CFA Level I · CFA Level I Exam · Equity Analyst Research Reports
Which feature of a research report's recommendation section would an investor most likely view as strengthening the credibility of the investment thesis?
A discussion of the key risks that could cause the thesis to fail most strengthens credibility. It shows the analyst has considered what could invalidate the view, and lets readers judge the recommendation. Missing time horizons or targets equal to market price make a recommendation uninformative.
- AA rating with no stated time horizon to avoid being proven wrong
- BA discussion of the key risks that could cause the thesis to failCorrect
- CA target price that is always set at the current market price
Explanation
Credible reports link the rating to valuation, a time horizon, and the risks that could invalidate the thesis. Omitting a horizon or setting the target at the market price makes the recommendation untestable or uninformative.
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