Economic Analysis for the Financial Analyst

Abstract

At the other extreme is the corps of Analysts employed by the huge investment trust. Each is a specialist in one or a few industries, and all have access to a staff economist who attempts to interpret national and international financial and economic events and trends in terms of their effect on the overall stock market, and who employs the techniques of his profession in clarifying the overall industry picture and trends for the Financial Analyst. The GP' Financial Analyst would do well to emulate his medical counterpart by being prepared to take on whatever problems he may meet. Two problems he surely will meet with disturbing regularity are: How to avoid recommending the best company in an industry only to have the entire industry go into a slump; and how to avoid recommending a stock, after a thorough analysis (including an interview with a very optimistic president) assures him that there is extremely little likelihood of his being wrong, only to see the entire market collapse, causing a sinking of his stock and a similar sympathetic feeling in the pit of his stomach. To cope with these two problems, the Analyst working for a firm which does not have available the services of an economist, could, given the time, employ some of the techniques of the economist who specializes in investments. True, some members of the financial community today regard economic-market analysis in the same light as financial analysis was seen by others a generation ago: It may be interesting, but it is not productive. And the You cannot buy the averages attitude is not uncommon today. But the inevitable recurrence of setbacks, like the one of early 1962, points up the need for basic economic research.