What is Investment Research?

Investment research is the process of sourcing, analyzing, and developing investment ideas. It involves analyzing historical performance and risk and risk-adjusted returns produced by a security relative to its peer group, as well as analyzing financial statements and modeling the data in order to build forward-looking views. Along with hard data, the process also involves other aspects of due diligence that are important. These include understanding a company’s business activities and revenue generation model as well as its operations and governance. It has also become common to include ESG (environmental, social and governance) factors in the research process as the industry is moving towards more sustainable practices and investors now consider these factors when making investment decisions

The information gathered is used to support financial decision-making in terms of asset allocation and security selection. Investment research can also be applied to screening and selecting other non-direct investments such as mutual funds or ETFs (exchange-traded funds). By scrutinizing their portfolios and conducting a relative peer group analysis (again based on historical and forward-looking projections as well as qualitative factors), investors can make informed investment decisions.

Key Learning Points

  • Investment research is the first step in the investing process and involves screening and evaluating the potential of a sector or security to outperform in the future.
  • By analyzing historical returns under various market conditions and the risk profile, investors could determine if an investment is suitable for their portfolio.
  • The most popular approach to investment research is fundamental (or bottom-up) analysis. This takes a company’s financial statements into account and analysts may use their research to inform a discounted cash flow (DCFs) or ratio analysis.
  • Technical analysis is most popular with short-term investors and day traders. Investors chart performance and make assumptions based on different patterns and trends depicted in the charts.

How does Investment Research work?

The starting point of any investment research process is data collection. To begin screening, making comparisons, and forecasting, investors need a reliable source of data. Some of the most popular and trusted providers include Bloomberg, Thomson Reuters, Morningstar, and FactSet. Unfortunately, subscriptions to these data sources can be extremely expensive and beyond the budget of most retail investors. The entire research process is time-consuming and requires strong financial and market knowledge. Broadly, the three stages of investment research (assuming a bottom-up approach) include:


This involves choosing multiple criteria that are applied to an investment universe to filter out a manageable number of potential opportunities. For example, if an investor is looking to invest in the UK large and mid-cap stocks, they would normally screen the FTSE 100 and FTSE 250 Indices. That includes companies with different styles and factor correlations, such as quality, momentum, and yield. Screening to narrow the set of opportunities allows the investor to move on to making a deeper dive into specific companies. The most important thing to remember here is that one size does not fit all and investors should make relevant comparisons on a sector and market cap level.


In the second stage, analysts rigorously examine individual stocks. That will involve reading the company’s annual reports, reviewing its financial statements, and performing ratio analysis. This includes quality metrics like ROA or ROE, valuation metrics such as P/E, P/B, or P/S ratios, and valuing the company using a DCF model. This is quantitative research, but investors also look at qualitative aspects of a business. These include the business and operations model, company management, industry barriers to entry, innovation, and many other factors. Finally, combining all of this analysis leads the analyst to a determination regarding the quality of the investment, taking into account the current share price relative to its growth prospects.


The final step of the research process is to formalize an investment idea and “sell” it to the relevant parties. Sell-side brokerage firms offer equity research to clients such as mutual funds or retail investors, while buy-side analysts are employed by an asset manager and pitch their stock ideas to portfolio managers.

Other Forms of Investment Research

Mutual funds offer investors convenience, given that the investor does not need to make any investment decisions or monitor a portfolio on an ongoing basis.  However, it can be difficult to find good managers who deliver consistent returns.  Investors should conduct their own fund analysis critically evaluating the manager’s skill and resources, the strategy’s investment process, risk management and portfolio construction, and the historical performance on an absolute, relative, and risk-adjusted basis.

When it comes to passive investments like ETFs, investors should pay attention to management fees, the method of index replication, and other sources of performance enhancement such as securities lending.

As already mentioned, technical analysis is a type of investment research used by traders and short-term investors. It aims to identify potential opportunities by evaluating statistical patterns gathered from charts showing trading activity, for example, price movements or volumes. This type of research does not attempt to determine the company’s intrinsic (or fair) value based on its financials and business but rather seeks to predict future price movement purely based on historical price moves. Technical analysis is mostly applied in the areas of currency, derivatives, and commodity trading, but can also be used in equities and fixed income.


Research is a fundamental part of every investment decision and while it can be demanding in terms of time and effort, it can significantly improve the likelihood of generating returns and avoiding losses. While individual investors have more limited tools at their disposal and may rely on third-party research to come to their own conclusions, investment professionals produce extensive and detailed reports that are subject to several levels of review prior to publication.

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