If you ask us about the most outstanding quality in our work we'd say this - we love this profession and it shows!
As an Investor or a Trader (Read all about our cutting-edge quantitative techniques and philosophy in Quantitative Research), you are faced with the unenviable task of wading through piles of information - and truckloads of mass-produced, look-alike, sound-alike, consensus-hugging research that more often than not has hidden (or not-so-hidden) agendas.
Hand-crafted research or mass-produced?
Our aim is not to deluge you with paper but to provide useful insights, analysis and money-making ideas. We concentrate on trend shifts, not-so-obvious aspects and pointing out issues where seemingly none exist. Quantitative, yet also touchy-feely. Thinking macro as well as employing scuttlebutt. It means analyzing macroeconomic indicators to decide whether the Dollar would depreciate (See
‘Falling Dollar: The loss of confidence’, July 8, 2002
), and poring over Dell's (DELL) accounting policies to figure out how the company accounts for put options ( See
'Why nearly a billion dollars of put related charges will not show up in Dell's profits'
, October 14, 2002).
We don't mind being in disagreement with the consensus… or even with management guidance. We do not think that it is the job of analysts to regurgitate what management tells the world. It is to consider, analyze, weigh the evidence and then to judge. It is this questioning attitude that led us to discover that something didn't hang together in Worldcom's financials back in July 2001 (See
'Worldcom: We knew what it did last summer', July 18, 2002).
Or even leaving aside active fraud, led us to give estimates significantly below management numbers for Microsoft (MSFT) back in Oct. 2001 - numbers that the management eventually confirmed six months later through lowered management guidance (See
Microsoft Result analysis, April 22, 2002).
And we try to produce all the thought and analysis in as readable and entertaining a form as we can. In short, we generate research that is painstakingly hand-crafted, with passion. Not something that rolls off an assembly line.
The Sweet Spot
We, at First Global, believe stocks have a fundamental value - and also a quantitative value. So, we put stocks through our wringer that values them on both fundamental and quantitative factors. The former include well-known tools as well as proprietary measures of cashflows and valuation like
Discounted Operating Cash Stream/ Market Price (DOCS/MPTM)
and 5-year Discounted Return on
. The latter uses proprietary quantitative tools like
The FG Quant Systems Family
, a multi-factor, multi-period quantitative trading system that aims to be anti-consensus, anti-correlation, in its approach. This hybrid analysis often gives amazing results - some stocks and sectors end up on the perfect list - high fundamental value and high quantitative value. That's the sweet spot of the market - and if you get even 50% of these right, you'll be next seen on a beach in Hawaii. Amazon, is a good example of this. Just as Wall Street was throwing in the towel on the stock in Jan-Feb 2001, the stock actually looked the best it ever had - the company had made free cash flows for the first time in its history, all our quantitative measures were at green. We initiated coverage with a Strong Buy (See
‘The Truth about Amazon’s Liquidity’, Feb 8, 2001'
). The stock has been an outstanding performer since then.
Even when fundamental & quantitative readings are somewhat at variance, knowledge of this provides the input required to time your move. And even if you count yourself among the 'investors' and not 'traders', timing your move can make a substantial difference to your Profit & Loss Account. This is again where First Global adds tremendous value to its long-only clients.
The Holistic Viewpoint
Our holistic view of the markets goes beyond the fundamental/investing vs. quantitative/trading debate. It means making sure that our view of the World hangs together. There is no greater example of this than our research on the technology/Software stocks, where our view on individual stocks has been shaped by what we think would happen in each broad segment of the Information Technology industry and what would be the winning strategies in each; and the industry view in turn is shaped by an understanding of the macroeconomic structure including long-term capital expenditure & capacity utilization trends across a wide spectrum of industries (See
‘First Global’s verdict on tech spending’
, June 27, 2002' ;
‘The new tech-sector trends and the winning strategies’
, July 1, 2002' ). Thus when we make an estimate for semiconductor demand it is derived from and is consistent with our views on a spectrum of industries like personal computers, mobile phones etc.
For us, research is a team effort. Even when a solitary name appears on a research report, rest assured that it has gone through intense debate and at least two layers of seniors, with decades of market experience. The reason: We are, and want to be accountable for what we say.
We hate to make a big deal of this, for we think that basic intellectual integrity has to be a given in this business. It is unfortunate that this is not the case. As for us, you can rest assured that what we say is untainted by corporate finance considerations or the need to drive trading volumes. All that we require from clientsis that they be fair in their commission allocation decisions. If we add more value than others, we deserve to get paid more. If some other firm adds more value, then pay that firm the most. Commission payments should be transparent and sell-side firms should know the basis for these allocations. This is the only way the playing field gets leveled.
All this said, it is also our firm belief that merely being independent is not good enough. Being right is more important. In order to be right, independence may be a necessary, but not sufficient condition.
Over years, over markets, over cycles, First Global has proven its ability to call the future before it becomes common knowledge.
And this, in our humble view, is all that matters.
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