One of the more perverse aspects of the so-called “sell”-side of the brokerage business is that many clients prefer to talk to salespeople rather than analysts. Why, one initially wonders, would you want to talk to a passionate flogger rather than a dispassionate researcher?
Well, there are good reasons. Most importantly? Every equity analyst thinks his or her idea at the morning meeting is the best idea of the day from said firm. Salespeople, on the other hand, get to hear all the the research ideas, so they can build their own view on what is the best stuff for a particular client. You can see that sentiment in action in the following factoid from Investment Dealer’s Digest:
“Surprisingly to us, about 80% of the guys the buy side wanted to get ideas from were salespeople,” says [one company official] … ”It turns out that the industry-hedge funds and long-only managers-are actually interested in hearing trade ideas from the sales force.”
Who woulda thunk! More seriously, that is where things get interesting. After all, we rate equity analysts, but we don’t rate salespeople. But if stock-floggers are sources of “alpha” then clients are going to want that alpha measured.
Enter StreamVPN. The company is proposing a network that will solve the measurement problem:
StreamVPNs product-the Alpha Network-works by allowing portfolio managers to designate a preferred list of salesmen from whom they wish to hear. Those salesmen then have the opportunity to convey investment ideas to the buy-side firm over a Web browser-based system. When an idea is inputted-”buy Cisco” or “short Microsoft,” for instance-the idea is recorded so that its performance can be gauged, regardless of whether it is acted upon or not.
It’s a fine idea, and one that has a powerful network effect in that getting a few firms to join will rapidly tip most of the Street into joining. On the other hand, if the trade ideas are as simple as the ones mentioned above I doubt it is going to find wide adoption. While some ideas are that simple, the reality of getting a portfolio manager’s ear in 2004 generally requires more nuanced and sophisticated trades — paired long-shorts, timed trades, etc. — that aren’t easily captured in simplistic terms, like “buy Cisco”.
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