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Equity Research Q&A with bearing
 

bearing's picture
ER
(Neanderthal, 2,082
 
Points)
 on 9/5/12 at 10:30pm
Bearing Equity Research.jpg

Andy note: BIG thanks to bearing for doing the interview with me. bearing is a 3rd year equity research associate and long-time member of WSO. He's been a very helpful member in the forums and was nice enough to answer some questions for those interested in the equity research field.

I would first like to thank Patrick and his team for creating WSO and growing the site into what it is now. Having utilized this site since '06, I have found the information here invaluable when I was still trying to break into the industry. Hopefully I can shed some more light on ER for prospective monkeys with this interview.

1. What are some tips you can give out to students who want to work in ER?
Know what you are getting into. This business has been in a structural decline for the past decade with the financial crisis only exacerbating the situation. The cash equities business is drying up with equity flows at multi-year lows. I don't mean to sound negative but this is the reality of the situation. ER can be a very rewarding and lucrative career path but it's not only very difficult to break into, it's also difficult to remain in.

2. What is #1 mistake you see students/interns/young professionals make early on in their career?
Generally spending too much time on their desk staring at excel. You may only be an associate but this is a relationship business. You won't establish any branding or develop any meaningful work relationships if you just stare at your computer all day. During my first year my analyst advised me to go down to the trading floor for about an hour each day to get to know the trading desk and sales force. As you develop a repoire with them, they start to trust your knowledge and expertise. Eventually they will come to rely on you and you can rely on them with any needs you might have. Your going to hear this a lot in finance but always leverage the platform.

3. What type of background do you usually see lead into ER positions?
What sets research apart from the other divisions is the plethora of backgrounds people come from. Looking at the floor I would say that its close to a 50/50 split for people who started their career as a research associate and people who came from industry. Different teams value different skill sets and that shows in the makeup of the department.

4. What type of person is best suited to work in the line of work that you do?
Asides from the usual attention to detail, solid financial expertise, superb writing skills and penchant to stand long working hours you have to have an innate curiousity about the financial world. A lot of your work is self directed and its up to you to think of actionable investment ideas within your coverage space. You have to be willing to not just look at the 10Ks or trading statements but dig deeper by talking with industry consultants, develop relationships with divisional mangers, actually test out the new products companies come out with and too never take anything of what management says at face value.

5. How can grad school (msf or mba) specifically help someone advance in an ER career?
Not necessarily advance but it's a way to break into the industry. My bank usually recruits about 4-5 MBAs a year for summer associate positions and most of them do get offers. I assume this is true for the other BB banks. Just be aware that the number of summer associate spots are significantly smaller for ER then compared to banking. MSFs not so much as they are usually bunched with the undergrad recruiting pool.

6. Any tips on the decision making process for moving on in your career (specifically with ER)?
Usually after 2-3 years you see a lot of the associates move to the buyside or look for something different. By then you are already well versed in your sector and your comfortable coming up with your own investment ideas. If you do decide to stay you are usually promoted to VP and begin to launch coverage on your own names and split the coverage with your senior. From there you can take over the team if your analyst leaves/retires or get poached by another bank and lead the team there.

7. Where do you often see people exit to after their time in ER?
People who do decide to leave usually end up on the buyside. A lot of ER guys want to trade on their ideas and have a life outside of the office so they get poached by a hedge fund or asset manager. You also see people taking an IR role in companies they cover or go into industry. It's pretty easy to make the transition as you already know the management team and you have a very firm grasp on their competitors.

Tags:

Comments

UFOinsider's picture

Great post, thank you

O
(Human, 10,302
 
Points)
 on 8/29/12 at 10:58am

Great post, thank you

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

Tolland15's picture

Thanks

O
(Baboon, 150
 
Points)
 on 8/29/12 at 11:08am

Thanks

I was taught that the human brain was the crowning glory of evolution so far, but I think it's a very poor scheme for survival.

clashdude's picture

Thanks for the info, very

 
Points)
 on 8/29/12 at 11:32am

Thanks for the info, very useful. When you say half the guys come from industry, how much experience are these people usually coming in with? I have 1.5 years experience in a F100 rotation program, under a company that would fall into FIG. Is this enough industry experience to have a shot at breaking in?

AQM's picture

Thanks man, quality post.

IB
(Orangutan, 328
 
Points)
 on 8/29/12 at 11:36am

Thanks man, quality post.

West Coast rainmaker's picture

Great post. For the guys

ER
(Neanderthal, 2,071
 
Points)
 on 8/29/12 at 12:24pm

Great post.

For the guys that leave for the buyside, where do you see them them go? Are they generally restricted to L/S equity and long-only AM? I have seen guys move to macro, but only at the senior level. I imagine all credit oriented positions (distressed, anything FI, etc.) and 99% of PE firms are effectively off the table, right?

cola1's picture

agree with the question

 
Points)
 on 8/29/12 at 1:03pm

agree with the question above-- what types of HF do guys usually go into? and are associate usually pegged down by their specific industry coverage?

also what is the difference between a buyside equity research associate and sell side equity research associate at a BB?

mperit01's picture

PE is difficult because most

ER
 
Points)
 on 8/29/12 at 1:05pm

PE is difficult because most PE shops look for deal experience which you don't get in ER, but honestly exit opps are as limiting as you believe them to be. An associate at my firm just recently left to do Ibanking at Lazard and I have seen other ER people at both the junior and senior level switch to banking (and banking to ER too) since i started. So if PE is your desired end game it is still possible if you are in ER just the direct jump is extremely difficult.

Most people who leave for the buy-side go to both HF's and AM firms, obviously usually it is in Equity if you are an equity research analyst (L/S or Long Only in the case of some AM firms). Usually people jump to cover their same sector, but I know people who worked in ER in one sector and ended up getting a job at a HF covering a different sector (it was their goal to work in this sector so they spent A LOT of time studying it), but it is possible. Another thing to consider is most of the time people on the buy-side expand their coverage, so if you work in equity research but love some of the credit/debt stuff, if you bust your ass and prove to your PM, CIO etc that you know your stuff (while also doing well in the role you were given at first) you could probably expand to cover multiple things - this obviously depends on the size of the fund or firm you go to work for though. Smaller fund's strategies tend to be way more concentrated and have less opportunities as such.

bearing's picture

clashdude: Thanks for the

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 1:08pm
clashdude:

Thanks for the info, very useful. When you say half the guys come from industry, how much experience are these people usually coming in with? I have 1.5 years experience in a F100 rotation program, under a company that would fall into FIG. Is this enough industry experience to have a shot at breaking in?

Usually they came through the MBA route having worked in industry before then. A few were hired directly but they usually had very deep technical knowledge about their industry.

bearing's picture

West Coast rainmaker: Great

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 1:19pm
West Coast rainmaker:

Great post.

For the guys that leave for the buyside, where do you see them them go? Are they generally restricted to L/S equity and long-only AM? I have seen guys move to macro, but only at the senior level. I imagine all credit oriented positions (distressed, anything FI, etc.) and 99% of PE firms are effectively off the table, right?

Vast majority of them do end up in L/S or long only because it's what they know and enjoy doing (they choose ER for a reason). I know of 1 person who ended up in a PE megafund but he was a special case. Also a few who went to IBK for some inane reason (he did a lot of IPOs in his group).

bearing's picture

colajo01: agree with the

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 1:15pm
colajo01:

agree with the question above-- what types of HF do guys usually go into? and are associate usually pegged down by their specific industry coverage?

also what is the difference between a buyside equity research associate and sell side equity research associate at a BB?

Answered already. Also buyside and sellside associates generally do the same things (build/maintain models, industry research, random admin work) but there are less of them because the way the buyside works and instead of helping to cover 20 names it's more like 200.

kcNYI's picture

Thanks for the insight -

(Chimp, 8
 
Points)
 on 8/29/12 at 1:36pm

Thanks for the insight - senior looking to move into ER and can take any advice an experienced person has to offer

someusername's picture

Is it possible to break in to

 
Points)
 on 8/29/12 at 2:37pm

Is it possible to break in to ER (just like banking), post MBA, without any ER or even finance related experience?
If it's possible, do they start as analysts or associates(just like undergrads)?
Any idea on comp(salary and bonus) at analysts level.

bearing's picture

someusername: Is it possible

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 3:10pm
someusername:

Is it possible to break in to ER (just like banking), post MBA, without any ER or even finance related experience?
If it's possible, do they start as analysts or associates(just like undergrads)?
Any idea on comp(salary and bonus) at analysts level.

With an MBA definitely. You'll learn the basic finance you need in your MBA classes and it's a way to rebrand yourself. You will come in as an associate but still do the same work as someone from undergrad. You are expected to cover stocks much faster and to start marketing sooner. Comp has been coming down in recent years (just like the rest of the industry) and is highly dependent on external rankings, sales force surveys, trading done on your names, and overall bonus pool. A ranked II analyst can expect to receive 250-300 base and multiples of that as a bonus.

Ovechkin08's picture

I understand that the analyst

O
(Orangutan, 306
 
Points)
 on 8/29/12 at 4:35pm

I understand that the analyst you work for is more important than the brand name of the brokerage. Is this true? Also, does it matter if you work at a BB or at a small independent shop when it comes to buy-side exit ops? I have the chance to work for a boutique that covers small caps. This firm covers companies where there are only 1 or 2 analysts in the entire ER sphere covering these companies. When I look at these companies, the major shareholders (15/20% of float) are buy-side firms (Fidelity, BlackRock, etc). I figure being the only analyst on some of these names might make it easier for me to jump to these firms. Any thoughts? Thanks

DELETED_ACCOUNT's picture

Thanks for this thread.

 
Points)
 on 8/29/12 at 4:45pm

Thanks for this thread.

DELETED_ACCOUNT

someusername's picture

bearing: With an MBA

 
Points)
 on 8/29/12 at 4:47pm
someusername's picture

bearing: A ranked II analyst

 
Points)
 on 8/29/12 at 4:50pm
someusername's picture

Thanks bearing for the

 
Points)
 on 8/29/12 at 4:51pm
Mtn Goat's picture

bearing - thanks for the

 
Points)
 on 8/29/12 at 5:48pm
bearing's picture

Ovechkin08: I understand that

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 5:48pm
bearing's picture

someusername: bearing: With

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 5:50pm
bearing's picture

someusername: bearing: A

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 6:00pm
bearing's picture

Mtn Goat: bearing - thanks

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 5:59pm
cola1's picture

what is entry level salary

 
Points)
 on 8/29/12 at 7:14pm
bearing's picture

colajo01: what is entry level

ER
(Neanderthal, 2,082
 
Points)
 on 8/29/12 at 7:31pm
clashdude's picture

bearing: Mtn Goat: bearing

 
Points)
 on 8/29/12 at 11:24pm
bearing's picture

clashdude: bearing: Mtn

ER
(Neanderthal, 2,082
 
Points)
 on 8/30/12 at 12:27am
gamenumbers's picture

As someone in ER, I noticed

IB
(Gorilla, 678
 
Points)
 on 8/30/12 at 3:07am
gamenumbers's picture

1st year post-MBA in ER

IB
(Gorilla, 678
 
Points)
 on 8/30/12 at 3:16am
NixHex's picture

Bearing, how familiar are you

O
(Chimp, 6
 
Points)
 on 9/5/12 at 12:07pm
bearing's picture

NixHex: Bearing, how familiar

ER
(Neanderthal, 2,082
 
Points)
 on 9/7/12 at 5:51pm
gamenumbers's picture

Apologies to bearing but I

IB
(Gorilla, 678
 
Points)
 on 9/6/12 at 10:45pm
Flake's picture

Good read. Thanks bearing.

ER
(Neanderthal, 3,571
 
Points)
 on 9/8/12 at 8:17pm

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

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