Analysis suggests that the main reasons for the decline of the Stocks research and analysis Industry include the rise of passive investment, the development of AI, a decrease in the number of publicly listed companies, and changes in regulatory policies. The decline of the Industry has also led to a decrease in the coverage of small Stocks in the US market, resulting in inaccurate valuations of small companies by investors, which in turn increases the Company Valuation financing costs, reduces Stocks liquidity, and affects market efficiency.
In recent years, the Wall Street Stocks research Analyst industry has faced unprecedented shocks.
On January 9, Bloomberg reported that the number of stock Analysts at the world's 15 largest Banks has sharply declined from nearly 4,600 a decade ago to about 3,000, a drop of more than 30%.
At the same time, Analysts' salary levels are also sharply declining. Data from Vali Analytics shows that the starting salary for entry-level stock Analysts is currently between $110,000 and $170,000 per year, nearly on par with pre-financial crisis salaries - taking inflation into account, the total compensation for stock Analysts has actually decreased by nearly one-third.
Analysts indicate that there are four main reasons for the decline of the Stocks research Analyst industry:
- Regulatory policy changes: The MiFID II regulations implemented in 2018 require that Asset Management companies in the United Kingdom and the European Union must pay for research reports provided by brokers; two years ago, U.S. brokers providing research results to European managers were also subject to this rule.
- The rise of passive investment: Investors increasingly favor low-cost passive investment strategies such as ETFs.
- Developments in AI: The advancement of AI technology poses a threat to traditional Analysts' jobs, as JPMorgan has already been experimenting with AI Analyst chatbots.
- The number of listed companies has decreased: the number of publicly listed companies has shrunk, which has also reduced the demand for Analysts.
With the decline of the Industry, the US stock market has undergone a series of changes - the coverage of Small Cap Stocks has dropped, and the market is increasingly focused on large stocks. Bloomberg points out that currently,E-mini Russell 2000 Index the number of companies covered by fewer than 10 Analysts has surged from 880 ten years ago to about 1,500, an increase of 70%; on the other hand, about 97% of the companies in the S&P 500 Index have 10 or more ratings, far exceeding the approximately 66% in 2014.
However, multiple academic studies indicate that the decline in Analyst coverage leads to investors being inaccurate about Company Valuation, thereby increasing the financing costs for companies, reducing stock liquidity, and impacting market efficiency. Research by Jefferies strategist Steven DeSanctis shows that since 2001, uncovered Small Cap stocks have lagged behind companies covered by more than 10 Analysts by nearly 3 percentage points on average each year.
As for many practitioners, facing this Industry transformation, they have chosen to transition, such as moving to Social Media, joining hedge funds, shifting to investor relations departments, establishing independent research platforms, and creating paid subscription columns.
An Analyst Jerry Diao, responsible for researching Silicon Valley tech stocks at large Banks, shares financial industry advice on YouTube, now with 0.04 million followers; another Analyst Alex Morris founded the research organization TSOH Investment Research, with an annual income of about 0.26 million dollars; Wall Street strategist Barry Knapp has established a paid subscription column on Substack, charging each subscriber 999 dollars per year...
Bloomberg states that in the future, the stock research analysis industry is expected to further closely integrate with AI. For example, former Citigroup strategy chief Robert Buckland has joined the AI startup EngineAI to apply AI to stock research.
