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Tuesday, January 11, 2011

Truth Behind Free Research Reports

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. 

We suggest all our readers to do ensure that free research reports should not be expensive for your investments.

Note: Saral Gyan equity analysts team will release "Hidden Gem - January 2011" on 16th Jan 2011.

This month Hidden Gem has recently made its 52 week high and is now available at cheap evaluations due to recent market correction. At current market price its looking highly undervalued and has the potential to deliver 10 times returns in next 3 years based on domestic demand driven consumption in India.