REPORT Few investors would disagree that it is becoming increasingly hard to gain a competitive advantage in the investment world.
Technology has made information much more readily available, and any new piece of information gets arbitraged away fairly quickly. Even reliable signals such as sell-side analysts’ upgrades or downgrades get priced into the market within 30 seconds of their release. As a consequence, anyone trying to use publicly available information to make a decision is probably too late, as it will have already been factored into the price.
In response, fund managers are adapting and seeking new sources to try to gain an edge. They’re tapping into expert networks, for example, where they can download information and insights from industry ‘experts’ including former senior executives. Technology itself is also providing another new type of edge. For example, some research firms are offering images of retailer’s car parks to create a picture of how busy shops are.
The problem is that many of these new, so-called edges are available to everyone, at a price. They are not proprietary and therefore become quickly adopted, thus diluting the advantage they provide.
We are Emergers
Johan Widmark
Equity research analyst and journalist
johan@emergers.se
- 15 years as equity analyst
- 8 years in company sponsored research
- Finance journalist at leading business weekly magazines
Jonas Malmborg
Investigative and Business journalist
jonas@emergers.se
- 17 years of journalistic experience
- Business journalist for leading Swedish business weekly magazines
- PR-advisor
"Journalists use ‘shoe leather’ research – non-desk research where they go out into the world and talk to people."
In seeking out new ways to generate unique information and insights, some savvy fund managers are turning to hiring journalists, who are skilled in uncovering hidden information and looking at publicly available information from a different perspective, in order to find a true proprietary edge in an increasingly competitive marketplace.
Overcoming behavioural biases
Journalists will never replace traditional fundamental analysts, but they provide fund managers with a view from a different angle. By using different sources, investment decision making can be made more objective. More specifically, journalists bring the following skills and traits to investment research:
1. Different research
Journalists tend to be a bit more resourceful when looking for information. They won’t just be relying on typical channels that a research analyst will try to tap into such as management and experts. Journalists use ‘shoe leather’ research – non-desk research where they go out into the world and talk to people. They can reach out to customers, ex-employers and even ex-CFOs: anyone who can give them a more rounded view of a particular issue.
2. Big picture perspective
While many portfolio managers and analysts can get caught up in the minutiae of company fundamentals, journalists can bring a broader, ‘thematic’ industry or sector-wide perspective. Analysts typically go straight to companies, but journalists try and get a bigger picture perspective. They can step back, speak with many different sources and weave it into a larger narrative. They may, for example, look at the banking sector and consider what everyone in the industry is doing, rather than just focusing on one bank.
3. Flexibility
Journalists can be more receptive to interesting projects and different types of research. They are used to being thrown a different topic on a daily basis and asked to chase it down to find an angle or important lead they can write about.
4. Speed
Journalists typically are able to discern the key issues relatively quickly. They are used to working to tight deadlines, even on major investigative projects where editors demand a result sooner rather than later to conserve limited resources.
5. Persistence
Journalists have normally faced a lot of rejection in their jobs – which makes them persistent. They can latch onto a small piece of information and dig deeper and deeper. Analysts, on the other hand, are more likely to wait for management to come to them with information rather than chase hard for information.
6. Unique sources
The best investigative journalists have their own sources of information. That includes industry and company contacts they have built trust with over many years; but also databases and information that few people know about or don’t know how to access.
Deploying a journalist
But using journalists doesn’t suit every fund manager’s research process. If they don’t know how to effectively use the journalist’s skills, hiring a journalist as a researcher can ultimately be as effective as reading a newspaper. The fund manager needs to be clear about what they want from the journalist. While it is not yet a widespread trend, there are reports in the US that hedge funds are hiring reporters and even advertising on journalism jobs boards. With gaining an edge becoming increasingly challenging, savvy fund managers now recognise that there is more than one way to skin a cat. And that the journalistic way to present investment ideas is gaining both institutional and private investors’ attention.
