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Saturday, October 29, 2011

Truth Behind Free Research Report

Highly Qualified Stock Analysts are hired to provide free research work, not it surprises you? Why is it so?

Most of us have a brokerage account. Most of us also receive free research reports from our brokers.

Of late though, the quantum of free research from brokerages seems to be on the uptick. Most brokerage houses employ a research team that is dedicated to coming out with stock picks and publishing research reports on the same. A lot of money is spent on setting up these research teams. People, databases, office premises are just a few areas where expenses are made.

So we ask ourselves, when the brokerages spend so much in setting up these teams, then why do they dish out the reports free of cost? Do they get anything in return? Or are they putting up reports to just educate and help their investors?

The truth is far from this.

"A leading daily has conducted a study of leading brokerages to establish the reasons for giving out free research. The main reason cited is that the stock based research reports help to generate momentum in the concerned stocks. For example if a brokerage gives a 'Buy' report then the prices of that particular stock are seen rising."

By generating this momentum, the brokerages earn their brokerage fee.

So the next time you receive a free research report, ask yourself. Are you being given an advice on a stock based on its fundamentals and valuations Or are you just helping the brokerage house in earning more income for itself?

Considering a "Buy" call given by a brokerage firm, retail investors get into the stock at a higher price.

Many brokerage houses first circulate their research reports internally with all their clients and generates handsome brokerage by suggesting them to have position in the specified stock for short term. Later same research reports are made public using free media like news channels and financial websites to increase buyers and trading volumes. This gives an opportunity to their clients to exit from the stock and poor retail investors relying on these free research reports stuck buying the stock at higher price most of the times.  

We suggest all our readers to do ensure that free research reports available through financial websites, news channels should not be expensive for your investments.

Saral Gyan Capital Services is an Independent equity research firm and not a brokerage house, equity analysts at Saral Gyan publish unbiased and authentic research reports of small/micro cap and mid cap stocks under Hidden Gems and Value Picks services. We do not make our research reports public and share it with our paid subscribers only.