Analyze This

Research is a hot space today. Everyone from companies to the common man is basing decisions on research; decisions ranging from which toothpaste to use to when to buy or sell property. And companies operating in the research space are raking it in big time. And it’s an ever evolving process as the beauty of research findings is it can always be disputed or proved wrong at a later date by another research study.

The Americans have been good at this for decades and the Indians in their new found liking for everything American are clued on to the idea. And I am not saying this in a negative sense; even I love all good things American.

So much so that even kids base their demands for all things from pencils to computer games on research. A friend’s son recently wanted a particular brand of shoes citing research which said that if worn they facilitate height gain. Wow I said to myself, the guy can barely get his foot into a shoe on his own, but knows what brand to buy. That’s the power of research.

And what’s funny is a large quantum of research generally tends to flow in one direction. The stock markets are the biggest example of this trend. When the market is doing well every research house worth its salt will recommend a BUY even on loss-making companies with the logic that it is likely to make a turnaround in the near term. And this logic will be backed by a string of hypothetical assumptions which read far-fetched but are difficult to dispute. It’s just one of those things.

However, what amazes me is the regularity with which research houses want us to buy shares of companies that are quoting at $25 as they have a target price of $40 a share. My question to analysts is where were they when this share was trading at $5? The company is the same, its business is the same, and it would have talked of its growth plans back then. So what prevented them from discovering value then? Or is it that they bought at $5 and now recommend it at $25 so that they can make that extra $20 at our cost?

And these same research houses will recommend a SELL on the same stocks the moment the market tanks. So are we to believe that the fundamentals of a sound company are hostage to the fickle sentiments of the market? Or is it that by imploring us to SELL they are creating a buying opportunity for themselves and their friends? I leave it to you, the readers, to analyze this.

Talking of research reminds me of a study that I read a few years ago that advocated the use of tissue paper in the crap room over water for better hygiene reasons. I subscribed to that and in less than two days ended up with a sore butt. The reason: it takes some getting used to. And by the time I got used to it came another study which said that water was a better option. Moral of the story, research poured water over my sore butt.

In short, the point I am trying to make here is research is important but at the end of the day commonsense should prevail. And that is something we are all gifted with. It’s a different matter that most of us seldom choose to heed its call.