What is Investment Research And Why Does It Need to Be Better?
Investment research is defined as the “work done to study the performance” of stocks, mutual funds, and other assets to produce “a guide to what investments to make,” according to the Financial Times.
Cryptocurrencies have been around since 2009, but retail investors in the industry don’t have access to research of the same quality that’s available in traditional markets. Professional analysis is sorely needed.
Here’s some background on the history of investment research, modern challenges the marketplace faces, and why independent firms are becoming much more competitive.
Why investment research came to be
Investment research provides the market with timely information, as analysts use their expertise to give investors data-driven advice. This eliminates information gaps and many potential issues and dangers associated with investing, like the risk of buying into an overvalued stock and losing greatly when it goes down.
In short, investment research is designed to take away the guesswork and make investors more efficient and profitable.
Investment research has a long and storied history. The world’s first stock market, the Amsterdam Stock Exchange established in 1602, had data and information for investors to reference. There were even people advising others on what plays to make.
What’s interesting about this is that 17th century trading on the Dutch exchange actually had many of the same problems crypto investors face today. Ever heard of the tulip bubble?
As Lodewijk Petram, an economic historian, notes in his book, The World’s First Stock Exchange, investors had to deal with concerns commonly seen today, such as fraud, accuracy of information, and balancing risk.
In the 20th century, as the stock market became a common way to invest, and because of longstanding issues investors have faced for centuries, banks began delivering equity research to their customers through private mail.
Beginning in the 1990s, research reached investors through email newsletters and other online channels. Advanced research portals like the Bloomberg Terminal, which actually dates back to the early 1980s, have become widely used by serious investors looking for sound advice and reliable data.
For decades, savvy investors have accessed research through paid subscriptions. As of 2017, the aggregate size of the global investment research market is $16 billion, with more than 40,000 pieces of content delivered each week by bigger banks and brokerages.
Clearly, the sheer size and output of this marketplace highlights the great need and benefits investment research offers to anyone who invests.
Investment research is undergoing seismic shifts
In the 21st century, the investment research marketplace is quickly transforming due to changing regulations, the democratization of information, and emerging technologies like AI and blockchain.
Perhaps the most notable regulatory event occurred in Europe earlier this year. The EU implemented new rules in 2018 requiring asset managers to pay directly for their own research.
This has already reduced the amount institutions spend on investment research. In fact, a poll by Quinlan and Associations shows assets managers will cut research budgets by an alarming 30% in years to come.
In addition to tightening budgets as a result of new regulations, investment research departments face falling profits. This has triggered a growing lack of faith and interest in sell-side research.
How did this happen?
First, there’s a tendency to be bullish among sell-side analysts. A study from Bespoke Investment Group in 2015 examined 12,122 ratings in the broad market index. Just 6.67% had a “sell” label, with the rest either being “buy” or “hold.”
Second, many investors fail to beat the market indices. For example, Warren Buffet famously bet $1 million that the S&P could beat a basket of hedge funds (he won). This isn’t too surprising — in 2012, 49% of analyst ratings on Dow 30 stocks were incorrect, according to NerdWallet.
Tightening regulations, falling profits, and a need for information from new sources is naturally fueling the decline of traditional investment research departments. Yet this isn’t necessarily a bad thing. The industry has long been due for disruption.
This could be very good for investors, especially investors in cryptocurrencies, STOs, and blockchain companies, because:
- Big banks and wealthy hedge fund managers have controlled the investment research ecosystem for far too long. It’s time for new, independent players to emerge so the average investor can get better-quality research at a reasonable price.
- A lot of sell-side research is redundant and duplicative. More independent research firms means more honest competition. This is an important development, as there’s no universal ‘right way’ to invest. Everyone has different risk preferences, cash flow needs, goals, timelines, etc.
- The democratization of the investment research industry and the rise of independent research firms will provide more experienced financial analysts the opportunity to strike it out on their own and make a name for themselves in the marketplace. Surely, many top analysts will put their skills to work in emerging asset classes, like cryptocurrencies.
- Cryptocurrency traders need more accurate research than what you find in online forums and personal blogs (which is the majority of what’s available now). At XResearch, we plan to fill this glaring gap as the first crypto-specific investment research firm.
The future of investment research is here
There are many growing pains that exist in the investment research marketplace. However, bright days lie ahead as independent research firms become more prevalent and prominent. This should be welcome news for those investing in cryptocurrencies, ICOs/STOs, and blockchain companies.
As the first crypto-specific investment research platform, XResearch is leveraging the power of the blockchain to distribute accurate, trustworthy research content produced by our team of experts and community members.
By democratizing the investment research economy for cryptocurrencies, ICOs/STOs and blockchain firms, we can ensure XRES token holders get access to the best, most reliable research from around the world — something everyone deserves in the 21st century.
If you want to learn more, please read our whitepaper and join our Telegram group.
