Minyan Mailbag: The Evolution of Sell-Side Research
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column about independent research from Adam Katz (Managing Director at MS Howells) with that very intent. Please note that Minyanville and MS Howells currently enjoy a strategic relationship.
There is another solution but it takes some agreement and, more importantly, action by both the buy-side and the sell-side. As someone who endures the daily struggles associated with running a boutique sell-side shop, I can tell you that there is a divergence in our client base between those that believe in our ability and willingness to constantly improve our product offering (and for that, they provide us with a consistent stream of order flow) and those that try and muscle us into utilizing the 'pay per idea' model.
The problem is that if you are only paying for ideas that meet your fancy, and not for the steady stream of information that may or may not impact your overall decision making, you will find that the sell side is then forced into evaluating the economic merits of other potential sources of revenue.
My suggestion: find small boutiques that are comprised of bright people that you want to do business with and that do not incorporate obvious conflicts of interest into their business models (ie IB, prop trading, market making, etc) and provide feedback that will allow them to constantly improve their product offering so you can get greater use out of the service. View those sell side relationships as an investment and not an expense. If you treat your sell side relationships like a soda machine, then understand that after you put in your dollar and get your soda, the owner of that machine has to now figure out how to sell another soda.
Now imagine a group of patrons that paid the owner of that machine a nominal amount of money on a recurring basis, and that gave you the ability to advise him on your taste preferences, and the amount of liquids you drink in a given day, and provided the resources to have this new flavor in your preferred serving size on your desk when you were thirsty, and have the cost for that service be equal to or less than the cost of continuing to run downstairs and throw dollars into the Coca-Cola machine while preserving valuable time resources.... sounds pretty convenient, doesn't it?
My point is that both sides need to 1) agree that they want to do business with the other party 2) agree that most, if not all significant interests are aligned and 3) work to create and constantly cultivate those mutually beneficial relationships. I think we will all find ourselves achieving greater success with fewer people and ultimately, the kinds of people we enjoy doing business with as we become extensions on one-another's infrastructure.
We consider ourselves extremely fortunate at our firm in that we have relationships with the kinds of people I'm describing above in the Minyanville community and amongst a vast majority of our clients who share our utopian vision for what the Street could and should be. For that we thank them not just for their continued support, but for sharing in the quest for doing business 'the right way.'
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