Most of brokers now publish various types of research reports which keep hitting the mail box (s) of their client on regular intervals. Few brokers also send several SMS to their trading clients during the trading hours. However I have come across very less people who seriously read these reports and even lesser who trade accordingly. The question comes is how useful are these research reports and does it make sense to follow them.
But before getting into further discussion, let us know more about these research reports
Who prepare them
Generally Brokers have a Retail Research team comprises of 2 to 6 people who focus full time on preparing these reports. These researchers are mostly MBA (finance) or PG (economics) by qualification and have 5-7 years of experience in similar research only.
The frequency ranges from few minutes to few months. say trading calls are delivered every few minutes on your mobile or trading window however other reports are sent on mail on daily, weekly or monthly basis. Their are certain sector specific reports which are published once in a while.
Most of the reports are collation of information from various sources about the industry or company or markets. These information are assumed to be self explanatory followed by a bunch of charts showing trends. Few reports also highlights on the expected news and calender of further events. All these reports are followed by a One page Disclaimer in the end of report.
Now all these research is governed by SEBI regulations, which prohibits any and everyone to give recommendation regarding stocks. Also, it mandates a researcher to preserve call details for a period of time.
Cost for client
While most of the brokers offer these research reports absolutely free of cost, few charge a nominal amount towards SMS charges (to the tune of Rs. 30- Rs.50 per month).
Coming back to our discussion, when we talk about actual usage of these reports.
I spoken to couple of traders and investors across markets on the issue. Let me share my discussion with a trader and a investor, who has been asked about the use of research report for their benefit
Trader : “I get several calls during the day however mostly have taken effect before acting upon it. Also it is very difficult to take position without knowing the actual logic, which is important while taking large positions. I sometime trade on such call however in small quantities but I don’t know why, whenever I take position, the call hits the stop loss.”
Investor : “I receive so many reports, don’t know which to read and what to leave. Most of the time it goes to junk mail. A person called sometime back from broker office and told me that I am getting email reports is when I realize that I am getting these. What I remember, initially, I started receiving so many SMS in a day which I asked to stop immediately. I have last viewed a report on dividend yielding stocks few months back.”
It was very surprising to know that despite of such a serious efforts from broker, client are not reaping the benefits. Where broker wish to emphasize on the education, the mode is not getting in the right tone.
Some small things that can make a difference for broking clients
1. Spend a Sunday and see what is best suited for you in the entire gamut of reports.
2. Subscribe to blogs or websites which are more user friendly then constant flow of email research reports.
3. Insist your broker to write the relevant subject line instead of standard words “Daily Newsletter…” to enable client choose his/her read.
4. Insist your broker that call should be suggested with a logic instead of just levels.
5. Have a better understanding on importance of facts and figures and how they are calculated.
6. Always know the credential of research team members and their recent past performance before relying on them.
7. Once you selected your right partner for research, keep a faith and invest/trade with discipline.
8. Do not expect exorbitant returns in short time. It is only going to destroy your existing capital.
Research is a difficult work and should be given a due respect. The invested capital can out beat a the Risk free return only with a to the point logics along with a sound understanding.
The Smart Way
Another way, I have seen people moving towards to bifurcate the two. Few Traders have opened their online account with Discount broker and paying for research separately to a Investment advisor. As such both functions gets separated and payment can be made as per the success ratio.
The investment advisor are taking charges either as monthly fees or as a percentage of profits earned. This mode is dependent on your risk appetite and amount of capital. The person giving research or advise is responsible for a better performance of your portfolio whereas you pay small towards the execution. You may choose your broker after a careful comparison on their charges.
So, Now you can make a better choice and watch your money grow with time.