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Confessions of a Stock Market Analyst

Note: This article was originally written in June 2012. I am re-publishing it given that I have received quite a few emails in the recent past with people asking me what made me quit my “great” job in the stock market that promised a “bright” future.

I’ve received several emails from readers of Safal Niveshak asking why I left my “lucrative” job as a stock market analyst.

“It must be a well-paying job! So why in the world did you leave it?” asked one of them a few days back.

I’ve shared my reasons to leave my job with them in private, but thought there was a need to confess in the open – to the entire Safal Niveshak tribe.

After all, even you might be wondering what really hit me to have left the “safety” of a job that promised a “bright” future.

So here is a confession from an (ex) stock market analyst on “why in the world” he left a well-paying job to start a mission that some have called “a journey into the unknown”.

My Confession Statement
I confess to you that the reason I left my job as a stock market analyst was that, after being in that industry for eight long years, I was feeling out of step with something that knew no bounds.

I left the industry for it was (and remains) a place where people are brash, arrogant, reckless, and – literally – daring. It always was like this, but with my conservative, unadventurous, humble genes, I could not tolerate it anymore!

As good luck would have it, I was not working as a “broking” sell-side analyst*, but an “independent” sell-side analyst, and in a company where people were still honest to clients (and I’m sure they still are), a large majority of whom were small investors.

But I was truly disgusted – with the stock market profession, with the analyst community for its hypocrisy, with the press for celebrating them, and with corporate India in general for its willingness to deal with the devil.

Despite working for an independent research company, I realized over a period of time that I was recommending stocks into the “unknown” – to real people with real-life savings, but those I knew nothing about – and just because they had paid in advance for that research.

So if there was a service that was supposed to recommend (either Buy, Sell or Hold) one stock per week to a paid subscriber, the research team was obligated to write that one report per week.

While we had a strong internal process of choosing stocks that helped us recommend some great stocks and avoid some really dud ones, just the velocity of recommendations created greater chances of making wrong (under-researched) recommendations.

In fact, by the time I was leaving my job, we were writing almost 100 reports a year (or around eight per month), a gigantic number for any small investor to digest!

What is more, as I said above, it was a “one-size-fits-all” kind of a philosophy, as the same stock recommendation was being bought and acted upon by a young executive, and a retiree.

Anyways, 2008 happened, and a deeper realization set in within me. I asked myself – “What if my “one-size-fits-all” recommendations have made the difference between a comfortable retirement and a miserable one?”

The answer pinched me hard, and laid the ground for my exit from the industry, which I had already started hating for the above-mentioned and below-mentioned reasons.

Travelling every day with people, and travelling to a place that I detested (Nariman Point, the heart of the financial system in Mumbai, and also the heart of greed) had really gotten over my senses.

But, Once Upon a Time…
When I stared my career as a stock market analyst, I believed the profession had nothing to do with manipulation and everything to do with balanced, rational thinking.

I had made the leap into this career in part because of the money, but also because being an analyst seemed like a perfect job for a serious guy like me who liked to reason his way through life.

Sure, emotion and hype sneaked into my line of work occasionally, but in the end, the stock market was rational, analytical, and cool. Fooling people wasn’t part of the equation.

Or so I thought. But what I saw outside my company, and in the stock broking industry, made me realize how my “charming” views about this profession were plain silly.

Of course, the stock market profession is as much about fooling people as the advertising profession, which believes that the product it sells, is the best product a consumer must buy.

Everything in the stock market profession, as I’ve discovered over the years, is all about the money.

Over the years, a typical sell-side analyst’s job – especially one who works for a broking company – has changed from giving good advice to investors to helping their investment bankers do deals.

Thankfully, being with an independent research company, I never had to deal with this enigma (which I thought was a stigma).

Brokers need action to make any money, since their compensation is largely based on transactions. So each time a sell-side analyst recommends a stock, it is jumped on and embraced like a new lover.

However unlike institutional investors (like fund managers) who largely make their own investment decisions and use a sell-side analyst’s research as one of the many inputs, the brokers and the small investors who follow them actually take every word the analysts write or say as the gospel. Now this is what scared me!

So, while most people would leave their jobs because they start to hate the people they work with, I left my job because I hated the entire community into which I belonged.

20 Reasons I Won’t Return to a Stock Market Job
I love lists as you must have noticed in the past (like 5 ways to this, and 10 ways to that). So here is another list – this time of 20 reasons I will never return to a job in the stock market…

  1. It’s a place where logic, as I’ve learned over the years, doesn’t always matter.
  2. It’s a place where the priorities are out of order – making fast money and evangelizing big investors is on the top of this priority list. The small investor, I think, does not exist at all!
  3. It’s a place where analysts are able (and are paid) to find stocks that are “good values at any price” and stocks the values of which will “perpetually rise”.
  4. It’s a place where daylight robbery happens in the plain sight of everyone, from investors to regulators – and no one seem to mind.
  5. It’s a place where you are counted among the few foolish if you try to stay objective.
  6. It’s a place where dealing with small investors is considered a wastage of time – that distracts the analyst from “doing research”, and siphons off time that otherwise might be used to serve big, institutional clients and win “best analyst” votes.
  7. It’s a place where “risk” is thrown out of the window…literally!
  8. It’s a place where “warnings”, “worst case scenarios”, and other details that institutional clients read and take time to understand never make it to the regular folks (people like you and me).
  9. It’s a place where the only game they play is called “expectations”, and reality, even when it bites, never gets etched in the mind.
  10. It’s the only place where trees rise to the skies.
  11. It’s a place filled with misplaced belief that analysts seem to have the magic wand to reverse a stock’s decline, simply by saying it wasn’t so.
  12. It’s a place where information travels unevenly. Of course, the small investor gets the least information, and gets it last!
  13. It’s a place with so many disappointments and reversals that at the end of a few years, you lose the ability to be shocked by anything.
  14. It’s a place where, as you gain experience, you lose your powers of rational thinking.
  15. It’s a place where, if you have some sanity left, you will add a line in your valuation model that reads – “adjustment for irrational exuberance”.
  16. It’s a place where the small investor is playing a loser’s game.
  17. It’s a place where your obligation to be independent isn’t economically logical, especially when you are working with a broking firm whose primary purpose is to maximize profits.
  18. It’s a place filled with “smart” men and women who know the price of everything, but the value of nothing.
  19. It’s a place where two types of people meet up in the morning: those with experience and those with money. At the end of each day, those who had experience have the money, and those who had money have the experience.
  20. It’s a place where they fool people.

Believe me, I’m not trying to create a holier than thou picture here, for I was, in a way, a part of this “place” once…though safeguarded by the independence of my employer.

But you get to know that you were once a rat only when you come out of the rat race, which I have.

Now as an outsider to the stock analyst profession, I can see how scary (and funny) things look like.

Are You Scared?
I am sure, given that you have been saving your hard-earned money and investing into stocks and mutual funds all these years, my confession must have frightened you.

But wait till you hear the last part of my confession, and here it is…

For all these ills that caused me to exit the stock market analyst profession, there was one huge lesson that I believe will drive the rest of my investing life. And it is…

Think independently and don’t let yourself be influenced by the “noise”. Stay focused on analysis, valuation, and margin of safety. Despite all its ills, the stock market is still a place where you, if you can keep your head when others around you are losing their’s, can achieve your financial freedom.

Among all the crooks (and many that are highly respected in the industry) I’ve seen around me over the past so many years, I’ve also met a few sensible, level-headed investors who’ve practiced the above lesson (of thinking independently and not getting influenced by the “noise”, plus staying focused on analysis and valuation instead of the stock price) and have done quite well for themselves.

Our very own tribesman Mr. R. K. Chandrashekar (who started investing when I was born, and whom I had the pleasure to meet in the Bangalore Workshop) stands testimony to this.

This lesson is also the core of Safal Niveshak’s existence…

  • To help small investors think independently and not get influenced by the “noise”.
  • To help small investors stay focused on analysis and valuation.
  • To help small investors ingrain in their minds that if they are buying individual stocks, the rule should be caveat emptor (buyer beware).
  • To help small investors claim entire responsibility of how they are handling their life savings.

All in all, Safal Niveshak is my experiment with truth. And the truth is that I am pained by the disastrous investment results experienced by great numbers of small, unsophisticated investors…and you might be one of them.

If I can persuade just a few of you to avoid dangerous investment practices (by avoiding the “noise”) and adopt sound ones that are designed to preserve and grow your hard-earned capital, my mission will be accomplished.

If you take anything away from my writings, this should be it!

I hope, despite my confession about the road I’ve traveled to reach here, you would remain alongside me, as we walk together on this journey of becoming independent, sensible, and successful investors. Whatsay?



* Analysts are generally put into “sell-side” and “buy-side” categories. The key difference between these two types of analysts is the type of firm that employs them and the people to whom they make recommendations.

A “sell-side” analyst works for a brokerage or an independent research firm and makes recommendations to the clients of the firm. In effect, such an analyst “sells” research (either when the client transacts on this research, or when a client subscribes to that research)

A “buy-side” analyst typically works in a non-brokerage firm (like a mutual fund) and provides research and recommendations exclusively for the benefit of the company’s own money managers (as opposed to individual investors). Plus he also “buys” the research that the “sell-side” analyst has to offer, largely by way of transacting on that research and paying a commission to the broker who sold it.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Sanjeev Bhatia says:

    WOW, this is straight from the horse’s mouth. It takes real guts to come out into the open with the ills plaguing one’s own industry. You have done it with great aplomb, Kudos.

    Even my limited experience with research reports is the same. They can at best be taken as just a starting point and one still has to do one’s own due diligence. As I am quite fond of saying : “Sawaari apne saaman ki khud jimmewar hai”. One thing that amuses me to great extent is that Stock Market is probably the only place where a guy who owns a BMW/Merc/Rolls takes advice from someone who goes to his office in a metro. At the crux of the matter are two things. One: we believe there exists some holy grail to stock investing and we are on eternal lookout to find it and Two: we always believe that the other guy knows better.

    Great Article, though I would have preferred some specific anecdotes also.

    • Thank you Sanjeev! I love this quote of yours as it is so apt for the stock market – “Sawaari apne saaman ki khud jimmewar hai”.

      What is considered “holy” in the stock market is in fact “unholy”…and simply make-believe.

      As for the anecdotes, I will someday write a book to cover them all 🙂

  2. Sunny Gupta says:

    Excellent, once again Vishal…and great to see you have a very clear mission statement – very objective and very truthful 🙂

    I wished something can be done, so that:

    1. Young kids, before they turn legally and financially capable to put money in stock markets, are aware of what NOT to do…unfortunately, I think everyone wants to learn this “the hard way”…

    2. Then, assuming we have people with small money and a rational head, can everyone really be a good analyst of financial statements and MD&A’s and have business acumen ad foresight, and then, can the capable people of the community offer help – in the form of honest, rational and factual research – it’s still sell side, but maybe 10 stocks in 2-3 years…or best, can there be “value investing” oriented mutual funds, that will strive to cultivate these values and ignore all the noise out in the market…

    3. Finally, do you know such mutual funds in India, or plan to start one – for reason’s you’d be well aware, as Peter Lynch mentioned in “Learn to Earn”, I bet such schemes should be closed ended schemes…or else you end up becoming too big to get into regulation issues and inability to truly pick value stocks…etc, etc…

    I’m still young, but when I grow up and grow capable enough to call myself a rational, value investing analyst, I’d want to to this…as a part of bigger goal of providing the “right education” which lacks today in our education system, and which is the best reason of where India today is, in my opinion…just some thoughts…let’s see if we share them as well 🙂

    Regards, Sunny Gupta

    • Thanks Sunny! These are invaluable suggestions that can really help small investors in a big way. Safal Niveshak ultimately has to evolve into such a community where people with ideas, experience, and knowledge would like to help those just starting out.

      As for mutual funds, while there isn’t one fund in India that focuses on “value investing” in its purest form, but yeah, I have off and on talked about some good fund managers who practice sensible investing and have earned good returns for their investors.

      Really appreciate your thoughts about working towards bringing a change in our education system to create adults who are sensible with their money. Regards.

      • Hi Sunny,

        Your ideas and suggestions are amazing. There are some mutual funds in India which call themselves value funds. They follow the philosophy to an extent. One good value fund is PPFAS Long Term Equity fund which has a good value portfolio with a selection of limited stocks with strong economic moats.

        I fully agree with your point on educating kids and youngsters to they are aware and prepared to invest in the right way. Similarly I’m also passionate about enabling small investors understand the process of investing so that they can do it on their own and take control of their investments. I’m looking use my experience and knowledge that I have to do this in the near future. -:)

  3. karthik says:

    16.It’s a place where the small investor is playing a loser’s game.
    Excellent One Vishal….
    First one to comment…..

    Met a guy recently in travel who was trading for Losing… just told to read ur site….

  4. Vishal, Kudos on a Fantastic Honest write up.

    Just wondering whether you were working for Equity master .If not can you share with us where you were working(If its not a big deal with you)

    _Hari

  5. Thanks Vishal for the great article.
    That gives me insight that the research analyst themselves are good. but the research they produce goes bad(small investors lose) because they are squeezed to write many reports.
    I read most of your post on blog and I must say that they are worth re-reading.

    Nikhil

    • Thanks Nikhil! Yes, you are right. Nobody enters this profession with a bad intention (of course, earning good money is always the target while eyeing this profession), but things get rotten when you go with the flow.

      The behavior of peers, whatever they are doing, is mindlessly imitated. And by the end of few years, you either love the profession (for all the money you are earning despite being dishonest to clients), or you hate it (for the dishonesty and arrogance you see all around).

  6. R K Chandrashekar says:

    Dear Vishal
    I have never come across a Financial Analyst-so honest, truthful and down to earth, till I met you. You must have been a sore thumb among fellow Analysts! What Equity Master lost, we the people have gained.
    Regarding Mutual Funds comment: Pure Value Funds- not sure.
    However great fund Managers in the Indian Context- Prashant Jain of HDFC ( HDFC Equity/HDFC Top 200/ HDFC Prudence- all with a consistent good record), Ramdeo Agarwal- Motilal Oswal- his value PMS has had a good track record. These are my personal views and not to be construed as a recommendation.
    However there are no free lunches in Equity investing and everyone has to do his homework.
    You, Vishal have begun a ”Movement” for which I, on behalf of all fellow tribesman say a big THANK YOU .

    • Thank you Mr. Chandrashekar for your kind words! No words would suffice to extend my thanks to you, and to other tribesmen of Safal Niveshak, who are working towards making this entire initiative worth every minute of work I’m putting into it. Thank you again for being there! Regards.

  7. Equitymaster.
    Interestingly, even I had guessed it 🙂

  8. Mansoor says:

    Brilliant Vishal, your attitude towards the stuckup capital market has been quite visible from the day I started reading your articles and then when I met you. Don’t get me wrong, sometimes I doubt, why someone wants to be so honest. Like Mr.Chandrashekar said, I have also not come across anyone as honest as you are in the financial sector. You follow what you preach and that’s beautiful for someone to follow you and your thoughts.
    We look forward to walk together on this journey of becoming independent, sensible, and successful investors. And I say Bring it on.

    • Thanks Mansoor, but I’m not sure if it’s a point about “why someone wants to be so honest”. I mean, I always wonder whether there is any scale on which honesty can be measured. Either I am 100% honest or I am not. This is one belief that drives me.

      The other is what I learnt first from my father and then Warren Buffett.

      And that is – “You’ll live the largest part of your life with a person called “YOU”. And your dishonesty will be an embarrassment for him (the “YOU” you’ll live with). So honesty is the choice you have to make every second of your life.”

      And thus, I have no choice but to be honest with “YOU”…and with you. 🙂 Thankfully, God has wired me that way.

      But I’m sure if I had stayed in the stock market profession for a few more years, this “YOU” would have left me out of utter embarrassment!

  9. vikrant says:

    Hi Vishal,
    As you know i and most of the other tribesman were aware, but this post is so well written and conveys a great deal of information regarding the nature of the business. As always great post and thanks for writing.

    I do have another point i wanted to mention as i read a comment in some section where one of your reader was asking you for increase the frequency of the Stock talk, i would rather have less number of stock talk to be able to understand things in more details than have more, Additionally i would also recommend that you just dont go by number of request but also see to that if you find something that is really valuable and cheap then share that one first.

    • Thanks for your feedback, Vikrant!

      As for your point about StockTalk, yes one reader had written something like what you’ve pointed out, but he had written it because I had that time taken a very long gap between two StockTalk reports (almost 40 days). Anyways, I plan to do one report in around 30 days.

      As for the choice of stocks, it does not depend entirely on the number of requests, but also on the quality of business. So you can rest assured on that front. Regards.

  10. Avadhut says:

    Vishal,

    No words to express the appreciation for this article. As I also have not come across any financial analyst as honest as you, rightly said by R.K.Chandrashekhar.

    I’m glad that I’m in safe hands 🙂

    Regards,
    Avadhut

  11. Vikram Singh says:

    I am also working in stock market for 5 years but on a lower side. I was working as executive dealer in INdiabulls sec. for 5 years nearly. Now I am working as Relationship Manage. I have same feeling as you have. Do you have any job for me in your company because I also want to work with you and help people to take right decision….

    Regards,
    Vikram Singh
    8459801810

  12. Nishanth says:

    Truly inspiring words,Vishal…you give people something precious, which is a ray of hope.

  13. Sreekanth says:

    Great Inspiring post Vishal……Especially liked your point 19…LOL……….and Thanks for starting such a great website…..looking forward to benfit more from same……

  14. Vishal ,truly inspiring , its takes a lot of guts to write this ..

  15. I also quit my lucrative sell side job after doing it for 6 years. I thought it was a great role before I started (it seduces you in) but my reasons for leaving echo yours exactly.

    Great article, and truthful representation of sell side life.

  16. Great article Vishal. Its obvious that several brokerages and investment advisers are just good at marketing their services with rosy promises.
    Once a customer invests money all he gets is some buy or sell calls and plenty of churning in his portfolio. This generates more commission and earnings for the financial firm/brokerage and clearly small investor play a losing game. Its almost like a Las Vegas betting firm that makes money all the time, regardless of whether its customers gain or lose.

    Your decision to quit from the analyst world and pursue your passion has been a good and successful one. However, I’m sure you would have made adequate preparations to cover your risks or uncertainties. May be you should teach others how to become an independent professional or solopreneur and what steps need to be taken. Looking forward to your comments too.

  17. Nelson Christian says:

    Such a candid refreshing write up. I don’t know where retail investors would have been without your website and the help received to thousands over the years.

  18. Suman Chakravarthy says:

    Wonderful post vishal, you have brought out some vivid facts from the broking/advisory industry. ..

  19. BHAVIK GADA says:

    Finance of india sebi everyone on higher post is corrupted its not stock market buts its gambling where institution gambles.buy n sell it a easy game but when we act two to four time and evertimes it goes opposite then its manipulation.

Trackbacks

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