Argus Quality / Performance Report:
As a leading provider of independent research, the quality of our final product is critical to our success. We have a number of systems and procedures designed to ensure that our products — primarily our opinions — are generated through high-quality techniques.
Quality control starts with the people we hire. We seek experienced individuals with strong backgrounds either in financial analysis or the industries they will analyze. The average Wall Street financial analysis experience on our staff is 17 years; the average tenure at Argus Research is 7 years. More than two-thirds of our analysts have advanced degrees; one-half have earned or are pursuing the Chartered Financial Analyst designation.
Once they are on board, Argus analysts go through a training program to learn the Argus system for analyzing stocks. This system, developed over the 75 years we have been in business, employs a top-down, fundamental framework to generate specific equity recommendations. The system, which includes rigorous analysis into a company's management, its industry, growth prospects, financial condition, risks and valuation, is similar to the methodology stressed in the CFA program. Of course, training at Argus Research is ongoing. We sponsor our analysts in the CFA program, and in other continuing education endeavors.
The hierarchy at Argus Research is flat, by design. Our front line is comprised of our relationship managers and our investment analysts — not junior analysts or customer support — to better serve the client base when they call with specific questions. The analysts in turn report directly to the Director of Research, so as to ensure a seamless transfer of information in our top-down investment-decision process. The analysts have advanced research tools at their disposal to maximize their efficiency. At the same time, we encourage them to spend the energy and time to get to know the managers, customers, competitors and suppliers of the companies they cover. Our analysts meet with managers at their headquarters, at our headquarters and in the field.
We continue to learn from the conflict-of-interest controversy, and, as we are strong believers in the idea of continuous improvement, have instituted a number of new 'best practice' policies to further ensure that our analysts and our ratings are independent. Our operating principle, as it has always been, is that Argus employees must always put our clients' interest first. And our business model remains the most important step we take to protect our clients' interests. As an independent research company, we do not participate in the investment banking or brokerage businesses, and we do not provide consulting services to the companies we cover, so our research conclusions are not compromised by alternative objectives or pressures. In the interest of fair disclosure, we are affiliated with two other companies, Vickers Stock Research and Argus Investors' Counsel, which is a Registered Investment Advisor within the U.S. Securities and Exchange Commission and submits detailed information to the government about the principals and owners of our firm. We do not believe that there can be a balance between the principle of placing our clients' interests first and allowing members of our staff, including our analysts, to own the stocks that we follow. We have had strict policies in place for decades that prohibit all employees from buying or selling specific stocks within five-to-thirty days of an analysts' rating or estimate change (five days for HOLD-rated stocks, and 30 days for BUY-rated or SELL-rated stocks). Individual analysts also are prohibited from investing counter to their recommendations. Further, when analysts appear in the media, they must follow disclosure guidelines related to stocks they or their families own. Viewers or readers can request free detailed reports on the securities mentioned by our analysts in the media by contracting our marketing department.
Each of our recommendations must have a clear, reasonable and adequate basis. Every rating starts with the individual analyst's application of our six-point system. On a weekly basis, the Director of Research holds a research meeting at which the analysts discuss the specific stocks they are considering upgrading or downgrading. Their ideas are presented to the entire group of analyst for comment and debate. Afterward, the analyst meets with the Director of Research or other Investment Policy Committee member for a final decision. At the same time we encourage our analysts to fully understand the companies under coverage, we discourage them from becoming too close. Material gifts from companies under coverage to analysts are prohibited. Our analysts are also prohibited from submitting the conclusions from their research reports to the companies for review. Obviously, our analysts are unable to offer coverage of companies in exchange for investment banking business because we don't compete in the investment banking business. Finally, when we drop coverage of a company, our policy calls for rating the shares as SELL, and continuing to provide published analysis on the company for a period of 90 days.
Our simple, clear and effective rating system communicates to our clients our opinions about the securities we cover. We use three ratings-BUY, HOLD and SELL. For a stock to make the BUY list, the analyst must expect its risk-adjusted returns to outpace the market over the next 12 months. HOLDs are expected to perform in line with the market, and SELLS are expected to underperform. Each month, in the first Weekly Staff Report, we publish a table that displays our distribution of ratings. Distributions by industry are published each month in the Investment Portfolio Guide. Information on each of our ratings, including the date established and the price, is available on our Master List.
Each of the quality control measures contributes to the overall quality assurance of the Argus Research product. Having been in operation since 1934 — through Depressions, recessions, bear markets and bulls — is another tangible measure of the quality of our research.