An acquaintance of mine, Tom Brakke, has an interesting blog, ResearchPuzzle.com. He is pulling together an e-book based on letters he has posted to a young analyst giving advice on what it takes to be a great analyst. Tom asked for any contributions that some of his friends might wish to make on the topic. Tom’s letters cover most of what an aspiring analyst needs. I would urge those interested in the topic to visit his site and stay tuned for the book. While the book will be about analysts involved in the investment business, I think many of Tom’s observations have significantly broader application to anyone who does research of almost any type with the desire or obligation to make that available to an interested audience. These days almost everyone is an analyst to some degree, collecting information in 140-word bites or more or from some visual or verbal media and then adding his or her thoughts via various media in return. Some of the opinions offered actually add value to the dialogue, but many don’t. I think what Tom is pulling together, if incorporated, will raise the value-add to garbage ratio of almost any dialogue.
I sent Tom a few of my thoughts on the topic, which, for the most part simply reinforced what he has already written. My comments relate directly to investment research, but I also think they have application to a broader analytical universe. Here are my comments to Tom:
One of the first things you might want to have a budding analyst do is read the HBS Lehman A Case about the rebuilding of that department back in the days when Lehman was alive as a part of American Express. It is about management, but also focuses significantly on what an analyst has to do to succeed.
I would also suggest that any analyst read Decision Traps by Paul Shoemaker and Ed Russo. Lots of good case studies in there, and some fun exercises that really stimulate the thought processes and make us realize how our mind and what it sees in front of it, can lead us to some very wrong conclusions.
Further thoughts: Any analyst of companies needs to get to the point where the companies are asking him/her questions. One learns more from a question than an answer. This requires thinking strategically and understanding the history of the company and the industry, not just what’s happening at the moment. I also agree wholeheartedly that a good analyst wants to be surrounded by other good analysts and share wisdom and questions. I also think a good analyst, once a conclusion is reached, should immediately begin looking for disconfirming information. In the course of that, one will find confirming information, but the search is for disconfirming info.
In addition, the thought process has to be out-of-the-box. With the info flow these days everyone starts with the same data. It’s what one makes of it that is key. One also has to look at both sides of the picture–positive and negative.
Don’t become an advocate too soon. When I taught Security Analysis at the Columbia Exec MBA program, the “final exam” consisted of preparing two reports on the same company–one positive and one negative. This was to get the budding analysts to understand that the differences many times are not significant. A stock is being priced at any moment reflecting that.
I also always suggested to the analysts (and did this myself) to communicate with their toughest/smartest clients first. Thus, the gaps and uncertainties of whatever analyses have been done come into stark relief, making the next calls, and the next report, that much better.
Your points, Tom, about communication skills, written and oral, are key. Becoming recognized as a very good analyst (content, communication, presentation, visibility) feeds on itself. Companies and clients want to communicate with you if you are perceived as knowing your stuff and, subsequently, that enhances one’s knowledge. One cannot sit in a room and slip reports under the door. An analyst has many audiences—the companies, the investing clients, the salespeople who help deliver the message, the investment bankers, the media–each requires different packaging. Don’t be too stuck on the purity of the analytical aspect of what one does. Packaging and delivery become key and provide the best feedback loop for even better analysis. We are living in a different world where the tools for analysis are ubiquitous and the means of delivering the conclusions are vast. What happens inside the mind becomes the differentiator. Not as easy as it used to be, but equally, if not more rewarding. I am eager to see Tom’s more complete thoughts on this topic.