Tag Archive for: equity research

Key Steps in Writing a Research Report

Securities analysts want to write better. I know this from conversations and the fact that “Writing resources for equity research analysts” is one of my most popular blog posts. I’m delighted to share tips for writing securities research reports from Tom Brakke, author of Letters to a Young Analyst. Many of Tom’s suggestions apply to other forms of writing. For example, “Don’t try to tell them everything you know.”

Key Steps in Writing a Research Report
By Tom Brakke, CFA

“How do I write a good research report?”

There are many kinds of answers to that question, starting with this one: Good writers produce good research reports. The basics matter: a strong narrative structure, clear sentences, and compelling content can make a research report better, just as is the case with other forms of writing.

Taking a wider view, I think the responsibilities of investment professionals can be viewed as a combination of analysis plus communication. Throughout my years in the industry, I have observed that far too little attention is paid to the second half of that formula.

Therefore, the need for effective communications is a persistent theme in my book, Letters to a Young Analyst (which includes advice and commentary from me and a number of veteran investors, plus an extensive collection of resources). Most professionals – and most organizations – underestimate the power that comes from the proper delivery of an idea; they think that a good idea will naturally thrive on its own merits.

To stand out, you should care about and focus on the quality of your communications, whether they are verbal or written (and whether they are brief or encyclopedic). That pays dividends over time.

Of course, you have to work within the norms and templates of your organization. That can constrain your ability to communicate as well as you otherwise could. For example, look at the range of reports from sell-side firms. They are remarkably alike one to another and a great many are fill-in-the-blank exercises rather than sound communications tools.

Whatever the constraints within which you are operating, a few simple reminders can be very important (as I explained in greater depth on Quora):

Know your audience.

Don’t do what everyone else is doing. If you’re going to add value, your content needs to be different and, optimally, your presentation of it should be too.

Don’t try to tell them everything you know. Most analysts get tripped up here. Usually there are two or three things that matter. And sometimes one chart can tell the essence of a story.

Let them understand the “how” of what you have done. The narrative of your analytical approach can be very persuasive.

Put your unique conclusions in the context of the prevailing opinions on the stock. Plus, you don’t need to reiterate what everyone knows.

Use images. And, please, use good ones. I’m aghast at the poor quality of charts and tables in most research reports.

A helpful set of steps for communicating stock recommendations comes from Jim Valentine, the author of Best Practices for Equity Research Analysts. (In my review, I called it “the book on equity research.”) His guidance for clients includes three steps:

Ensure the content has value. Valentine uses his ENTER™ framework as a guide: The information should be Expectational, Novel, Thorough, Examinable, and Revealing.

Utilize the optimal channel. There are so many ways to communicate your messages. Consider which (or which combination) will be most effective.

Ensure the message has value. This is his ADViCE™ framework. Aware, Differentiated, Validated, Conclusion-oriented, and Easy-to-consume.

Finally, be yourself. A unique voice is more valuable than a common one.

Looks matter when you present numbers, says “Painting with Numbers” author

Painting with Numbers by Randall BoltenNumbers are critical when financial professionals communicate with the clients and colleagues. However, poorly crafted communications with numbers can sabotage you. Randall Bolten’s Painting with Numbers: Presenting Financials and Other Numbers So People Will Understand You will improve your effectiveness.

I was particularly taken with Bolten’s chapter called “Looks Matter.”

As Bolten says, your use of white space, font styles, and other visual cues can make a big difference in readers’ understanding. These cues tell your readers “how they should group your information and what’s not important, and where you want them to focus first.”

Here are some chart and spreadsheet tips from Bolten’s “Looks Matter” chapter.

Tip 1: “Put the important numbers where they’re easy for the reader to find, which is usually around the edges.” Think about it. The eye will seek the “bottom line” when looking at financial statements.

Tip 2: Use white space to set off the main elements. This could mean setting off groups of rows, such as revenues or cost of sales. It might also mean breaking 12 months of data into clusters of three months.

Tip 3: Show time periods across the top of the report. This takes advantage of the English-speaking world’s habit of reading from left to right. Plus, the numbers in an income statement then fall into a mathematically logical order of revenues, expenses, and profits.

Tip 4: Use font and cell formatting choices wisely. This means highlighting the most important numbers using boldface, colored or italicized text, borders or cell shading. Don’t go overboard with special effects. As Bolten says, “Not only is an overdressed report hard to understand, but the impact of the visual effects that do have a valid purpose becomes diluted because the reader can’t tell which effects are meaningful and which aren’t.”

 Useful book for numbers people

I’m more of a word person than a numbers person. If I ever had to dig more deeply into spreadsheets, I’d study Bolten’s book closely for its tips on designing and using Microsoft Excel to create reader-friendly output. Bolten’s philosophy of “painting with numbers” lines up nicely with my approach to working with words.

Disclosures: I received a free copy of this book from the publisher. 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.