Unconventional analysts thriving during hard times
In the past, the best analysts were the ones with exclusive information about a company’s business projects or internal information typically achieved through networking. But nowadays, stock investors prefer objective in-depth reports based more on crunching numbers than concentrating on speculative information and rumors.
Song Chi-ho, a corporate analyst at E-Trade Securities, is gaining wide popularity in Yeouido, Korea’s financial center. Song is the nation’s first brokerage analyst with experience as a restaurant chef. Song didn’t start his career as a chef. Rather, he worked at a brokerage firm specializing in consumer goods manufacturers.
In 2013, however, he quit his job and decided to pursue his passion: Italian cooking.
Being a chef didn’t pay as well as being a brokerage analyst, but he didn’t care much about the paycheck.
“I really love Western cuisine and wanted to become a professional chef,” he said.
He took an Italian cooking class for four months and worked at restaurants in Seoul’s hottest neighborhoods, including Seorae Village, Garosu-gil and Itaewon.
His ultimate goal was to open a restaurant chain. It was during this time that he began to wonder what would be the best location for his business.
“When I was working at restaurants, I got to talk to many owners of nearby restaurants mostly about business and the food industry,” Song said. “They were great teachers of mine who gave me vivid information about how managing a restaurant works.”
After working for a year as a chef, he had to decide whether to pursue opening his own restaurant or return to Yeouido.
“I had to take so many things into consideration, but the most significant factor I had in mind was which job would contribute more to generating larger value so that I could give back to society,” he said.
Song once again became an analyst, but this time he specialized in the restaurant industry.
He was confident about his understanding of the food industry, but doubted brokerage firms would recognize his experience as a chef during job interviews.
In fact, he even showed up in his chef uniform instead of the usual suit and tie. To his surprise, the company loved him.
“Job expectations for stock analysts are different from the past,” said Yoon Ji-ho, head of E-Trade Securities Research Center. “It is more important to correctly research and analyze the business potential of each industry and company than to maintain a close relationship with each company’s investor relations team.
“Purchasing stock means the investor participates in the company’s management, which means our duty is to provide accurate analyses of a company’s business model and future potential.”
One of the major responsibilities of stock analysts was to generate each listed company’s performance estimates every quarter and make investment tips and suggestions for their clients.
That was why analysts used to focus on gathering internal company information and passing it on to investors.
Such practices put analysts at risk of being manipulated and are seen as dangerous and subjective. CJ E&M, a media arm of CJ Group listed on the Kosdaq, was a notable example when its stock price collapsed in December 2013 after an analyst unveiled confidential internal information.
In October 2013, staff members of CJ E&M’s investor relations team realized that the third quarter’s performance was estimated to fall way short of the CEO’s expectations, and notified several analysts.
Some of them reported the listed company’s concerns to their clients, which resulted in a huge number of investors dumping their CJ stock and a price collapse of nearly 10 percent in one day. These analysts were investigated by the prosecutors office and were suspended for months.
As a follow-up measure, the Financial Services Commission got a bill passed at the National Assembly at the end of last year to make such use of insider information illegal for causing confusion in the market. If a listed company’s confidential information is revealed by analysts, the bill is designed to punish all parties involved in spreading the message, from deliverer to recipient.
In the market, stock brokerage firms and their clients started seeking more reliable and in-depth analyses. And they found reliability from analysts with field experiences like Song, who is busier than ever giving seminars to his clients about the state of the restaurant industry and how it works.
There are more top analysts with unconventional backgrounds, from start-up CEOs to independent movie producers.
Lee Tae-kyung, an analyst at Hyundai Securities, formerly worked in education providing consulting services to clients and was the CEO of an education start-up that specialized in online lectures.
Lee created a business administration simulation game, which he supplied to SK Group to train new hires. Also, having been fond of the arts since he was in high school, Lee expresses his thoughts through drawings. Such business experiences now help him analyze small-cap shares like small and midsize companies.
“My experience as a start-up CEO helped me gain an elaborate perspective about each industry’s business models, while my consulting experience brought me an analytic capability and the perspective of seeing the big picture,” said Lee.
Kim Hak-gyun, head of investment strategy at KDB Daewoo Securities, is a star analyst, but he started working as a film director when he graduated from college. Kim once produced a 16-millimeter independent movie and worked as an editor of a movie magazine, but later followed his college major to become a stock analyst.
“I believe human beings are born reasonable, but many lose their reasonableness in front of money,” said Lee. “My knowledge and interest in liberal arts may seem irrelevant to market analysis on the surface, but it definitely helps me analyze the market.”
Kim Jeong-hwan, another KDB Securities analyst, specializes in technical analysis dealing with numbers and indices. However, he is a notable painter and calligrapher outside his Yeouido office, regularly holding private exhibitions. He has juggled both his stock analysis career and personal interests by continuing his studies at Hongik University’s graduate school.
Kim Mi-yeon, head of the Daishin Asset Management research department, had spent her 16 years as a star analyst specializing in the private education industry. But at the beginning of this year, Kim moved to the asset management industry to get closer to investors. She gained popularity with a report titled “Standards of Education” in 2011 that analyzed the Korean education industry, Kim is scheduled to start her new career in early March with an investors’ conference about funds related to women’s spending.
While many talented analysts remain in the securities industry, many have been forced to leave the field due to the long downturn in the overall financial sector.
Industry insiders explain that stock analysts usually are the first to be laid off.
According to each of the nation’s major securities firms, there were 1,189 stock analysts as of December, down about 10 percent compared to the previous year. It was the first time the population of stock analysts dropped below 1,200.
The analyst population kept increasing in the wake of the global financial crisis of 2008 to its highest level ever of 1,550 in 2011. However, as large-cap shares in the Kospi stopped growing, the number of analysts has declined every year.
Analysts often are relocated to other departments within the company or voluntarily choose to leave.
Even if they choose to stay, analysts become the first group subject to salary reductions, because the research department, where the analysts belong, does not directly generate revenue.
Analysts say their salaries have been slashed 20 to 30 percent over the past three years, but they are still expected to work more with better results.
“It is true that we analysts deserve some of the criticism we receive, that analysts have been negligent in producing quality analyses and too much emphasis has been on providing companies’ confidential information,” said an analyst who declined to be identified. “However, too many layoffs of analysts may have weakened the R&D foundation of Korean investment market.”
BY KIM CHANG-GYU [firstname.lastname@example.org]