With curmudgeonly thoroughness we have been chronicling the litany of woes afflicting equity research, macro research, fixed income research and the research industry generally. It is therefore a good test to ask for what researchers and those who rely on research should be thankful. To our surprise, there is indeed much deserving gratitude.
First and foremost, given the symbiotic relationship of research and that which is researched, we should give thanks for benign markets. Although there is far from universal approval for their methods, central banks successfully snuffed the financial crisis with unprecedented liquidity and economies responded without the inflation that many predicted. Markets benefited and, by extension, so have those that research markets. Think back to the collapse of Lehman Brothers in 2008 and you will find much to be thankful for now.
We should also be grateful for the diversity of the markets, which is reflected in the variety of those researching them and the multiplicity of the investment ecosystem which ranges from individual investors to endowments, from boutique managers to global franchises, from quants to fundamentalists.
Most difficult of all we should give thanks for the Schumpeterian changes that are so radically transforming the research industry. For over four decades, investment research has been in a period of relative stasis in its core business model, basic techniques and modes of distribution. All is altering rapidly, justifiably causing anxiety for those subject to that change.
European efforts to remove the subsidy that has inflated the equity research market since 1975 are fraught with risks and certain to create adverse unintended consequences. And yet they will also spark innovation and a healthy focus on improving the quality of research product.
Even more powerful are the global market forces impacting the research industry as market structures mutate and investment preferences evolve. Passive investing, so inimical to classic research approaches, is forcing research producers and consumers to go back to first principles of what generates investment returns as well as improving the efficiency of how research is produced and delivered.
Perhaps most unsettling of all are the technological forces impacting research providers and their users as investment becomes more automated with more advanced computing techniques and artificial intelligence. And yet these same forces are creating new sources of alpha, innovative ways to monitor companies and economies in real time, and techniques to improve productivity.
It is not easy to embrace uncertainty but the virulence of change reveals the underlying vitality of investment research as it adapts and morphs. And this is the root of all thanks — there will always be intrinsic value to investment ideas and opportunities for those that generate them.