The Research Puzzle

Recent Blog Postings

thinking about doing: You have an investment task, be it a job or a hobby. How much time do you spend contemplating your approach versus executing it? An Olympic lesson for us all.
stuck in one dimension: Success breeds success, and it's hard to see how failure could possibly result. Such are the dangers of thinking tomorrow will look like today.
unbiased industriousness: In seeking someone to work on your behalf to sort through investment opportunities, the need for a couple of basic qualities stands out.
the error price: Analysts are good at providing fanciful targets on stocks they like, but we don't often hear about where the price might go if things don't work out.
loose ends: It made all the papers at first, but is quietly fading away now. A huge settlement of conflicts of interest on Wall Street recedes into memory, along with my little part in it.

Our consulting work focuses on how investment decisions are made and how investment ideas are communicated.

For any investment application that you have, there is a framework within which you make decisions. Sometimes that framework is carefully constructed and consistent in application, and sometimes it is haphazard and ever-changing. Bringing the perspective of outsiders, we evaluate the processes by which you make choices, and offer concrete suggestions on how to improve your chances for success.

We begin our work with a simple question: “What game are you trying to play?” While some market participants and many writers refer to the investment world as “the game,” in reality there are many games to play. The first choice you have is to identify yours — the approach that you expect will deliver added value over time. We ask which game you are playing so that we can understand what you are trying to do. Then when we evaluate your actions, we can provide customized and innovative ideas for you to improve the approach you have chosen. You will not get a prepackaged solution that feels like it was stamped out by a machine.

Critical to our evaluation is pinpointing the relationship between what you say you are doing on behalf of your clients and what you are in fact doing. Said differently, “Is the game that you sold the one you are actually playing?” Too often they drift apart over time and the gap goes unnoticed until the environment gets tough, at which time it is too late.

Another essential element of any investment endeavor is effective communication of ideas within your firm and to your clients. Despite the increase in computing power and the proliferation of gadgets and channels through which we communicate (or maybe because of those developments), many investment firms struggle to make their communications effective — and reflective of their unique capabilities. We will help you to develop creative and productive reports and applications that will meet the true needs of your business.

To learn how we could help your firm succeed, please complete our contact form.

Expensive talent in an outmoded structure?

For many investment firms, an organizational chart doesn't really show much more than a list would, since traditionally there are relatively few functional roles. For example, for most asset managers, the chart would boil down to this:

In larger firms, maybe there are intervening layers of organization. At some shops, perhaps analysts work directly for portfolio managers. But the methodology is the same nonetheless. The organization grows by adding more analysts and more portfolio managers. Scaling up is merely adding more of the same.

Does that approach really reflect the needs of today's world, or is it a vestige of the past?

Does it help you to deliver alpha in a unique and repeatable way?

If you want to explore new ways to structure your firm over time, contact us.

Advice and counsel

The challenging and rapidly evolving business of investments presents an endless series of new puzzles to solve. Our core value to our clients is our ability to evaluate options, explore opportunities, and suggest creative approaches that are uncommon and appropriate. Such work can be part of any of the discrete activities below, or it can be part of an “of counsel” relationship, where our knowledge of your organization over time can lead to more nuanced, detailed, and targeted solutions.

Internal due diligence

The best organizations are continually examining how they make decisions and what attributes of their products and services need to be refreshed or remade. Yet, it’s a great challenge to be able to see with “new eyes” from inside an organization. We provide the essential ingredients of insight, perspective, innovation, and independence to your evaluation, with no political baggage lugged along. Our due diligence process is thorough but unobtrusive, and we work to find the value-added improvements that will make a difference rather than producing volumes of suggestions that are unlikely to be productive.

External due diligence

If you need assistance in evaluating a research provider or money manager, we can provide a detailed examination on your behalf, or augment your own efforts.

New product development

The creation of new products and services often suffers from a built-in insularity, since firms are rightfully secretive about their development efforts. Our early evaluation of the investment and communication strategies that you are preparing can help you to avoid pitfalls that can hamper the initial marketing success of your product or its ability to meet the expectations of your new clients.

Evaluation and creation of materials

Research reports, marketing documents, client reports, and other materials are effective when they clearly convey the essential information. Too often investment communications are impenetrable, incomplete, or unattractive. We can help you avoid those problems.

Data applications

While we are not a data provider or software vendor, there are some solutions that we can provide to you that take advantage of the services that you already have in house, thereby leveraging those investments.

The power of ideas

Where does the elusive alpha come from?

Your decision-making processes are full of feelings, facts, beliefs, suggestions, suppositions, opinions, and, yes, ideas.

Those ideas are the seeds from which that alpha grows. Yet, how often do you think about how you recognize and sort the ideas, investigate and test them, develop and adapt them, implement them and reward those who made it happen from start to finish?

In a business that relies on ideas, only the rare investment firm has a systematic understanding of where its best ideas come from, or a holistic plan to improve the prospects for generating alpha from the resources it has.

If you want to explore the idea management possibilities at your organization, contact us.

for research firms

The tumultuous changes in the investment research business since 2000 have put the business models of all types of firms in flux. New sources of information, new tools, new competitors, changing regulations, and the disappearance or reduced importance of tried-and-true clients have created a landscape very different from that of just a few years ago.

If your firm is at a crossroads, we can assist you in evaluating it in the context of the evolving environment. Whether you are a broker-dealer, a broad-scale independent, or a specialty firm, we can help you improve your chances of good performance, and then tailor your work in content and presentation for the users that you seek to attract and retain.

for money managers

“How do you add value?” How many times have you heard that question?

More importantly, how many times have the people on the other side of the table heard the same answers from you as from all of their managers? Probably a lot more frequently than you care to acknowledge.

Our goal is to help you think through the issues of the inputs, internal and external, that form your investment process, and to aid you in differentiating your efforts from those of your competitors.

for fiduciaries

The easiest things for fiduciaries to do are to look backward at performance and to seek guidance from the work of others at similar entities. It’s essential to break out of that pattern in order to succeed going forward. One way that we can assist you is to bring a fresh perspective from outside the structure of previous decisions. By examining the assumptions and choices of your organization, we can help you to meet your duties as a fiduciary.

for “walking institutions”

One of the challenges of wealth is to make choices about whom you trust to care for it. Another is to be able to see clearly whether the investments being made in pursuit of return match up with your tolerance for risk, to say nothing of your values. We recognize that the issues that you face can be as complex as those of an institutional investor, and we can help you with due diligence, the structuring of an organization to effectively manage your money, or a second opinion on a major decision.

Seeing the data that matters

The seemingly disparate tasks of managing investment portfolios, professionals, and organizations have a common requirement: To identify information that describes the past realities, accurately conveys the current situation, and illuminates the possibilities to come.

A common problem for most organizations is the inability to look across people and portfolios to understand the flow of risks that stem from the behavioral nature of an economic entity.

Can you evaluate the performance attributes of the individuals and products that comprise your firm and understand the evolving nature of the decisions being made? If not, let us help you think through the possibilities.

Tom Brakke, CFA, is president of thomas j. brakke, llc, and its affiliated entities, including tjb research, a consulting firm specializing in helping investment firms in the areas of investment process, the use of external research, and the communication of investment ideas within a firm and to its clients. In addition, he writes a blog, the research puzzle, about those issues.

Another affiliate, tjb advisors, is a registered investment advisor that provides specialized investment advisory services, including portfolio analysis, second opinions, and due diligence, as well as asset management.

A Chartered Financial Analyst, Tom worked for fifteen years in professional investment management roles with American Express Financial Advisors. With experience in both equities and fixed income, he held positions as an analyst, portfolio manager, and director of investment research. He founded and was president of Advisory Capital Strategies, the firm's alternative investment division, and led a unit that created a variety of investment products.

For four years, Tom was the professional advisor for the Carlson Funds Enterprise, an MBA program at the Carlson School of Management of the University of Minnesota. Students in the enterprise learned the investment business by managing two funds that at the time totaled approximately $15 million. Tom worked one-on-one with students on the investment and operational issues that they faced, and taught a class about research analysis, investment management, and the investment business.

From 2003 to 2009, he was the independent consultant for one of the twelve investment banks that was a party to the $1.5 billion Global Research Analyst Settlement. He was responsible for the implementation of the firm's independent research program under the settlement.

Tom is a member of the CFA Institute and the CFA Society of Minnesota.

As a client of tjb research, you may log in to get access to the items that you have requested be available, including:

Contracts and billing information
Scheduling and arrangements
Presentations
Data analyses
Recommended resources and research

In addition, certain white papers and other reports may be retrieved that are generated by tjb research solely for its clients. These are in addition to items available to all registered firms by request, or to the public via the research puzzle.

Finding common ground

One of the great challenges of managing an investment organization is to bring the specialists together in common purpose. Often good performance comes from seeing the world in a new way, which may require those from different areas of expertise to attack a problem from opposite angles.

It’s not easy. A well-known market strategist was once asked whether his firm’s staff of fixed income and equity analysts collaborated much. His response: “I can’t even get the growth and value people to talk to each other.”

It’s not easy, but it’s worth it.

Do your structures and strategies reflect the broad needs of your firm, or do they darken the lines that divide? Contact us to help you explore the possibilities for your organization.

Please send us this information, and we will follow up by e-mail to complete the registration process.

why register?

One benefit of registering is to give us information about your capabilities and those of your firm, so that we can recommend your products and services to those in the industry who might have an interest. However, we will only share information about you based on your guidance to us. You control whether and how we can make referrals (for which we receive no payment from you).

We also will send white papers and targeted ideas to registrants; you may choose which types of materials to receive, or to receive none at all.

who should register?

Employees of research firms of all types can benefit by giving us an awareness of how their work might be integrated into the investment processes of asset management firms for which we are providing consulting services. Money managers should register as well; in our capacity as a gatekeeper we identify allocation opportunities for which your firm or team might be a good fit. Vendors of data, software, and services may also gain from our exposure to them, since our main area of expertise is the process of making investment decisions, which relies heavily upon those tools. Since we are a relatively small shop, we willingly recommend other consultants to meet the needs of our clients, and want to hear about your area of specialty. If you don't really fit into any of those categories, please register as a fiduciary or an individual.

how will the information be used?

As indicated above, you control the amount of information provided and how it can be used. Information on your firm will only be shared within the parameters that you have defined. tjb research will not use it for any marketing purpose, and will only send materials to you that it has produced if you have requested them.

Communicate with us to:: book a presentation by tom brakke; get comments for a story on the investment business; inquire about positions for consultants, analysts, and interns

In the financial world, at times it seems that everyone is in everyone else’s business. Research firms have money management businesses, mutual fund complexes manage hedge funds, equity shops trade commodities, and investment banks do just about everything. Potential conflicts of interest are everywhere.

Our clients and prospective clients include the entire range of investment firms, and encompass entities that compete, collaborate, and commerce with one another. Therefore, there are many potential conflicts of interest. Ultimately, the only safeguards are full disclosure of all potential conflicts, the refusal of business that could lead to problematic situations, and an absolute protection of client ideas, data, and methods. Our future rides on our reputation for honesty, trust, and discretion. No questionable engagement, however lucrative financially, is worth the loss of that.

Some services of tjb research may be performed as a registered investment advisor. Related disclosures are found on the tjb advisors website.