Guo Lei, GF Securities: Written to my peers as young analysts

Author: Guo Lei, Chief Economist of GF Securities (Source: Guo Lei Macro Tea)

Written to young colleagues

introduction

In the past few days, I have received congratulations from many friends about the first new wealth in the field of macro research, "platinum", in fact, this is also the 28th first place won by GF Macro since its establishment in 2016. We would like to express our sincere gratitude to all institutional investors for their trust and support.

In a field like macro, where there are many good researchers, and it has always been difficult to maintain the peak state, my colleagues and I (including those who have graduated from GF Macro) should have set a record. Especially for a person like me who has always ridiculed myself as a mild social phobia, it is not easy to get to this point, and I know bitterly. This proves that sell-side research is a good industry, and as long as your longboard is long enough, the shortcomings can make up for it.

Here's what I want to share with you about some of my personal insights into sell-side research. In 2021, I read an article circulating in the circle about how to be a sell-side analyst, written by people from overseas investment banks, translated from English to Chinese, and what is surprising is that it introduces some utilitarian goals, pleasing personalities, and technical experiences from beginning to end, without any belief at all. I think that's misleading.

What I'm saying represents my relatively idealistic understanding of the sell-side research profession. To put it simply, do what you think is right and believe that this market eventually has a recognition mechanism, so it is only for the reference of interested young peers.

First, most people have no feelings for the research report, which is the most reliable track for sellers' differentiated competition. Every time you write a serious article, you have one more chance to reduce the competition.

I've never understood the team of people who throw the first draft of a report to an assistant or Xi, but in fact, being on the sell-side, each report represents an opportunity to stand out. The logical structure, data display, and conclusion deduction presented in the report will contain the ubiquitous traces of the original author's thinking, and they will always be on the paper. Whether a research report is a personal sentence by sentence is completely readable. As long as there is subcontracting and others writing it, the report will have a "sense of material", it will be difficult to be refined, and it will be difficult to have a difference with the depth of public understanding. I am convinced that the elimination of "people-newspaper separation" is the ultimate direction of development for sellers.

It's not just the total amount, it's the same for industry research. If formal logic cannot be rounded up in industry cognition, empirical rules, judgment basis, and performance model, it will most likely not be more reliable than patting the head. In the early days, there were a lot of superb reports that could be handed down to the world, but now in the era of mobile Internet, research reports are becoming more and more "public goods", which will not directly bring distribution points, and there are fewer and fewer researchers who are willing to invest in it, which is a pity for the development of the industry. I remember a young man telling me that writing reports and traditional roadshows is now "very cost-effective", and I also know that this is true from the market rules, and it is better to send some experts to take experts around in the end than to pay dividends; the industry is increasingly inclined to an arms race in terms of extreme response, information differentiation, and service density. But I don't think there's any need to be anxious, just do what you have to do. I firmly believe that from the perspective of the evolutionary game of the industry, the low cost performance of research and traditional roadshows is abnormal, and there will be a correction in the future. Otherwise, it will be a mechanism that will give up the basics, promote "impetuous supply", and ultimately bring about adverse selection.

More roadshows is not always better. Counting my own 550 roadshows last year, if I am not diligent enough, I believe that 800 should be the limit that a chief analyst can bear. Beyond this number, the symbolic meaning is greater than the actual meaning, and it is difficult to have time to do research. Roadshow judgment can easily become a kind of transmission similar to the "Fibonacci sequence", where A's insight + B's insight = C's insight. If everyone were diligent, there would be fewer and fewer original and inspiring ideas, frameworks, and techniques in the circle.

2. Focus on and pay significantly more time than others, try to achieve the ultimate in your own subdivision and form a feel.

I used a passage from Luc Besson's film to compare it to a sniper trying to grasp a target in motion: first hold his breath, then aim at him, then assume that he is moving with him, then he keeps adjusting himself until he is in perfect shape, and finally pulls the trigger.

Seller is a craft that can be fluent through continuous training and continuous inheritance. In addition to mastering the already relatively mature methodological framework, it is also necessary to immerse yourself in your own subdivision for more than 10 hours a day. For aggregate researchers, it is necessary to observe the pattern of data, and for industry researchers, it is necessary to understand the dynamics of the industry. For all sell-side researchers, you need to Xi keep learning and thinking like you are constantly running, so that you will have a comparative advantage from the general PO perspective.

The price of such a rhythm of work is the alienation of life. I probably spend more time fiddling with data than most people in the industry every day, and I think one of the things it has taught me is "perceived continuity". Take the three simplest data as an example, power generation coal consumption, 30 city real estate transactions, rebar prices, if you look at the trend changes every day, your eyes of China's economy is continuous, you are not easy to make discrete judgments.

Third, when people reach a certain age, they will be good at expressing but not good at listening, and the hard wounds of senior people are often closed knowledge frameworks, thinking that what they don't understand is not important; maintain a sense of freshness and Xi learning, and do not be a unilateral preacher.

Rich experience, keen sense of smell and self-confidence, and knowledge cocoons often form a kind of hedging and countervailing under the rules of evolution, which leads to the replacement of old people by a new generation. This is the first law of the financial industry.

Zhang Chu has a lyric called "You are still fresh, they are old", be sure to keep the new knowledge fresh, keep observing and Xi; you can preach occasionally, but don't just be a preacher. Unilateral evangelists often correspond to a closed framework of research, and what they all have in common is that they all have a grand narrative system of their own. Knowledge that cannot be updated is always suspicious, and experience that cannot be updated is easily short-lived.

Although sell-side analysts can't standardize the review and cross-reference with their peers in the academic field, they can at least maintain the Xi habit of reading their peers, browse the research of other outstanding contemporaries from different perspectives and different methods, and learn from their peers Xi. I myself graduated with a Ph.D. in 2006, joined the brokerage company in 2010 as a macro officer, and only started to be the chief in mid-2015. For example, for a long time, I would go through all the reports of all the total researchers every day, including some reports of the industries I was interested in, and sometimes I would take some notes and scores, although I couldn't read all of them in the past two years, but a few of them would still read them often. Now I ask a lot of young researchers if they still look at peer research, and most of them are not used to Xi it.

Fourth, research should take care of both professional and semi-professional audiences; however, it is necessary to take the professional audience as imaginary coordinates, and appropriately take care of the "coarse followers" but not cater to them.

For professional audiences, the key messages of the study are "differences" and "technical details", while for semi-professional audiences, the key messages are "consensus points" and "basic conclusions". It's best if the sell-side research covers all four of these points at the same time, i.e., we should always assume that both types of people read the report and both types of people listen to the roadshow. This kind of consciousness will objectively constrain you from taking care of both, only taking care of the former you will be too obscure and can only make people unconscious, and only taking care of the latter will unconsciously grandiose the grand narrative. In short, try to be concise, popular, yet professional.

Don't pander to a non-professional audience. I often see a research report with a very gimmicky title, and click on it to find that it is just a weekly report. It hurts. Because as a sell-side analyst, you need more than just traffic, but recognition and reputation. The unprofessional impression of the reading experience formed by something that exceeds the content of an article may need to be made up for by three times the quality of the content.

Some people don't really understand your domain and prefer simple and overbearing but inaccurate online articles, while many people focus on the macro and only use macro logic as part of a preconceived framework to justify their preconceived conclusions. Sometimes some macro studies with obvious self-media style will also swipe the screen, proving that ordinary readers in this industry are not highly recognizable to professional content. It can be taken care of moderately, but it cannot cater to the needs of this part of the "coarse followers".

Sell-side research is to maintain a technical style, enlighten and guide readers with professional research. No matter how many people read a report in the end, it must regard that part of the professional readers as an imaginary coordinate, and only by taking it can we get it. Liushen once said that writers with a bottom line should at least not let Marquez give the middle finger, Feng Tang once said that there should be a "golden line" in the standard of good and bad, in fact, there is a truth in research. The report needs to have a bottom-line quality, and there needs to be a "golden thread".

Fifth, as neutral as possible, unilateral optimistic or unilaterally pessimistic research is not of much significance; dynamically adjust the cognition of the economy and the market and ensure that it is repeatable, verifiable, and revisable; research is to form a cognitive "coordinate"; we must disdain to be an "algorithm push" type researcher.

As a researcher, unilateral optimism or unilateral pessimism can sometimes be likable, and you will be labeled for it, and you may even be used as a flag, but the real value of this role to the investment is very limited. Quite simply, if all industry researchers are optimistic about the industry they are eyeing at the same time period, then at most half of them are right. Psychological massage is just a cover-up and stealing the bell agreed by both parties. If you look at it for a long time, it is dangerous to extrapolate the logic backwards of the conclusion, don't have obsession, and the conclusions of a researcher who is used to neutral research Xi will be more referential.

Don't be influenced by the customer's own point of view, otherwise it will form an "algorithm push trap". If the fund manager's optimism or pessimism, and the type of asset interest is too overwhelming, it is easy for the seller to selectively push the appropriate content, consciously or unconsciously, but the process does not inherently generate incremental value to the investment. Disagreements, discussions, and even arguments are sometimes more valuable to each other.

In fact, for sell-side research, "forecasting" is only one aspect; With this theoretical coordinate as a reference, it is convenient for different investors to measure whether their judgment is roughly in the position of the left or right of the coordinates, and they are more optimistic or more cautious than the coordinates.

Therefore, sort out the logic with a relatively neutral attitude and roll the adjustment. It doesn't matter if a single point in time is right or wrong, everyone is walking through mistakes. For sell-side research, most trackers follow logical changes and the reasons behind the deviation of the results. A dynamic, repeatable, testable, and modifiable study can be used as a frame of reference.

6. Keep the Xi of office roadshows, even if many young listeners can't bring you the corresponding party points and brands in the short term, try not to live up to any enthusiasm.

One of the peculiarities of sell-side research is that the researcher simultaneously assumes the function of selling. So a lot of experience in this industry is often skillful. For example, analyze the distribution points or discourse weight in the hands of different customers within an organization, differentiate services, and make regular phone calls to key customers to actively exchange views.

I would advise that as a sell-side researcher we must not fall into this kind of short-sightedness. It is best for an analyst to maintain the Xi of an office roadshow and communicate with all customers on a peer-to-peer basis.

This is not to ask a sell-side researcher to "do good deeds, don't ask about the future", but rather to believe that the benefits of a good, inspiring roadshow may be far more than just the time, and that sincerity and reputation are always a series of events for your long-term development in the industry. When more people believe in your research, your research will be widely disseminated.

And sometimes when you talk to younger customers, they are actually more attentive and sensitive to technical details, and their talent and insight can also inspire you.

7. For sellers, the team model is the key to competitiveness. A team with a professional division of labor, good hands and distinctive personality will reduce the dimension in the competition.

Economics begins with Adam Smith, and one of the main logics is division of labor and specialization. For sell-side investment research, any field is becoming more and more complex, and it is difficult to have a real "generalist" player. For example, I'm relatively good at entities, not currencies.

Therefore, it is very important to build a highly divided and professional research team. As far as the macro level is concerned, I have always felt that a reasonable structure should be composed of many positions such as domestic, overseas, monetary, fiscal, meso, high-frequency, quantitative, and policy. I hope that each position will be in charge of the most professional people, and everyone will try to dig deep in the field they are responsible for, reduce knowledge blind spots, and do the best in the subdivision field as much as possible. You can ask each other for advice and learn from each other Xi

It's best if everyone can sign independently. From the seller's point of view, it is easier to form an individual IP, and the team can be really strong if everyone is strong, and from the research point of view, the research that can be signed by an individual will be more attentive.

Personally, I think that the traditional division of labor in which someone is responsible for public offering, someone is responsible for insurance, someone is responsible for door-to-door communication, and someone is responsible for taking Xi to do entrusted projects does not represent the future, it is not research-driven but service-driven, and it is short-term.

Of course, GF Macro's "division of labor + specialization + independent signature + personal IP" is not the only established model. If the chief's own report is not enough, it will not support this model, so many young chiefs have told me that it is not practical for you to sign independently for the time being. But no matter which model, the most important thing is that it should be complementary and efficient, you have to think about what type of people you choose to work with, the real competitiveness of the team, the irreplaceable points in research, and where the incremental value brought to the industry comes from.

8. Think about what your role in the industry chain is, and what kind of role the market is willing to give a long-term premium. Don't overspend your energy on the buyer-seller relationship.

The seller is essentially a "strategist" in the investment market. "Strategy" is the intelligence that can be implemented, and "Shi" is the personality that can be independent. I think that's the essence of the seller's ethos. The seller is to use his research experience in the subdivided field to help more people under the rules of commercialization.

First of all, don't have a pleasing personality, don't be a social talent, don't like the player in the circle of friends, and can even keep a moderate distance from customers. I've always kept people on my team from calling buy-side customers "leaders" according to industry Xi. Don't rely too much on the relationship between buyers and sellers, and strive to win the respect of the industry with originality, ideology, research and purity. If good talent is consumed on the emotional value of human feelings, it is a waste under a zero-sum game.

Secondly, we do not do sellers of intermediaries, channels, and service types. When I talk to a buyer friend, I say you listen to one expert today and another tomorrow, it looks like there's a lot of resources to be invested in, but it's not really macro, it's not even top-down. It is essentially "fragmented information" because it is fresh, unfalsifiable, and has a low barrier to entry. Relying on this kind of service will lead to the loss of coordinate system due to fragmentation, which will naturally bring high variance of judgment and information cocoon. Returning to the basic fundamental clues, as well as the consensus and disagreement based on this foundation, this is the value of investment research. What the seller should offer most is your own value as a system knowledge provider.

In other words, the reason for the existence of a seller is that you are an expert yourself. The sell-side career should be as short as possible to let a circle recognize your talent and diligence, as well as your accumulation and insight in methodology, so that your knowledge accumulation, industry insight and thinking methodology can influence as many people as possible. Otherwise, the influence will decay quickly, and once it is not on the front line, there will soon be nothing left.

9. If you like a profession, stick to it, and don't be misled by "knowing the mean". It's the same in any industry, the better you do, the fewer people you can advise. Be a goal-oriented delayer gratifier.

To accomplish something, "delayed gratification" is an important character condition, that is, to do things as much as possible with a certain goal, and to stick to it as much as possible after having a goal.

In many cases, when we make a decision, we will be influenced by external people, such as what a sell-side analyst should do, how many years, what should be done in a few years, what should be done in a few years, how to make the most effortless transition, how to be the most cost-effective, we all hear a lot of opinions and suggestions - but in fact, most of them are about the "mean of knowledge" of the career, which represents the part of the understanding that is at the center of the normal distribution, and that's it.

Career choices should not be based on the principle of mean, but on the principle of "maximum and minimum". It is enough to think clearly about what your understanding of this industry is, whether the biggest advantage of this industry is what you really yearn for, whether the biggest disadvantage is something you can tolerate, whether your biggest advantage can be magnified, and whether there is a way to cover up or make up for the biggest disadvantage. Think about it clearly, and do it resolutely. The longer you persevere, the higher the percentage of people you can get rid of. Keep the clouds open and see the moon.

10. Any profession is a career, small is small, big is big. Sell-side research is pricing assets for an era, so walk on thin ice. Sellers are a stressful industry, and it takes a bit of faith to persevere.

Life is very short, career will be one of the works of your life, if you still like a job, then, should still be done as a career.

I myself love the profession of analyst.

First of all, it is in an Xi academic organization, a research institute that studies coal, steel, commerce and retail, AI, industrial robots, and cutting-edge innovative drugs, even if you usually just skim some pieces of knowledge from colleagues, it will bring you a very amazing freshness, and you will have another layer of experience and understanding of the richness of the world. The buyer is a generalist, and this benefit is even more pronounced.

Second, securities research is an applied type of research, but it is relatively bookish as a whole. The core of this is to turn the information as a "raw material" into a powerful tool that can help investors understand the world through experimentation, analysis, and production, and the production function is basic knowledge, talent, and diligence, and this process is still quite burning.

There's also the fact that sell-side research is essentially pricing an asset for an era. From the ups and downs of the economic cycle, to high-quality development and engineer dividends, from opportunities to challenges, from pressure to rebirth. From the cold and effective macro law, to the industrial changes one after another in the meso, to the disappearance of some enterprises at the micro level, and the quiet rise of other excellent enterprises. From technological advancements that change business, to the rise and fall of business models that change lives, this is an era at all levels. Research is to objectively portray such fundamentals, so it is still necessary to walk on thin ice.

If you like it, then do it as a career. It may be a bit of an exaggeration to say that, but I think any profession is the same, it requires a little bit of faith.