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Money Buzz 12/04

Informal investments, independent investment research and more

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

Independent's Day

As part of last year's settlement with securitiesregulators, some of the nation's largest investmentfirms-including Citigroup, Merrill Lynch and Morgan Stanley-mustnow provide their clients with an independent source of research inaddition to their own analysts' reports. Investors can obtainthese reports from their brokerage firm's website or by dialinga toll-free number-and, according to a new study, they should.

Historically, independent research firms have been markedlybetter stock pickers than analysts at investment banks-particularlywhen the market is performing poorly, according to a recent stockperformance report by university researchers. "The buyrecommendations of independent research firms exceeded those ofinvestment banks by 8 percent a year," notes Brett Trueman, aUCLA professor of accounting who co-authored the study with BradBarber of the University of California, Davis, and Reuven Lehavy ofthe University of Michigan, Ann Arbor. "And during the bearmarket of 2000 to 2003, investment banks fared even worse on buyrecommendations-underperforming independent research firms by 17percent on an annual basis."

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