Thursday, June 25, 2015

The temperament needed to be a great research analyst...

From The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns:
The temperament needed to be a great research analyst is similar to what is required for investigative journalism. A genuine curiosity and interest in business is required. A nose for a story also helps. By digging deeper and following intuition, a good analyst is able to gather certain relevant facts often overlooked by lazy competitors. An important trait of a good analyst is being able to define the limits of understanding. This self-awareness comes only with experience. Often an analyst without this ability genuinely professes an extensive understanding of a specific company or industry. But in reality, this knowledge may be woefully lacking when compared with other analysts. The analyst may suffer from what is known as the Dunning-Kruger effect, where a person’s own inexperience prevents recognition of that inexperience. Only through improved skill and experience can an analyst enhance the metacognitive competence that allows for the recognition of the limits of ability. Reading competitive research and talking to industry contacts after a thesis has been formed can help analysts get a sense for how much understanding is enough.