The Incubator of Negative Research
90% of the investment world is long, therefore, negative research can only occur in the right environment.
The most dangerous analyst is the analyst with no investment banking relationships.
Investment banking relationships trump almost everything in capital markets.
Public companies need continuous treasury services and lines of credit, while research analysts need companies to cover, and investment bankers need deal fees.
Take away the chains of investment banking, and anything becomes possible from a research perspective.
If the analyst does not bank a company, and has no chance to bank a company, then he or she can be significantly more candid in research.
The more candid the analyst, the less likely management is going to be happy with him or her.
Here are the five traits of an analyst that management likely perceives to be difficult
1. No investment banking relationship
2. Independent thinker
3. Deep and thorough research
4. Asking difficult questions
5. Picking spots
A unique perspective and deep research will undoubtedly uncover a short-focused investment thesis.
The Traits a Company Exhibits to Generate a Short Call
1. Hype
2. Over confidence of management
3. Over promising
4. Avoidance or obfuscation
These traits alone may mean absolutely nothing. However, an independent analyst will ask the questions and dig deeper to uncover what may be hidden from investors.
Remember, the best way to diffuse an independent analyst with an opposing view is to engage them and talk to them over time!
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