Thursday, February 7, 2008

Any Given Quarter

**Disclaimer: This entry was written by a disgruntled Pats fan who dropped $5k to take a whirlwind trip to AZ only to watch my team fall from grace in the most despicable fashion. The SuperBowl views reflected here are not supported, nor endorsed by the obnoxious, gloating Giants fans I contemptuously call "colleagues."

Whether you were a Patriots fan, a Giants fan, or an agnostic viewer, this weekend’s SuperBowl proved one thing:

The unthinkable can occur on Any Given Sunday...and it did.

If you were tuned in, what you might have seen was an up-until-today mediocre Eli Manning have the game (or 4th quarter, at least) of his career – which included the luckiest of all lucky plays when he scrambled away from an imminent sack and tossed a prayer up to Tyree for a miracle completion.

Impressive? Yes. The result of a calculated and well-designed play? Not so much.

The SuperBowl MVP-crowned quarterback, happens to also be the leader of a much less glamorous NFL category: Turnovers. And Sunday certainly didn’t go by without a few near additions to this category, as Eli, on three separate occasions, threw the football directly into the fumbling hands of the Patriots defenders. Despite being in the right place at many of the right times, the Patriots were unable to capitalize on these errors.

Not to take anything away from the well-executed Giants defeat of the New England Patriots, but our question is this:

Despite one All-Star performance on a random Sunday in February, who would you rather have as your QB:

An 18-1, League MVP, Tom Brady or 14-6, Turnover-leader, Eli Manning?

Take Care of the Ball

We ask about Tom versus Eli, because we think it makes for an interesting parallel to how firms identify their top independent research providers (IRPs). You’re probably wondering, “How so?”

First off, let's understand how many IRPs receive payment. Some firms who utilize the research and insights of IRPs have implemented broker votes for paying outside IRPs. These votes are ultimately set up so that brokers can provide payouts to analysts who make the most accurate calls. Some of those broker vote systems use analytics that will help them to ‘calculate’ who provided top results, and others are arbitrarily decided upon.

I guess our question is really, is this the most reasonable way to pay for – and encourage the consistent production of - quality research? Wouldn’t firms rather pay an analyst that consistently provides quality insights and information, rather than one who happens to accurately nail a quarterly EPS down to the penny? It could happen any given quarter, and you might just be the one to capitalize on this lucky call. But that doesn’t mean his prediction is indicative of future success - just a lucky, one-off guesstimate.

Analysts that provide accurate information should absolutely be rewarded – however, a ‘call-by-call’ comparison against their peers seems to be a flawed model for identifying top quality research and insight.

Bottom line: I’m sure most of us secretly pull for a Cinderella story…but more times than not, smart money is best placed on proven success. When in doubt, it may not be as glamorous, but it’s probably best to hand over the reigns to the guy who’s proven time and again he can take care of the ball.