Blog-based Research Model Anyone?


James Enck of Daiwa Securities is proposing a new kind of market and fundamental research model, which could pose a challenge to Wall Street firms. James selects three of us Andy, Om, and Martin he sees that we “collectively deliver what brokers’ research typically lacks. All three have very sensitive BS meters, and are not afraid to court controversy.”

There is a business model here, and whether it’s the financial media who seize upon it … Investment banks: you have competition, whether you know/believe it or not. It behaves differently from you, uses different tools, and takes no prisoners. More importantly, its mindshare is growing, and you ought to be scared. What happens when one day your client base wakes up and feels confident enough to say they don’t want your research?

I think the traditional role of Wall Street Research is going to have to change. I think the bursting of the bubble, and the short comings of the banking-research nexus as exposed by the Jack Grubman and Henry Blodgett scandals has made research groups more careful. On top of that, many research groups have shrunk in size and analysts have to track more companies. As reporters, you are essentially doing the job of an analyst, foraging out exclusive information, or opining with smart option – without building financial models.

What blogs have done is basically given many of us the ability to do this in real time. I can only speak for myself – unlike Wall Street research, I don’t have to worry about offending anyone. No personal gains except for paying heed to one of the cardinal sins: vanity. Regardless, the model, however is still evolving. Why? First, the tools are basically not-friendly to us writers and information foragers. I think connecting the dots, or should I say posts, is still difficult. We cannot produce a coherent and perhaps meta-linked research & analysis report using blogs for now. The conversation is disjointed, much like the walkie-talkies. I need a tool to bring everything together in real time. And then add-context. On a more personal note, James wrote:

Om writes about virtually everything, seemingly, and if I’m not mistaken, recently seems to be including more financial results coverage and investment strategy angles

Perhaps now is as good a time, as any to explain the strategy behind this blog, and a bit about myself. (Vanity, thy name is Om!)

Most folks don’t know this, but I started out writing about hard drives, micro controllers and memory chips, the very bottom of the technology food chain for now defunct, Quick Nikkei News. I graduated to covering microprocessors, personal computers, servers, routers, optical gear, optical networks, services and more recently applications. So I have a bottom-up approach to the technology world. Jim Michaels, the legendary editor of Forbes used to say, if you can keep an eye on the tyre production, you can see far and see the automobile production numbers. In other words, “connect the dots stupid.” I live and will die by that credo.

So if it seems that I write about everything, that there is a method to the madness. I guess wireless and wireless data, even in spurts add to the network traffic, which adds to consumption of bandwidth, which leads to new equipment requirement. New applications that suck-up bandwidth, translate in more need for broadband. If microprocessor was the glue of the last generation of technology, broadband is the catalyst of change for the next generation. I see the fast pipes as the ultimate enabler, so everything I post has a one or at most two degrees of separation from that cardinal truth.

James, thanks for your kind words! Reading you every day is a must for me as well!


Steve Castellano

Earlier today, I met with two Babson MBA students interested in developing a plan to roll out the proposed Babson Mosaic Equity Research Club initiative.

The core MBA student management team discussed our possible roles. A detailed Microsoft Excel 2003 model of Level 3 Communications may become the first “kernel” to be shared with the open source community. Two more working professional offered to sign on as club advisors. Continuing progress is being made on acquiring a faculty advisor. We are exploring a variety of online collaborative alternatives. One suggestion was that start we a BMERC wiki discussion.

Robert Krakes

I just came across your blog as a small RIA I think the idea of using the blog to create is a wonderful idea and one that will eventually do more than all the legislation to help the independent investor and their advisors.

Good luck and keep up the good work.

Jonathan Rochelle

As an IT guy who helps the sell-side AND the buy-side, I strongly agree that traditional research is great for the bottom of bird cages… it’s paper and there’s plenty of it. Interactive Quantitative Models from the sell-side and independent research houses are finally being demanded from the buy-side in a usable form. Excel spreadsheets are great, but it’s clear that the sell-side is typically only sharing the models that they can spare to share without compromising their private models (their intellectual property) and they only share those models which don’t rely on proprietary analytics – which narrows it down again to something just short of birdcage liner. The models that use proprietary analytics are the only interesting ones! Every buy-side firm I talk to says the sell side basically gives them junk (no offense to anyone).
So – now – there’s another form of interactive research available using a software tool which converts excel models to web-based applications – securing logic on the server, tracking usage of the model, and making it a quick, cheap and painless process for the analyst. Check out XL2Web. I hate saying it, because it just sounds like a shameless plug… and it is… but it’s something I totally believe adds value to both the sell- and buy-side. The clients of our clients are definitely noticing.

Jesse Kopelman

One problem is that a company’s general incompetance seems to have little effect on its short term performance (even when it is not a well kept secret). Eventually these problems always catch up with the company, but not before people have had a chance to make money. What I’m saying is that maybe honest criticism is not actually very valuable to investors. It is very valuable to other companies who are prospective clients and partners. Sadly, these clients would quickly become offended when the “honest analyst” said something bad about them and stop using the service. So, in the end, it may be hard to make money from being honest and unbiased. This seems to be a general problem inherent to journalism as a profession.

Steve Castellano

Om, what you need is a business to “translate” blog posts into finance talk so that they are meaningful to investors and not simply technological commentary. Second of all, knowledgeable bloggers like yourself must probably be willing to post first to the equity (or debt) translation business, with a delay blog post going out to the general public, otherwise it’s no value to the paying investor. Third, the consortium of bloggers to be used in any equity research effort must have high integrity so they don’t post nonsense in trying to drive a stock price up. Fourth, you’d have to figure out how to compensate bloggers and the firm’s analyst “translators” — maybe payment based on blog hits, flowing to bloggers from a pool of soft dollar or subscription money that is provided to the “translation” research firm.

What I think I just described is already in practice at, which is something another person commented on your post.

I believe true value add equity research requires a blending of real hands-on knowledge packaged and filtered in a way that can help investors make investment decisions. But any true hands-on knowledge could be interpreted as insider information. A business model that does work this way, using inside information on a collection of companies, is known as venture capital. There’s no harm in trading on inside information when there is no public market for the stock.

Perhaps then equity research is doomed to always suck. But if the line can be found somewhere that can straddle access to real, useful information while legally reporting it to investors without running regulatory risk, that would certainly be a great business model to pursue.


watch the POUNDING of FULCRUM GLOBAL PARTNERS shorting Level3 tomorrow and see HOW much these idiots could use some ”’SHORT SIDE HELP”‘ in figuring out VOIP and RECIP COMP



Damian, your posts, both of them are good examples of how we really need to get the group think working in a format which is more useful. I agree, comments are the best part of this system, and hopefully more folks realize this as we go along. i agree, there is too much of the same thing in research reports, or at least the ones I read. i think some smart guy will come up witha good publishing tool to get this going


In my desire to be even more long-winded, I had a couple more thoughts after I submitted my comment.

1. Sell-side research and independent research needs to be differentiated. There is too much of the same analysis going on around the sell-side community where they work up the financials, attach some P/E multiples to the numbers to determine fair value, and put out a recommendation. If you want to get a sense of the value of this type of product, realize that many people use analyst rating as a contrary indicator. That is, if every analyst thinks it’s a buy, it might, in fact, be a sell. This is actually where blogs do the best – looking at the larger picture.

What is needed is differentiated research which brings something else to the table. For instance, Majestic Research, which I’ve mentioned before, combines the comScore web traffic data with financial models to produce a unique research product.

2. What is also needed are standardized formats for research reports. RSS is great for headlines, but it would be great to have the entire flow broken down into an XML stream. One company that I know that is working on this is BlueMatrix ( They provide an ASP publishing system targeting the research community. More importantly, they are working on an XML specification for publishing data call RIXML ( Now if we could only get companies to publish their financials according to standardized rules and in an XML format, we’d be all set.


As a member of the buy-side community, and a reader of James (his stuff is great), I think you raise some interesting points and some points that are a bit confusing.

First is the idea of analysts blogging. This is not a change in the business model, but rather a change in the way analysts publish their information. All analysts currently publish via email which, while less than optimal, is available to me anywhere. So, more analysts publishing via RSS would be great. I’ve told James this, and I encourage him to encourage other firms to do the same!

The second point about the whole idea of sell-side analysts verses independent firms is also an interesting point. Om, you point out that a bubble is getting ready to burst – it burst when the SEC and Spitzer came down on the industry. Sell-side analysts used to make millions of dollars a year and there were a lot of them.

Now the number has been reduced, the salaries have been cut, and a number of banks are wondering why they are in the business at all. Add to that companies like Fidelity asking that research and trading be unbundled – and you’ve got a real problem on your hands. We’ve also seen the rise of numerous independent firms as well. Anyway you look at it, the sell-side analyst is having difficulty.

But blogs are, really, just independent research without the cost. Most are supported by other income – either from a bank like James, or from publishing like you, Om. Some may be supported by advertising, but I think this is a tough road to go. So what value to blogs bring? Well, they don’t provide business models like the sell-side (as you pointed out), which is sometime useful for comparing with your own model or getting a quick idea of the metrics of a company. They generally provide, rather, a high-level view of an industry and the issues affecting that industry. And often times, as is the case with you, Om, the visitors leave comments that in some cases are more useful than the entry itself (no offense – and I’m also not counting my own in this category).

For me personally, I find blogs provide interesting information but that it is often not actionable. Most people in the buy-side learn about news items well ahead of most bloggers (thanks to ready access to Bloomberg or the like) – so just highlighting news items isn’t that useful. A great deal of blogging focuses future companies (many of which are not public), or focus on issues that may or may not affect the current or near-term financial status of a company.

I guess my whole point in this overly long diatribe is that the blogging research company isn’t a unique business model – independent research is everywhere – they just need to start using new publishing tools. The reality is that most people in the financial community are slow to change – have you ever used a Bloomberg terminal? It’s like something from the 70s. But if they change it everyone will get upset….so change is slow to come to community. If you started an independent research company and were going to publish your ideas only via RSS, you’d have a very small group of customers! I will highlight that a few forward looking companies are publishing via RSS (regardless of what you think of them as a source):, and As a result, they usually get a read in the mornings – as does James’ EuroTelcoblog.

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