It’s the best of times for data and the worst of times for insights. The few investigative journalists left still worry about being out on the street. Instead, interns fill news sites’ pages with links to other websites. They call themselves content curators. I always thought a curator is someone who manages a museum’s art collection, but maybe I’m just showing my age.
I like a finely curated collection of cat memes as much as anyone, but I like facts even more. And, like art collectors, the rarer and more useful a fact, the happier I am to learn it. So, I’m discouraged seeing fewer and fewer news stories take up ever-increasing space on the Internet.
The same, unfortunately, is true of the art and science of fundamental analysis. Many investors have concluded that stock pickers can’t beat the market, so firms have had a challenging time making money selling their stock research. And, if they can’t make money selling research, there’s little reason to hire analysts. Instead, the search for those traditional stock insights of old has been replaced by the ravenous hunger for trading data. There’s nothing wrong with that. Some firms have been able to generate very nice returns from stock behavior that has very little to do with the underlying companies’ economic profitability or the demand for their products.
But journalists and stock analysts perform a critical function in society. They are the ones looking under the hood and keeping politicians and company executives honest—or at least trying to. Analysts alert investors to poor performance and occasionally accounting fraud. Their reports might alert policymakers when they are about to sign a rotten idea into law.
Capitalism is tough. Analysts still need to make money for their employers. If they don’t, it’s hard to blame firms for laying them off. But their loss means we investors will have to be even more vigilant. We may have to be the ones to keep the markets honest. But our work will be more rewarding. The fewer analysts there are, the more opportunity there will be to profit from mispriced stocks.