So this is how a massive hedge fund researches Lululemon Athletica.
You do make an excellent point. There are many analysts out there who “dig deep” and do indeed find information that was basically hiding in plain sight.
On the other hand, Mr. Patel is correct in stating that this is all part of doing business - especially in the hedge fund and proprietary trading world. The SEC is likely to find a lot more “insider trading” if they merely looked a lot closer and called out - by name - exactly what they were seeing.
Here’s an example: Hedge Fund Analyst “A” used to work with/for Investment Banking Analyst “B”. Analyst B has been in the business for some time, and has garnered a lot of contacts. When the major companies he covers has analyst day meetings, he always gets a one-on-one with them. Analyst B is the “axe” in the names he covers, so that when he releases research reports, stocks move.
So Analyst A, under a little pressure from his portfolio manager, calls up Analyst B and they start chewing the leather together. Eventually, the conversation comes down to business.
Analyst A: “So, I’ve been working on my earnings model for XYZ here. I have them earning $0.52 cps this quarter, due to factors D, E and F.”
Analyst B: “Ya, I’ve had $0.52 cps as you know, but I’ve been doing some work on it and I think that number is a little low now due to factors E, F and G.”
Analyst A: “I thought so, thanks for the help.”
And there it was: Analyst B, the research axe in a name, provided Analyst A with inside, non-public, material information regarding his intention to revise his earnings estimate for company XYZ, before it was known to the general public. This conversation will play out - in order - with all the hedge funds that Analyst B does business with.
The next morning, we’ll all read the market-moving research report. Of course, the hedge funds will have been positioned correctly and will - that morning - likely unload their pre-purchased shares to everybody who’s now scrambling to buy.
The imaginary world if Lehman had survived?
Some other bank would have died so says the Economist and the NYT.
Pretty much everything you wanted to know about how Chrysler ended up in bankruptcy.
