We believe most sell-side analysts are not correctly incented to provide accurate and unbiased analysis. Instead, they are incented to publish research in support of a firm's investment banking and corporate access businesses. This creates a herding mentality within the group and a tendency to sandbag estimates in favor of higher earnings beat rates for the companies they cover. It also disincents aggressive estimates which fall well outside of the group. There is little incentive to be right when everyone is wrong, while there are significant disincentives to being very wrong when everyone else is right.
No amount of regulation or specific regulatory structure will change this, because removing it would take away the reason for sell-side analysts to exist altogether. Instead of attempting to fix this issue through regulation, we believe that sourcing estimates from buy-side professionals, independent analysts, and amateurs will strongly mitigate the influence of the sell-side analyst data set.
This is why we built Estimize.
By crowdsourcing fundamental estimates from a community of individuals with the proper incentive structure - the incentive to be as accurate as possible - the resulting data is both more accurate and more representative of true expectations. This provides the market with a more honest measure of collective sentiment.
The benefit of obtaining greater collective sentiment by sharing their proprietary information far outweighs the downside for each individual. Each individual's proprietary view is only as valuable as it relates to their ability to execute on that view. Sharing doesn't inhibit the ability to execute or disadvantage the individual in any way. If the individual develops a strong reputation of accuracy for a specific asset, they greatly benefit from an increased ability to affect the broader view- a large tangible benefit to sharing.
We believe that the title on your door is nowhere near as important as the quality and accuracy of the analysis you share. Insightful viewpoints and amazing talent can be found in many different places - from graduate students to corporate finance professionals, from senior hedge fund analysts to prop desk traders. We make no value judgement on this factor, as it produces biases which muddy the statistical waters. We believe the value you add is determined by the quality of analysis and data you share.
Lastly, we love pushing innovation within the financial community and building something of value. Innovation isn't easy in this space and often moves slowly because of regulations and entrenched interests. Suffice to say, we enjoy making certain people sweat, and hope to disrupt some of those interests which currently provide little or no value to the financial community.
Thank you for being part of the Estimize community and supporting our vision.
Founder and CEO of Estimize