Analysts actively participate in the process of bringing in banking business. And they cover primarily companies that have generated big banking fees for their firms. Not surprisingly, the bias is to urge customers to buy, never sell. That, say veteran analysts, is not how the game was played 10 or 20 years ago. The dark side of research gets darker still.
Analysts often invest for their personal accounts in the same companies they follow.
These investments typically are disclosed in the eye-straining print at the bottom of their reports, but the vested interest can't help but taint objectivity. Worse, Wall Street analysts are often invited to make early-stage investments in companies they may later follow as analysts. Indeed, many private companies feel that by offering prepublic shares to name-brand analysts, the company will improve its odds of being chosen as a client by the star's investment bank. Quite a lot, actually. Many analysts are experts in their fields, often individuals who moved to Wall Street after a career in the industry they now analyze.