Lessons from stock market research

Fort Augustus

Market research tends to look inwards when it tries to assess it strengths and weaknesses, but perhaps interesting comparisons can be drawn from the world of stock market research?

A recent article in The Economist reviewed the world of stock market research and it revealed some interesting comparisons with market research. The core of stock market research in the past has been provided by organisation such as banks, in the hope that good advice will lead to investors spending more money, which in turn drives revenues from equity trading.

The first key comparison is in the size of the market. Market research growth has been relatively flat over the last four years, but the stock market research industry has seen a fall from about $14 billion in 2009 to about $9 billion in 2013 in America. In Europe the fall was from 4 billion Euros to 3 billion. The Economist describes the decline as being driven by the shift to passive investing and algorithmic trading – which might have implications for market research automation and the use of DIY solutions by clients.

The Economist highlights some interesting changes in the structure of the reduced stock market research options. For example, analytics have been moved from expensive locations to less expensive ones. Asset managers report that they are increasingly not reading the research reports they are being presented with, a close analogy to many market research clients.

In the stock market research world there has been a growth in bespoke research, an analogy with the boutique agencies in the research industry. In addition, stock market research is seeing a growth in non-traditional solutions, such as commissioning satellite pictures of new mining sites to see if company reports are accurate. Again, this provides an analogy with non-traditional market research providers. As in market research, although there has been strong growth in non-traditional solutions, they remain a small part of the total picture in stock market research.
One of the debates, that keep circulating in NewMR circles, relates to the speed that market research will change. Most pundits agree on what the industry will look like in 10 years (more on this in another post). But there tends to be a difference of opinion in the speed of the change, with some (such as Lenny Murphy) believing in fast change, and other people (such as myself) thinking the change will be slower.

The stock market research picture is an example of relatively small shares for new options, but a rapid decline in existing methods – a worst case example that we should hope we do not see in market research! If this model were to appear in market research, it would be akin to companies cancelling their customer satisfaction and advertising tracking studies without commissioning new and exciting alternatives.