Hot chips, cold steak and a whole flock of seagulls
I watched a pilot for a TV show about Australian stockbrokers this week called Squawk. Written and directed by a Melbourne stockbroker, it is an entertainingly over-the-top characterisation of stockbroking in which one dealer describes institutional clients as the guy coming out of the fish shop with a hot bag of chips, and the brokers as the seagulls waiting outside. To the guy with the bag of hot chips all the seagulls look the same, so for the seagulls, success means having to stand out. And so it is that the results season is upon us and, as every seagull knows, results season generates a lot of hot chips.
August is the time to stand out, but let me tell you, for the broker analysts whose job it is to do that, this month is purgatory. In order to be competitive, at the very least, the analysts have to hit the biggest chip holders the moment the results are out with a crisp and accurate analysis and an action recommendation that generates an order that makes both you and them look very clever by the time the stock opens the next morning. On top of that, you have to verbally brief the whole of your dealer group with a similarly accurate, informed and hero-making opinion that your dealers can disperse rapidly down the phone lines in the pursuit of even more chips. And all before the competition do the same thing.
Then you have to tune into the analyst's conference call with the company, further your brand by stating your name and asking brilliantly insightful questions you already know the answers to and that your future employers, who are almost certainly listening, might be impressed by. Then, in less than half an hour, put out a written summary that further carries your brand and brilliance to the inboxes of the whole industry.
At the same time, if you want to remain a seagull, your opinion must not jeopardise any relationships your broking house might already have with the company itself and, if you know which side your bread is buttered, actually furthers your relationship with the company just in case they have a corporate deal for you sometime in the future. And finally, amid the constant barrage of client and dealer questions, and even a visit or two to the biggest chip givers' offices to brief their analysts, you have to write a fresh and original 20-page piece of research for the next day's morning note that "stands out" from the other seagulls and is submitted before the research editor's deadline, which resides somewhere between closing time and 4am.
And that's if you only have one result a day. Some analysts get two or three a day. On the biggest day of the results season there are 20 top-300 sets of results and on August 21, think about the IT and Telecoms sector analysts who have to go through the whole process for iiNet, Seek, SMS Management and Webjet all on the same day. Dinner's in the dog that night. Tough stuff.
But before you pull out your violins, imagine doing all that and getting it wrong. Imagine what it's like for an analyst running with a buy recommendation when the results are terrible, or a sell recommendation when the results are great. There's standing out and there's standing out for the wrong reasons. Get it wrong and you'll be pushing research out at 4am in a cloud of shame.
Your dealer group will abuse you for their lost goodwill, the clients will drop you for your lack of value, and your competitors and potential employers will rejoice in your misfortune. Is it any wonder forecasts hug the consensus. In a seagull-eat-seagull world just remaining a seagull is sometimes reward enough. The chips are a bonus.
So spare a thought for the seagulls as you read the research this month. You have the luxury, in the clarity of the morning, on a full stomach, after a good night's rest, with the power of hindsight, in the context of multiple opinions, of casting judgment on a professional, under a lot of pressure, with an empty stomach operating at 4am in the morning whilst their dog sleeps at home, bloated by a well done rump steak.
They're a tough breed those seagulls, in a dog-eat-dinner world.
Marcus Padley is a stockbroker and the author of Marcus Today. For a free trial go to marcustoday.com .au. Listen to Padley every morning with Jon Faine on ABC774.