Knowledge and experience are what count

The prestigious "star analyst" designation bestowed upon equity analysts by various companies isn't determined by their accuracy or entertainment value, according to a study by the University of Florida. Investment managers revealed that the key criteria for analysts to earn this honor are making clients money, making them think, and making them laugh.

Interestingly, being successful in making clients money is not a prerequisite for analyst success, provided they can stimulate thought and amusement in their audience. To test this assessment, the team employed large language models to evaluate 1.22 million industry reports from 40 major US brokerages between 2012 and 2024. The findings were not surprising - larger brokerages, with more clients, naturally garnered more votes for their analysts.

However, an intriguing aspect emerged from the data: the analysts who enhanced the accuracy of their forecasts did not see a corresponding increase in their likelihood of being selected as an All-Star analyst. In fact, forecast accuracy proved to be relatively insignificant in this evaluation. What significantly influenced the analysts' chances of being voted as an All-Star was their level of knowledge and experience in the industry.

Analysts who possessed deeper industry knowledge and effectively communicated these insights to their clients were more highly rated and more likely to be chosen as All-Star managers. The study suggests that being interesting may be more valuable than being right in this context. While making investors money is a goal, the study indicates that stimulating their thought process is more highly rewarded.