Should you trust your analyst? (Part I)
For a company's analyst to be worth anything, it must be a special breed of human who has an inside view on the company. The analyst is usually composed of multiple people and they are supposed to give the CEO and other stakeholders important insights. Some analysts even get called in for meetings with the CEO or other top management members and present their findings in person. Yet, due to mismanagement, fraud, miscommunication, lack of due diligence or other reasons, an analyst may not be trusted by anyone involved. There are a number of reasons why an analyst may not be trusted.
Highest on the list of issues is the lack of due diligence. If an analyst has been hired before there were proper checks and balances in place, this can make them look incompetent, which can lead to them being fired. Another way that analysts can be thrown under the bus is if their information becomes outdated or if they cannot back up what they present in their report. In addition to this, the analyst may also fall victim to misrepresentation by management or employees who are afraid to face contradicting evidence.
Meeting with analysts directly is common practice for companies who have concerns about their information . However, when it comes to the analyst's interpretations of information, there is little to no formal regulation or rules that govern how businesses treat their analysts.
Others have also pointed out that an analyst may be able to get a company in trouble if the analyst uses their report on different companies without permission. This includes investing firms who specialize in value investing and forward looking analysis who use certain methods of assessing companies on how it will impact the stock market. However, if a firm wants to use one of these firms' reports, they must make sure that they do not use it outside its distribution channels.
In more complex situations involving analysts, they may be pressured by managers or investors into presenting something unrealistic or incomplete. This can be due to an analyst's inability to back up their report, or worse, the analyst presenting something that they know is not accurate. However, in more complex situations where there is no oversight of analysts or poor communication between company boards and analysts, a better practice is for companies to follow the guidelines of the Financial Industry Regulatory Authority (FINRA). These guidelines include: not allowing employees to reverse the initial view; providing accurate information; being timely; and supporting their findings with robust evidence.
For a company's analyst to be worth anything, it must be a special breed of human who has an inside view on the company. The analyst is usually composed of multiple people and they are supposed to give the CEO and other stakeholders important insights. Some analysts even get called in for meetings with the CEO or other top management members and present their findings in person. Yet, due to mismanagement, fraud, miscommunication, lack of due diligence or other reasons, an analyst may not be trusted by anyone involved. There are a number of reasons why an analyst may not be trusted.
Highest on the list of issues is the lack of due diligence. If an analyst has been hired before there were proper checks and balances in place, this can make them look incompetent, which can lead to them being fired. Another way that analysts can be thrown under the bus is if their information becomes outdated or if they cannot back up what they present in their report. In addition to this, the analyst may also fall victim to misrepresentation by management or employees who are afraid to face contradicting evidence.
Meeting with analysts directly is common practice for companies who have concerns about their information. However, when it comes to the analyst's interpretations of information, there is little to no formal regulation or rules that govern how businesses treat their analysts.
Others have also pointed out that an analyst may be able to get a company in trouble if the analyst uses their report on different companies without permission. This includes investing firms who specialize in value investing and forward looking analysis who use certain methods of assessing companies on how it will impact the stock market. However, if a firm wants to use one of these firms' reports, they must make sure that they do not use it outside its distribution channels.
In more complex situations involving analysts, they may be pressured by managers or investors into presenting something unrealistic or incomplete. This can be due to an analyst's inability to back up their report, or worse, the analyst presenting something that they know is not accurate. However, in more complex situations where there is no oversight of analysts or poor communication between company boards and analysts, a better practice is for companies to follow the guidelines of the Financial Industry Regulatory Authority (FINRA). These guidelines include: not allowing employees to reverse the initial view; providing accurate information; being timely; and supporting their findings with robust evidence.
For a company's analyst to be worth anything, it must be a special breed of human who has an inside view on the company. The analyst is usually composed of multiple people and they are supposed to give the CEO and other stakeholders important insights. Some analysts even get called in for meetings with the CEO or other top management members and present their findings in person. Yet, due to mismanagement, fraud, miscommunication, lack of due diligence or other reasons, an analyst may not be trusted by anyone involved. There are a number of reasons why an analyst may not be trusted.
Highest on the list of issues is the lack of due diligence. If an analyst has been hired before there were proper checks and balances in place, this can make them look incompetent, which can lead to them being fired. Another way that analysts can be thrown under the bus is if their information becomes outdated or if they cannot back up what they present in their report. In addition to this, the analyst may also fall victim to misrepresentation by management or employees who are afraid to face contradicting evidence.
Meeting with analysts directly is common practice for companies who have concerns about their information .
Conclusion
Analysts often write reports and make recommendations. Companies can always use these recommendations to better their businesses in terms of monetary gains, reputation and better overall health. However, without proper regulation and oversight of analysts, their intentions could be skewed or mismanaged by the company board or upper management. These actions can lead to lost money for the shareholders and the public if there is no consequence for using inaccurate information. In order to prevent this from happening again, there should be a new bill introduced that all analysts must follow if they are going to write reports about a company. This will require them to keep up with business standards and still maintain their level of expertise without compromising shareholder wealth or public health..