Performance Batting Averages


New York – One of the more interesting elements of the measuring performance is the so-called batting average analysis. On the surface this is a straight forward statistic that measures the percentage accuracy of a research firm. If, for example, a research firm made 10 BUY calls and 8 of those calls went up, the batting average for the BUY recommendations of that firm would be 80%. The data for this study has been provided by Investars and the analysis has been done by Integrity Research Associates.

As with other performance measurement statistics, the batting average has some inherent biases, particularly toward those firms that make a small number of recommendations. Obviously, it is more of a feat to get 800 of 1000 calls right, than it is to get 8 out of 10. Additionally, the odds that a firm could get an excellent batting average (or a horrible one) increase as the number of recommendations decline. For this reason we have separated the research providers by their number of recommendations and then found those firm with the best batting averages within those groups. The groups were delineated as follows:

  • Over 1000 recommendations
  • Between 500 and 1000 recommendations
  • Between 100 and 500 recommendations, and
  • under 100 recommendations

Another concern is that a firm that had 1200 BUY recommendations and one SELL recommendation would appear to have a reasonable overall batting average if the SELL fell. The simple average of the BUY and SELL batting averages would almost certainly be over 50%. To adjust for this, we have weighted the recommendation accuracy with the number of recommendations in each category, forming a weighted average batting Average (WABA).

Weighted Average Batting Average                                                                     Firms with over 1000 Recommendations

Rank   Company                                   # Recs    WABA

1      Citigroup Investment Research   1030    61.5%

2      Channel Trend                             5288   59.7%

3      Standard & Poor’s                        1684   57.3%

4      Rochdale                                       3181   57.2%

5      Ford Equity Research                   7653   54.9%

For those companies with a high level of recommendations, batting averages of around 55% are fairly good. CitiGroup research takes top honors for the high recommendation space, and the top five are nearly evenly split between the large fundamental shops and the quantitative shops. 62.5% of the firms with over 1000 recommendations had batting averages over 50%.

Weighted Average Batting Average                                                                     Firms with between 500 and 1000 recommendations

Rank   Company                                   # Recs    WABA

1      Merrill Lynch                                 750       64.9%

2      Wachovia Securities                     632       61.1%

3      UBS                                               876      60.8%

4      Bank of America                           886      60.3%

5      Lehman Bros                                 912      59.4%

The second group of companies issuing between 500 and 1000 recommendations was dominated by the sell-side research shops, with 100% of the RPs coming from the sell-side. Additionally, 90.5% of the firms in this category had WABAs of over 50%.

Weighted Average Batting Average                                                                     Firms with between 100 and 500 recommendations

Rank   Company                                      # Recs    WABA

1      KeyBanc Capital Markets                  335      68.1%

2      FTN Midwest Securities                     199      66.3%

3      Fidelity Model                                    457      66.1%

4      Buckingham Research Associates    127      65.3%

5      When2Trade                                      328      64.6%

Of interest in this category is the fact that a purely technical system (When2Trade) made the top 5.  71.7% of the firms in this category had batting averages over 50%.

Weighted Average Batting Average                                                                     Firms under 100 recommendations

Rank   Company                                      # Recs    WABA

1      Global Crown Capital                        1            100.0%

2      Henley & Co                                       6            75.0%

3      Hilliard Lyons                                    87           71.3%

4      BWS Financial                                    6           66.6%

5      Longbow Research                           3            66.6%

This final group leaves one questioning whether all of the firms have been updating their recommendations throughout the period. It would seem very difficult to have a research company with only one recommendation and still have a viable business. The WABAs for this group ranged from 100% to 0% as one might expect. However the distribution of the results was somewhat balanced, with the number of RPs with batting averages less than 50% equaling 46.8%. and 12% of the RPs posted WABAs of less than 30%.

One of the drawbacks to the batting average is that is does not include any degree of return in the calculation. As such, an RP could have a 100% batting average and a return of less than 1%. tomorrow’s blog will discuss this concern.

Note: the data and calculations of the performance data used in this report have been provided by Investars. the analysis of the data was done by Integrity research.


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