Shoddy Research Hampers Investors

BOSTON (TheStreet) -- If you own Apple(AAPL) stock, your investment is riding on the success of the upcoming iPad, the company's latest gadget after the iPod and iPhone.

Consider this yardstick: On March 12, estimated iPad pre-orders peaked at a rate of 25,000 an hour before a drop-off during the weekend to about 1,000 per hour.

"With three weeks and two weekends left before they ship, I wouldn't expect much more than half a million in pre-orders and reservations," Fortune magazine quoted someone who readers assumed was an expert. "My best guess would be that they hit the 1 million unit milestone by the second week after it ships."

That opinion, validated by what's considered among the best financial magazines in the world, came not from a well-known technology analyst or top research firm. It was offered by a Venezuelan blogger using the name of a hobbit as his alias.

None of that is meant to demean the methodology deployed by "Deagol," aka Daniel Tello, for the Web site Investor Village. But it bolsters a claim by MIT Sloan School of Management lecturer John DeTore regarding the state of investment research.

DeTore, a former research director at Putnam Investments and Wellington Management, is chief investment officer of the new Boston-based hedge fund Denver Alternatives. He's a critic of what he calls the "dismantling" of investment research. As he sees it, the quality of analysis has diminished so markedly in recent years, much of it's mined from non-traditional sources.

"Ten years ago, powerful research teams, both in investment firms and on Wall Street, had a deep understanding of the major public firms," DeTore says. "The result was 30- to 60-page research reports with major conclusions. Maybe you didn't like what the analysts said, but they were informed. Now, we're left with a bunch of bloggers who just want to know if you meet your quarter or not."

DeTore raised his concerns at a recent conference held by the Massachusetts Institute of Technology. Included on a panel were several CIOs, representing small- and large-cap companies.