A headline at Bloomberg from Jan 13, 2025, reads: I was a Wall Street Analyst. They are Irrelevant.
The article by opinion columnist Shuli Ren (subscription required), a former sellsider, describes factors reducing the value of sellside research. It’s one of three in a span of five days at Bloomberg on the shrinking sellside, including columnist Matt Levine’s dissertation on the profession’s struggles and a piece on sellside pay and how banks are cutting research.
This would seem to be ominous news for public companies. For decades, the investor relations profession has structured its role around the pillars of the buyside and sellside. The investors, and the Wall Street research analysts who provide investment insights.
But is it ominous?
Somewhere along the route from snazzy confabs at the Ritz Carlton Buckhead in Atlanta hosted by investment banks, to Blackrock’s imperious pile of passive cash approaching $12 trillion, the investor-relations job got pigeonholed as “the people who talk.”
Talking is good. I’m for it. I’ve never been slapped in the face with a glove and challenged to a duel because “you are too brief, sir!”
Also, duels are sadly illegal.
Anyway. That’s not the investor-relations job. It’s a task included in the description. We communicate. We write press releases and earnings-call scripts and we build presentation decks. Those are tasks too.
The job though is helping c-suites and Boards driver shareholder-value. What’s become anachronistic is that talking drives shareholder-value.
It doesn’t. We should say less, not more. At least in ways that can be instantly consumed by machines. I’ve written about it.
Ms. Ren at Bloomberg writes, “Bureaucracy and banking regulations have steadily eroded the value-add that analysts can provide.”
By the time something wends from compliance to getting published, it’s obsolete. And thanks to rules like MiFID II, regulatory directives emanating from the continent but permeating the planet, trading commissions that used to cover research costs have been separated.
Well, who wants to pay for something that has no direct, discernible value? That would be like, say, engaging in foreign wars.
I digress.
Those to me aren’t the half of it. But read all three pieces if you can.
The trouble is simpler and larger. The stock market is priced by machines, and the money is run by models. Of the roughly $650 billion of stock trading every day in US equity markets – under half of that now at exchanges, the majority at broker-operated trading systems – less than $65 billion is stock-picking.
That’s still a lot of money. But not in a stock market with close to $60 trillion of market capitalization.
And why do you need research if you’re buying and selling ETFs? The creators of the products, who have to issue a bunch of regulatory paperwork, have done the work for you on investing in artificial intelligence or quantum computing (BOTZ, ARTY, ROBO, QTUM), or whatever.
And stock-pickers aren’t the ones making money. Look at who owns sports teams, artwork, most of Miami, and dinosaur skeletons. DE Shaw – where Jeff Bezos once worked and learned the art of high-frequency trading and applied it to shopping at Amazon – made over $11 billion last year. Citadel and Millennium were close behind.
Hedge funds make big returns arbitraging the information you put out, public companies, to try to inform investors. And machines, also hedge funds but trading for their own accounts, make many billions more (I wrote last week about how three of those are in the top 25 largest holders of US equities now).
The answer to all this isn’t to keep doing what we’ve always done, desperately clinging to whatever piece of slipping garment from the buyside or sellside we can sink a fingernail into.
Get yourself a new strategy. Take a page from Donald Trump. Love him or hate him, he understands how to create a simple strategy – America First – and execute on it.
Here’s your new IR strategy for the Age of Machines and Models: Shareholder Value First.
- Understand what Passive money buys and how to attract it and foster an internal communications plan for your c-suite and Board that puts the Passive thesis first. And yes, there is one!
- Understand the stock market and what sets price. We say know Broad Sentiment (the ebb and flow of money in the S&P 500), Context (the cadence and calendar of the market) and how Demand/Supply divergence affects your stock-price.
- Measure data and provide new metrics. For instance, your peers aren’t who you think they are. PE doesn’t matter to Blackrock. Volatility, size and liquidity are paramount.
Because investor-relations is a data job now with a talking task. Not the other way around. Our relevance rests on creating a clear picture for the c-suite and Board about how to put shareholder-value first.
And we deliver shareholder-value by providing a consistent, stable PRODUCT to the market. Not a story that tries to deliver alpha. Let’s not become irrelevant, like the sellside.
