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Money Buzz 12/04

Informal investments, independent investment research and more

This story appears in the December 2004 issue of Entrepreneur. Subscribe »

Independent's Day

As part of last year's settlement with securities regulators, some of the nation's largest firms-including , Merrill Lynch and -must now provide their clients with an independent source of research in addition to their own analysts' reports. Investors can obtain these reports from their brokerage firm's website or by dialing a toll-free number-and, according to a new study, they should.

Historically, independent research firms have been markedly better stock pickers than analysts at investment banks-particularly when the market is performing poorly, according to a recent stock performance report by university researchers. "The buy recommendations of independent research firms exceeded those of investment banks by 8 percent a year," notes Brett Trueman, a UCLA professor of accounting who co-authored the study with Brad Barber of the University of California, Davis, and Reuven Lehavy of the University of Michigan, Ann Arbor. "And during the bear market of 2000 to 2003, investment banks fared even worse on buy recommendations-underperforming independent research firms by 17 percent on an annual basis."

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