeinvest.com/sitemap.html

Popular posts from this blog

Maternal Health Financing Facility for Black Women: A Solution to an Urgent Problem

Maternal mortality is a significant issue in the United States, with Black women disproportionately affected. Research conducted by the Centers for Disease Control and Prevention (CDC) has shown that Black women are more likely to die from pregnancy-related causes than their white counterparts. However, the issue is not new, and despite the increasing amount of data available, the disparities have remained unaddressed for far too long.  Creative Investment Research (CIR) is among the organizations that believe there is a solution to the problem. Through our proposed impact investing vehicle , the Maternal Health Financing Facility for Black Women (MHFFBW), we aim to tackle the mortality gap and support Black women during childbirth, which will, in turn, benefit their communities. The Facility, based on legally binding financing agreements containing terms and conditions that direct resources to individuals and institutions capable of addressing supply-side conditions at the heart of

Projected Impact of Gun Laws on Corporate Profits in Texas

More Fortune 500 companies are located in Texas than in any other state. Texas successfully used low taxes and minimal regulations as bait to recruit companies like Tesla and Oracle. The state promoted these “advantages” in ads highlighting their “free-market” environment and criticizing the "tax and spend policies of liberal leadership" in Democrat-run states. Four million people migrated to Texas over the past ten years. Our economic models predict a reversal, however. State of Texas corporations on the Fortune 1000 list generate $2.2 trillion in revenue, $158 billion in profit. They have a market value of $3.8 trillion and employ 2.5 million people nationwide. We continue to believe this increased corporate presence in Texas imposes a tax on the nation as a whole. Texas allows anyone 21 or older to carry handguns without training or licenses, and maintains lower gun purchase age limits. Beyond the recent abortion bill, which allows people to sue those who "aid and abe

BRICS Summit 2023: Navigating the Transformation of Global Finance

Recent developments in the global financial landscape have captured the attention of the finance world, promising a new era of integration, transformation, and collaboration. Amidst the excitement, however, it is essential to acknowledge the formidable obstacles that stand in the way of realizing these ambitions. The 2023 BRICS Summit , slated to convene amidst this shifting landscape, is poised to be a significant juncture that could have profound implications for the future of international finance. The resurgence of Bitcoin, marked by an impressive, if smaller, year-to-date price surge, has underscored its enduring relevance. Similar concerns surround the exploration of central bank digital currencies (CBDCs). The UK's digital pound initiative, while forward-looking, raises questions about stability, security, and privacy and potential economic power imbalances. The notion of a BRICS digital currency, potentially extended to include several countries, reflects a desire to chall