Who Does Bottom Up Research Any More?

From the FT,

Few individuals understand the shifting dynamic between humans, computers and the algorithms that increasingly govern share trading better than Leigh Drogen. Mr Drogen spent years of his life as a quant trader.

Now, though, he has taken advantage of his knowledge of technology and the power of the computer and internet to establish one of a growing number of fintech companies that are transforming the way the stock market and Wall Street function.

Dissatisfied with the research produced by sellside analysts, Mr Drugen decided he needed better data. That need led him to establish Estimize, a crowdsourced website for earnings estimates that has a far better record for predicting results than those of the analysts working for the big securities firms, (according to both academic studies and research from Deutsche Bank as well as Estimize executives). “We are reducing the relevance of the sell side,” Mr Drogen says.

Today, with so much attention focused on high-frequency trading and quant strategies whose computer programmes search ceaselessly for the smallest discrepancy between prices to arbitrage, such data may appear almost irrelevant. Who does bottom up research any more?

The secret sauce? A good and comprehensive screen, either self-built or subscribed, and supplement with bottom up research.

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