Today investors must recognize that there is no longer the same brokerage house research support for common stocks as in the past; comprehensive research coverage has declined for twenty years. That painful decline will continue. Why? The spreads between the bid and offer prices have disappeared to near nothing. The Disappearance of Market Makers has led to little Comprehensive Research Coverage and the brokerages’ market makers’ profit potential is minimal. The computerized trading coupled with minuscule spreads between bids and offers shattered the profitability of “making markets.”

The market makers do not have adequate “spreads” (the space between the bids and offers) to buy, hold and offer support for the stocks. In the past, one could find market makers generally holding 20,000 to more than 100,000 shares of the stocks that they made markets in. No more! In the past, market makers assisted investors by buying, selling or selling short. Their market making would enhance liquidity and diminish volatility. They would profit by “market making” and benefit by the spreads between the bids and offers.

Market makers were financed by the brokerage houses that supported their trading activities. They would help price stability, give some support to the price of a stock and cut down on volatility. At the same time, the brokerage houses’ research departments which were financed in part by market maker profitability, generated research reports that would sponsor stocks that their research departments recommended. Key point? Since there are no longer the profits in spreads, it limits brokerage research due to the costs involved. Since there are no longer market makers as in the past, we see more volatility and price declines to levels below where most stocks bottomed previously.

However, stocks can now sit at prices that may turn out to be “steals.” One can take advantage by putting in bids for stocks that one’s analysis finds undervalued. The lack of support of market makers coupled with the fact that research coverage is often non-existent for small companies does create opportunities. Since there is very limited research coverage for most companies, the public is generally unaware of most undervalued stocks. The public typically sees a narrow universe of stocks that the brokerage houses recommend. Few are undervalued…very few! That is never going to change.

Look for other sources of investment information and make sure it makes sense to you. What’s the answer since very few companies have comprehensive research coverage? It is not just putting out a blizzard of press releases which few investors read; it doesn’t work. Other companies sign expensive “investment banking” agreements with brokerage firms that are not always effective.

So what really does work? What does work is to have a readable, understandable and believable report for investors. It should not be a recommendation but rather an analysis of what a company has and what it is doing. A publicly traded company’s story has to be told and explained. A mining or exploration company research report should focus on projects, resources and reserves, valuation, management, finances, stock ownership among many things. It is not difficult and analysts (and companies) still can be found that produce excellent research. There are many quality overlooked and undervalued mining and exploration companies today, yet very few have the essential comprehensive research coverage. Investors are always looking for companies that offer the potential for exceptional capital gains. Today, there are many companies that can do just that.