Reader question: Writing resources for equity research analysts?

“What are some good resources to improve my investment writing skills with an emphasis on equity research writing?” This question recently arrived in my email in-box.

Here are my suggestions:

I offer customized writing workshops for corporate clients in investment and wealth management. I’m not a research analyst. However, I’m good at analyzing client writing samples and then using them as the basis for training.

Equity analysts, can you suggest any additional resources?

I’m always interested in readers’ ideas.


July 24, 2013 update: Warren Miller, CFA, CPA of Beckmill Research, LLC has some more suggestions for you, starting with “Read what good analysts write, and then copy it by typing it into a Word document.” As you re-type that research, study what makes the reports good. That means looking at how the analyst tells the company’s story and at details such as sentence length, transitions, and measures of reading difficulty, such as the Fog Index. As Miller says, “Good writers read great writers.”

Disclosure: If you click on the Amazon link in this post and then buy something, I will receive a small commission. I only link to books in which I find some value for my blog’s readers. – See more at:

May 30, June 3, and June 27, 2014: I updated this with additional links.

Disclosure: If you click on the Amazon link in this post and then buy something, I will receive a small commission. I only link to books in which I find some value for my blog’s readers.

Disclosure: If you click on the Amazon link in this post and then buy something, I will receive a small commission. I only link to books in which I find some value for my blog’s readers. – See more at:




Financial advisor prescription by Statman evokes strong response

“Teaching clients the science of human behavior” is how financial advisors can help clients to overcome the fears that prompt bad decisions, writes Meir Statman in “Client fears and financial advisor services,” his guest post on my blog.

That may be easier said than done. As financial technology blogger Bill Winterberg said, “For a minority of clients, I think teaching the science of behavior may work in changing habits, but for the overwhelming majority, primitive survival instincts are seemingly impossible to counteract.”

I asked some experts–Rick Kahler, Justin Reckers, and Kathleen Burns Kingsbury–to contribute brief reactions to this controversy. Here are their responses.

Kahler: Partnering with a financial psychologist helps

Based on my experience with financial psychology, it is doubtful that all it would take for most investors to change their financial behaviors when feeling fear is more information about how the brain works. While more information will be enough for some investors to change their destructive, it really won’t help the majority.

Changing harmful financial decisions is similar to changing the behavior of any addiction. More information on alcoholism won’t be enough to change the destructive behavior of most alcoholics. Knowing you have a drinking problem is certainly the first step, but “knowing” isn’t “doing.” The same principals go for over-eaters or over-spenders. More information is rarely enough.

It takes a deeper “re-wiring” of the brain to create new neuropathways to change the manner in which we respond to difficult emotions, like fear. There are many tools available to help people do this, the most well-known being various forms of psychotherapy and group psychotherapy.

This is an example where a financial planner who partners with a financial psychologist can have such a positive impact on hurtful financial behaviors.

Rick Kahler is president of Kahler Financial Group in Rapid City, S.D. He writes the Financial Awakenings blog and is a pioneer in the evolution of integrating financial psychology with traditional financial planning profession.

Reckers: Professionals who work directly with clients will make the practical breakthroughs

I think an understanding of the science of human behavior is valuable in any setting. I do not believe “teaching clients the science of human behavior” will do much to counteract economically “irrational” behavior in financial decision-making. This is especially true when the decisions are made in the midst of emotions like fear or greed. Emotional biases are difficult if not impossible to dispel. They often require an advisor to adapt their own behavior to help work with the client’s emotional decision-making rather than try to change them. Advisors must remember that the fear exhibited by their clients is a reflection of the individual’s financial reality. I agree with Statman when he says “the fear of clients is normal.” I also believe one of the most important functions of an investment advisor is to help clients make fully informed decisions whether beset by fear or not. So I do not think the term characterizes what we should be concerned about. We will return to bull market territory and the emotions with which advisors contend will shift from fear to greed.

The real revolutionary contribution to Behavioral Finance will be a framework for advisors to apply concepts while working with clients. This framework will be developed by professionals who actually work with clients. The contributions of Statman, the Libertarian Paternalism of Thaler, the Heuristics of Kahneman & Tversky, the experiments and research of Ariely and so on, are amazing, important and exciting. But they mostly miss the next step: application to real individual lives. (Note: I have not read Statman’s book in its entirety. I will.) Otherwise we are left to contemplate whether “teaching clients the science of human behavior” will make any difference in how they actually behave at the moment of truth. I believe calculated interactions, interventions and nudges are necessary to truly have a positive effect on the financial decision-making of our clients.

Justin A. Reckers CFP, CDFA, AIF, is director of financial planning at Pacific Wealth Management. He writes with clinical psychologist Robert Simon, Ph.D., in the Practice Builder section of and on their blog

Kingsbury: Rationality vs. “Fight or flight” response

Meir Statman’s prescription for financial advisors is right on the money.  Clients do react, and often overreact, when emotions are involved in financial decision-making.  Numerous behavioral finance experiments, some mentioned in Statman’s blog post, show how rational thought is overruled by a desire to minimize the pain of a financial loss.

Neuroscience tells us that the brain actually processes financial losses differently than gains. This results in clients experiencing the anticipation or actual pain of loss three times more than the joy of a financial windfall.  Scans of the brain tell us that the limbic system, normally accessed during sudden or traumatic events, is used when facing a potential loss. In contrast, the frontal lobes, the part of your brain where rational thought and executive functions,  processes financial gains.  By knowing this science and educating clients about it, financial advisor can help counteract the fight-or-flight response when fear is part of the equation by offering rational, longer-term solutions.

Understanding behavioral finance and the human side of financial advising is paramount to offering client-centric services.  Not only will this knowledge help the advisor in guiding his client, it will empower the client to understand his own psychology and use the advisor more effectively.  Like it or not, all of us are flawed, emotional human beings.

Kathleen Burns Kingsbury is founder and CEO of KBK Wealth Connection, a company passionate about helping financial services professionals and their clients master their money mindset through wealth psychology. She is the author of a new audio program called Creating Wealth from the Inside Out.

Social media lessons from the top nine Investment Writing posts for 2010

LinkedIn and Facebook are powerful.

The 2010 analytics on my blog made me appreciate the power of social media more than ever.

The influence of LinkedIn revealed itself in my most popular blog posts of 2010. These posts ranked high because they attracted attention in LinkedIn groups. “LinkedIn Groups Help Blog Posts Soar,” my guest post on the American Society of Business Publication Editors blog, discusses this phenomenon. I’d like to thank all of the LinkedIn members–and other visitors–who took the time to visit, forward, and comment on my blog posts.

As for Facebook, it has become a top five source of referrals to my blog. This is true even though I only launched the Investment Writing Facebook page partway through the year. Twitter didn’t rank as high as I expected on this count.

I also saw some themes in my most popular content. Top posts addressed marketing, social media, writing, and opinions of leading financial experts.

My blog’s nine most popular posts during 2010

  1. Notable quotes from the CFA Institute’s emerging markets conference
  2. My five favorite reference books for writers
  3. ISI’s Straszheim: China’s interest rate hike is “tapping the brakes”
  4. FINRA/SEC compliance guidance for bloggers
  5. “CFA credential implies a standard of care not always upheld,” says Forbes magazine opinion piece
  6. LinkedIn’s fatal flaw for financial advisor compliance
  7. Great blog posts don’t matter…
  8. “Has housing bottomed out?”–Karl Case and others on the U.S. housing market
  9. Reader challenge: What’s the writing lesson from Physicians Mutual?

Why top nine?

You may wonder why I’ve listed my top nine posts instead of the top 10.

It’s not because I’m ornery. I figured I might pique your attention with an odd-numbered list. Did I succeed?

Guest bloggers: 2010 in review

I’m thankful for the knowledgeable and talented professionals who have contributed guest posts to my blog this year.

Here’s a list of guest posts sorted by topic, including client communications, marketing, social media, and writing.

Client communications

Five Tips for Delivering Bad News to Clients by Kathleen Burns Kingsbury
Talking to clients about social investing by Annie Logue


Adding Video into the Communications Mix by Samantha Allen
The Lost Art of the Thank You Card by Suzanne Muusers
My Six Best Marketing Tips for Independent Advisors by Steve Lyons
What’s a tomato got to do with getting your fund discovered? by Dan Sondhelm
Would you like to know how financial advisors are choosing products and making investment decisions in this market? by Lisa Cohen

Social media

Be Compliant When Using LinkedIn Messages by Bill Winterberg
Financial Advisors and Twitter by Roger Wohlner
Generate Quality, Low Cost Leads with Facebook Ads by Kristin Harad
How Seeking Alpha Can Build Your Professional Reputation by Geoff Considine
Investment analysts and social media by Pat Allen


Correct Grammar Errors in Your Writing Quickly and Easily by Linda Aragoni
Making Research Readable by Joe Polidoro

How do you define outperformance by stock funds?

Portfolio managers want to outperform their benchmarks. There’s no question in my mind about this. But how much of an advantage do you need before you can claim outperformance?

Outperformance for stocks

To keep things simple, let’s focus on portfolios investing in stocks.

Is it okay to claim outperformance if your return exceeds the benchmark’s by more than 1 basis point (0.01%), 25 bps, 50 bps, or 100 bps?

Or should the margin be calculated relative to the benchmark’s return? After all, exceeding the benchmark’s return by 26 basis points (0.26%) looks better when the benchmark returns 0.01% than when it returns 45%.

Please answer the poll in the right-hand column of this blog. I’ll report on the results in my February e-newsletter.

Diverse opinions on “outperform”

I’m literal-minded. To me, a fund “outperforms” when it beats its index by the tiniest margin, though I doubt that I’d crow about that. However, asset management companies often report such returns as “in line with” or “closely tracking” the benchmark. The concerns of their legal or compliance departments probably influence this decision.

Here’s one example:

…the Wasatch Heritage Fund posted a return of 6.22% for the quarter. These results closely tracked those of the Fund’s benchmark, the Russell 1000 Value Index, which returned 6.78% over the same period.

Meanwhile, some managers–including the manager of the Wasatch Global Science & Technology Fund–question whether their returns should be compared to benchmarks.

Typically, the first paragraph of our quarterly letter to shareholders includes a statement regarding the Fund’s performance relative to its benchmark. We intend to move away from this approach beginning with this letter, as
we think the industry norm of tracking performance versus a broad index on a quarter-by-quarter basis distracts from the Fund’s long-term investment strategy. Our new mantra, forged by the pressure of the 2008–2009 credit crunch, is that we must invest “away from the market” as we attempt to deliver exceptional long-term returns.

I’m looking forward to learning what YOU think.

Dec. 27. Oops. I made a miscalculation in discussing the Heritage example, so I’m deleting the offending sentence thanks to David Lufkin.

“Has housing bottomed out?”–Karl Case and others on the U.S. housing market

The U.S. housing market was the focus of a December 2 presentation to the Boston Security Analysts Society on “The U.S. Residential Housing Sector: Are We Near the Trough?” Scott B. Van Voorhis, lead real estate blogger for, moderated a panel including Karl E. Case, founding partner, Fiserv Case Shiller Weiss, Inc.; Laurie Goodman, senior managing director, Amherst Securities Group, L.P.; and Brian Kinney, managing director, State Street Global Advisors.

Case neutral on near-term future of housing prices

Karl Case, who’s well-known for his role in creating what’s now known as the S&P/Case-Shiller Home Price Indices, said he’s neither optimistic nor pessimistic about housing prices.

On one hand, Case is concerned about a potential fall in the number of home buyers if immigration falls and more adult children end up living with mom and dad. The 1990 census showed that we had 10 million people whom we didn’t know we had, said Case. He’ll feel discouraged if the 2010 census shows we’ve got a smaller population than expected due to a decline in immigration or other factors.

On the other hand, said Case, affordable house prices help.  You can buy a house today for half of what you would have paid on a monthly basis three years ago, he said. Low interest rates help, too.

In Case’s opinion, the next one-and-a-half years are likely to see a 0% change in housing prices. If prices don’t decline, we’re happy, said Case. Moreover, “When prices begin to rise, it’ll be a whole different ball game,” he added. A small number of people coming into the market can have a big impact on prices because valuations are set by a small number of transactions. In “A Dream House After All,” a September 2010 op-ed essay, Case said, “…a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision. And emotions can change on a dime.”

House price decline of 5%-10% foreseen by Goodman and Kinney

Case’s fellow panelists were more pessimistic, both projecting a house price decline of 5%-10%. Houses are affordable by traditional standards, said Goodman. However, that plus is offset by a huge number of houses and limited credit availability. This poses an obstacle to reform of Freddie Mac and Fannie Mae. Kinney agreed that reform will be a big challenge.

Geographic differences

Case pointed out that housing prices vary by region. For example, California suffered from a boom in house prices, but not an oversupply of housing. So it’s recovering ahead of states such as Nevada and Arizona that overbuilt. However, California accounts for one-quarter of the nation’s housing by value. That means as California goes, so goes the nation, according to Case. The state’s house prices have been rising since the spring of 2009.

Foreclosure crisis calls for dramatic moves

Goodman made the point that the foreclosure crisis isn’t over. She believes that about 95% of 5.2 million non-performing loans will eventually be liquidated. The government’s measures have stretched out the foreclosure crisis, rather than solving it, she said.

Principal reduction for mortgage holders who are “under water” must be part of the solution, said Goodman. The Home Affordable Modification Program hasn’t gone far enough, in her view. For the sake of the U.S. economy, the government should make principal reduction mandatory, she said.

She also suggested the following:

  1. “Increase credit availability to borrowers.”
  2. “…[re-qualify] borrowers who are in a home they can’t afford into one they can afford.”
  3. Offer immigrants “amnesty through an investment in housing.”

What do YOU think is the solution?

I’m curious to learn your take on the housing market. Please leave your comments below.

For another perspective, check out “Could Your Children Buy Your House?” by David Glen. Dave, whom I was delighted to meet in person for the first time at yesterday’s BSAS meeting, also discusses the panel.


Photo credit: cindy47452

“Escrow Accounts: What’s the Deal?” My article for

Does your escrow account ever cross your mind? Probably not. But forgetting to monitor it can lead to lost money and a big headache. Read the rest of my article about escrow on, the website of the National Association of Realtors®.

Also, if you’re looking for a writer to interview your investment or wealth management professionals and then write an article that will appear with their bylines, please contact me. I enjoy ghostwriting!

Guest post: “Client fears and financial advisor services”

Fear prompts financial advisors’ clients to make bad decisions, as Meir Statman explains in his guest post below. He’s a renowned scholar in the area of behavioral finance, so I’m delighted to receive his guest contribution and a free copy of his new book, What Investors Really Want, thanks to my friends at McGraw-Hill.

Client fears and financial advisor services

By Meir Statman

Many financial advisors encountered clients who were urged by fear to cash all their stocks in late 2008 and early 2009. Today, some advisors encounter clients who are urged by fear to replace stocks and bonds with gold.

Clients are often urged by cognitive errors and emotions to act in ways that damage their long term financial health. In that, clients are like patients who are urged by cravings to smoke or eat more than is prudent. Financial advisors are financial physicians. Good financial advisors listen carefully, empathize with clients fears, diagnose, educate, prescribe solutions, and follow up. Physicians do their work with the tools of science. So do financial advisors who teach clients the science of financial markets and the science of human behavior.

We know from the science of human behavior that we are less willing to take risk when we are frightened than when we are calm. In one experiment, a group of students were offered money to stand before the class the following week and tell a joke. A flat joke can be embarrassing, so it is not surprising that some students who agreed to tell a joke withdrew in fear when the time came to stand and tell a joke. But students who were frightened were more likely to withdraw than students who were not. Half the students in the experiment were shown a fear-inducing film clip from The Shining, Stanley Kubrick’s classic horror film, before deciding whether to tell a joke or withdraw. It turned out that a greater proportion of them withdrew.

Fear misleads us to avoid risk even when it is wise to take risk. Here is an investment game: I’ll toss a coin right before your eyes. If it comes out heads, I’ll pay you $1.50. If it comes out tails, you’ll pay me $1.

We’ll play 20 rounds of this game. Before each round you can choose to participate or sit it out. Ready? Suppose that you have lost three dollars in the first three rounds because all three tosses came out tails. Do you choose to participate in the fourth round or do you choose to sit out?

Three losses in a row would arouse fear in normal investors. Many choose to sit out the fourth round. But there is no good reason to be afraid because the game is stacked in favor of those who play all 20 rounds. In each round we have a 50/50 chance to lose $1 or gain $1.50. Our maximum loss is $20 while our maximum gain is $30. And even if we lose, a $20 loss is hardly catastrophic. Yet brain-damaged players were more reasoned at the game than normal players. Undeterred by fear, brain-damaged players played more rounds of the game than normal players and won more money.

There is a lesson here for advisors and clients.  Fear grips us when we watch our portfolios day by day and see so many losing days.  Fear grips us even more strongly when we watch losses in our portfolios over many months or even years, as happened in 2008 and early 2009.  Fear urges us to sell our stocks and invest the money in gold or put it under a mattress.  The fear of clients is normal, and financial advisors can counter it by teaching clients the science of human behavior.

Meir Statman is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University, and Visiting Professor at Tilburg University in the Netherlands and the author of What Investors Really Want (McGraw-Hill). His research on behavioral finance has been supported by the National Science Foundation, CFA Institute, and Investment Management Consultants Association (IMCA) and has been published in the Journal of Finance, Financial Analysts Journal, Journal of Portfolio Management, and many other publications. A recipient of two IMCA Journal Awards, the Moskowitz Prize for Best Paper on Socially Responsible Investing, and three Graham and Dodd Awards, Statman consults with many investment companies and presents his work to academics and professionals in the U.S. and abroad. Visit his blog

Poll: Which high-impact prospecting technique works best for you?

Some marketing techniques work better than others for financial advisors.

The five most effective techniques for freelancers (who share key characteristics with financial advisors) include the following, as described in The Wealthy Freelancer:


  1. Tapping your network
  2. Getting more out of existing clients
  3. Investing in smart local networking
  4. Leveraging social media as a networking tool
  5. Employing direct mail

My network has always worked best for me, but the other four techniques help, too.

My referrals come mostly from current and past clients, many of whom subscribe to my monthly e-newsletter, another big contributor to my marketing successes. Although my clients typically work for large companies that aren’t big on social media, they seem impressed by my social media visibility. Social media has expanded my network to include some great professional colleagues, referral sources, and an occasional client.

Smart local networking inspired me to launch my business. Many Bostonians have been generous with their time, advice, and connections. The Boston Security Analysts Society became one of my first clients and its timely presentations have provided the topics for many of my blog posts.

Direct mail has been the least effective technique for me. But I probably haven’t given the U.S. mail a fair chance because I’ve been so lucky with referrals from my network.

Thank you, all of my colleagues and referral sources, who have encouraged me! Every little bit helps.

What works best for you? Please answer the poll in the right-hand column of this blog. Feel free to leave a comment, too. I’ll report on the results in my January 2011 e-newsletter.

Brokers, CFA charterholders, and fiduciary duty: Charterholders are not always fiduciaries

CFA charterholders have strong feelings about fiduciary duty. This showed up in responses to my blog post on ” ‘CFA credential implies a standard of care not always upheld,’ says Forbes opinion piece,” which discussed brokers and fiduciary duty. So I’m happy to see that the CFA Institute has addressed this topic in “What’s a Broker to Do? Fiduciary duty and obligations under the CFA Code and Standards (registration required)” by Jonathan Stokes, head of Standards of Practice at the CFA Institute.

CFA charterholders who are brokers aren’t always fiduciaries

Stokes sums up the obligations of CFA charterholders who work as brokers as follows:

Although members and candidates must comply with any legally imposed fiduciary duty, the Code and Standards neither imposes such a legal responsibility nor requires all members to act as fiduciaries. In particular, the conduct of CFA charterholders who are broker/dealers may or may not rise to the level of being a fiduciary, depending on the type of client, whether the broker is giving investment advice, and the many facts and circumstances of a particular transaction or client relationship. (Bold added by Susan Weiner.)

Obligations vary by broker type

Charterholders challenges and obligations vary by broker type, according to Stokes’ article.

Execution-only brokers are not subject to fiduciary duty, but conflicts of interest should be disclosed. “Among the conflicts brokers should disclose are whether they offer different levels of services to all clients and whether they pay referral fees to outside organizations,” writes Stokes.

Retail brokers‘ clients should understand they’re in a relationship with conflicts of interest. I wonder how many grasp this. Clients often don’t absorb the significance of what’s written in a hastily skimmed client agreement.

Stokes says

For those who work in a sales capacity rather than a true advisory role, the client relationship is often based on the understanding that the range of investment advice is limited to that firm’s proprietary products or to other firms with distribution agreements with the brokerage firm…. Where the client agreement clearly states the nature of these conflicts, the client is deemed to understand that he will receive selective and potentially conflicted investment advice.

Institutional brokers “pose a particularly challenging area for application of the Code and Standards,” says Stokes. He notes that “disclosure of all relevant transaction details, including costs and commissions, is essential.” Moreover, “With multiple clients’ interests and objectives at stake, the institutional broker must remain impartial and reconcile (to the best of his or her ability) any conflicting client directions.”