Sellside analysts may be a dying breed. The Financial Times reported last week that the number of investment bank analysts providing economic forecasts, and stock and bond recommendations, has fallen by a tenth since 2012. There were only about 6,000 analysts working in these jobs at the world’s 12 largest investment banks in 2016, down from 6,600 four years previously.
Tighter regulation and falling profits have certainly had an impact, though the numbers suggest that reports of the death of sellside analysis have been greatly exaggerated. Yet even if the numbers do continue to decline, there would be little cause for mourning.
For a start, most analysts’ research is not very good. In 1973 Princeton University professor Burton Malkiel claimed in his book, A Random Walk Down Wall Street, that: “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” Many of those pages have disappeared, but research suggesting random selection would be as accurate as analysts’ predictions continues to proliferate. In 2013, for example, Nerdwallet, a personal finance website, found that 49 per cent of analysts’ ratings on the top 30 US stocks during the year were incorrect.