11/13/12

I mean equity research is more close to the stocks, IB skills would not be that important except modeling. If my understanding is correct, then why?

Comments (50)

11/12/12

Yes, it is. This is actually why I chose ER over IB. I want to work for an equity focused hedge fund long term, and figured that out early on.

But there are a few caveats:

(1) You will only be appealing to equity focused funds. Distressed debt, credit, merger arb, etc. are effectively off the table. You don't work with debt much in ER. While it isn't rocket science (I was able to teach myself a lot of the material), good luck convincing a headhunter to take a chance.

(2) There is no pipeline. You will be reaching out to hedge funds and headhunters, not the other way around. ER is a much smaller field, and people tend to stay in it for several years. You don't have an 80+ entry level employees looking for a job every year (as you would have in a BB IB department).

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11/12/12

Because most funds all you do is model (at least early on) and IBD will give you the most in-depth modeling experience. Dynamics told me they prefer IBD for long/short because of the transactional experience and the more extensive modeling. You guys can argue this however you like but if a top HH thinks this way then that's your best foot in the door.

11/12/12
11/12/12

This was actually discussed extensively in a longer thread almost two years ago.
http://www.wallstreetoasis.com/forums/investment-b...

Look specifically at the 3rd post and any others by DurbanDiMangus. Essentially it boils down to the perception you will have coming out of that role.

Sadly, it's analogous to so many other things in life that are driven by "prestige," but the image among recruiters is that the technical skillset those coming from a 2-year banking stint have is more rigorous and their deal experience is broad-based, giving them an advantage over the ER guys. Many senior guys at the top funds everyone dreams of will specifically ask headhunters to go out and find IBD analysts. There's also the element of a filtering process; people recognize that IBD recruiting is an intensely competitive process.

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11/12/12

1) IB candidates are perceived to be stronger in general as its more competitive
2) Sellside research analysts bullshit too much about equities. Banking analysts bullshit as well but they do it about whole companies and everyone knows its bullshit so its easier to get rid of.
3) Sellside er teaches you the wrong modelling / thinking about stocks, this is similar to 2. It's much easier to start from a clean slate banking analyst that only has the modelling skill set and none of the preconceived notions that need to be untrained.

11/12/12

Like some of the other people said, banking is simply a much better pipeline of high-quality candidates and funds assume they know how to model well and have a good understanding of how to navigate a financial statement. That's not to say ER candidates don't, since their job is actually way closer to what you'd do at an equity HF, but the pipeline is just easier and we know top students go into banking and so if we take bankers we're getting the cream of the crop. I personally think it's bullshit, but that's more or less the general thinking of headhunters and most hedge funds.

That said, your chances at a fund that does value or something exclusively in equity should be as close to a banker's as anything. Credit, distressed, etc. are the only funds I'd say bankers definitely have a better skill set and experience set coming in. But that stuff is actually pretty damn easy to pick up on the job.

I hate victims who respect their executioners

In reply to leveredarb
11/13/12
leveredarb:

1) IB candidates are perceived to be stronger in general as its more competitive
2) Sellside research analysts bullshit too much about equities. Banking analysts bullshit as well but they do it about whole companies and everyone knows its bullshit so its easier to get rid of.
3) Sellside er teaches you the wrong modelling / thinking about stocks, this is similar to 2. It's much easier to start from a clean slate banking analyst that only has the modelling skill set and none of the preconceived notions that need to be untrained.

I would say this applies more to senior level hires (but this may very well be the perception - in which case it is as good as reality). Your are an excel monkey for your first few years, cranking out models and presentations.

In ER, you won't be modeling transactions beyond their basic impact on the balance sheet/eps/earnings forecasts. However, you will be spreading comps and building DCFs just like banking analysts. I will admit ER focuses too much on details - your model might be 5x larger than an IB analyst's, but still arrives at nearly the same value. I am sure this would kill efficiency at a hedge fund.

Perhaps a good follow up question would be: If ER associates are overlooked by headhunters, how can you improve your odds at landing a buyside offer?

11/13/12

Doesn't make a lot of sense still.

Surely, the guys that do the best and going to be the best additions to a hedge fund are the guys that live and breath the stock markets. Wouldn't a college senior who loves the equities markets and quite possibly trades his own account (and has possibly been doing this since high school) be the sort of guy that is going to ER or even sales and trading and eventually will be the best guy who succeeds at the hedge fund level because equities are his passion.

The whole prestige idea doesn't seem to make too much sense. Seems to me that a large majority of the people who land in BB IBD jobs do so because it's seen as prestigious then jump to a hedge fund because it's prestigious without having much knowledge or even real interest in the stock markets. Are these guys going to be the guys who end up being great PM's? I'd be interested to know how many of the great L/S managers ever worked in IBD.

Seems to me like this is a case of many of the people on here who say their goal is "BB IBD, Top MBA and then megafund PE" and if you asked them why they couldn't tell you.

Merger Arbitrage I can understand, but for credit hedge funds you'd also think that Credit Research would be the best place to start as well - i.e. those people who actually like credit markets and have an interest in it.

11/13/12

Question - if you can get into a HF directly out of undergrad, is there any added value in going into IBD/ER first and then moving over?

11/13/12

Pre-Eliot Spitzer (when I graduated), I always thought of ER as more desirable/prestigious than banking. Interesting to hear how things have changed or how my perception was wrong.

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11/13/12

Probably largely driven by (as the first reply alluded to) the supply of IBD analysts vs. ER analysts. ER intakes are about 1/10th IBD intakes, with a lot of the hiring also being qualified accountants instead of college kids. ER might be the better programme, but chances are you can find better individuals in IBD just by virtue of IBD being much bigger.

I mean logically someone who works in a role that is very similar to what a hedge fund does (because they're tailoring their research for hedge funds/other investors), actually has contact with hedge funds and actually has some market exposure is in a much better position. Sure, IBD people work longer but a lot of that time is "wasted" (from a hedge fund viewpoint) relative to what ER analysts do.

There's also the other great point raised in the first post that not every hedge fund is equity based. Then again, it's not like the IBD skillset is really that much more applicable for other asset classes, at least judging by how little the typical IBD analyst seems to know about debt products. edit: and that's just debt, virtually no advantage for most strategies

In reply to adast027
11/13/12
adast027:

Doesn't make a lot of sense still.

Nobody said it had to make sense.

I hate victims who respect their executioners

11/13/12

Now I don't necessarily mean this in a negative way, but one might say that hedge funds are bastions of elitism, fortresses of pretension that snobbery lovers go to hide in and be protected from cruel world outside that tries to passively instill egalitarian principles into the collective subconscious.

Guess which other area of work that offers entry level positions fits that description...

Brush away the cobwebs from your daydreams
In reply to Going Concern
11/13/12
Going Concern:

Now I don't necessarily mean this in a negative way, but one might say that hedge funds are bastions of elitism, fortresses of pretension that snobbery lovers go to hide in and be protected from cruel world outside that tries to passively instill egalitarian principles into the collective subconscious.

Guess which other area of work that offers entry level positions fits that description...

Ya no that's definitely us

I hate victims who respect their executioners

In reply to adast027
11/13/12
adast027:

The whole prestige idea doesn't seem to make too much sense. Seems to me that a large majority of the people who land in BB IBD jobs do so because it's seen as prestigious then jump to a hedge fund because it's prestigious without having much knowledge or even real interest in the stock markets. Are these guys going to be the guys who end up being great PM's? I'd be interested to know how many of the great L/S managers ever worked in IBD.

Seems to me like this is a case of many of the people on here who say their goal is "BB IBD, Top MBA and then megafund PE" and if you asked them why they couldn't tell you.

Completely agree.

In reply to APAE
11/13/12
APAE:

Sadly, it's analogous to so many other things in life that are driven by "prestige," but the image among recruiters is that the technical skillset those coming from a 2-year banking stint have is more rigorous and their deal experience is broad-based, giving them an advantage over the ER guys.

Precisely. I'm of the skool of thought that feels this "image" is basically a self-reinforcing delusion. Personally I don't see how formatting pitchbooks and following orders is "more rigorous", but I'm also pretty dense.

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11/13/12

the thing with ER is that it is much more situational than banking. Is the analyst you work for any good? If not you probably will have minimal exposure to institutional clients. Does your analyst trust you (once you get to a certain point)? Once again, if not you probably will have minimal exposure to clients. And then finally how is your firm where you work at viewed on the street? You can talk to buy-side guys, a lot of them prefer certain firms to others, and it isn't always about being the best stock picker. It could be exposure to management, the conferences you run, more general macro economic pieces of research that clients appreciate, it could be a number of things. If you work with a good analyst at a good firm in ER, you will get ALOT of calls after your second year from other firms and head hunters, trust me. You just don't hear about it as much because there are SO many fewer younger people in ER than in Banking.

Now with all that said, if your goal is get into a HF, and you have both an ER gig and a IB gig lined up, take the IB gig, your chances of getting in are much higher because a lot of the other things i mentioned don't matter nearly as much. Being the associate for a bad or selfish research analyst is one of the worst gigs on wall street, and most of the time it is impossible for you to know until you actually start.

In reply to Going Concern
11/13/12
Going Concern:
APAE:

Sadly, it's analogous to so many other things in life that are driven by "prestige," but the image among recruiters is that the technical skillset those coming from a 2-year banking stint have is more rigorous and their deal experience is broad-based, giving them an advantage over the ER guys.

Precisely. I'm of the skool of thought that feels this "image" is basically a self-reinforcing delusion. Personally I don't see how formatting pitchbooks and following orders is "more rigorous", but I'm also pretty dense.

Well, sounds like I'm in trouble. Time to buy a potted plant for the office - I might not be going anywhere for a while.

Perception drives reality, unfortunately. Having experience in both IB and ER, I would say you spend a similar amount of time in excel in IB and ER. ER is just less presentation focused, and has less clerical work.

You care about stock prices and price movements in ER. In IB, not so much - prices are mainly just there to provide a numerator for your multiples. This is good and bad. If you stayed in ER for many years, I could imagine that you might become overly focused on short term catalysts. That said, you also get a better sense for how the market values your company (almost never a DCF in most industries).

In reply to West Coast rainmaker
11/13/12
West Coast rainmaker:
Going Concern:
APAE:

Sadly, it's analogous to so many other things in life that are driven by "prestige," but the image among recruiters is that the technical skillset those coming from a 2-year banking stint have is more rigorous and their deal experience is broad-based, giving them an advantage over the ER guys.

Precisely. I'm of the skool of thought that feels this "image" is basically a self-reinforcing delusion. Personally I don't see how formatting pitchbooks and following orders is "more rigorous", but I'm also pretty dense.

Well, sounds like I'm in trouble. Time to buy a potted plant for the office - I might not be going anywhere for a while.

Perception drives reality, unfortunately. Having experience in both IB and ER, I would say you spend a similar amount of time in excel in IB and ER. ER is just less presentation focused, and has less clerical work.

You care about stock prices and price movements in ER. In IB, not so much - prices are mainly just there to provide a numerator for your multiples. This is good and bad. If you stayed in ER for many years, I could imagine that you might become overly focused on short term catalysts. That said, you also get a better sense for how the market values your company (almost never a DCF in most industries).

If I was making HF hiring decisions I would much rather hire a good ER guy than some slimy banker bro. I guess the problem with both though is that they both consider DCFs to be legitimate analysis. DCFs are about as useful as a potted plant.

Brush away the cobwebs from your daydreams
In reply to SirTradesaLot
11/13/12
SirTradesaLot:

Pre-Eliot Spitzer (when I graduated), I always thought of ER as more desirable/prestigious than banking. Interesting to hear how things have changed or how my perception was wrong.

why are ppl throwing around spitzer? i think i missed how his hookers changed finance...

In reply to DamageControl
11/13/12
Fundamentally Undervalued:
SirTradesaLot:

Pre-Eliot Spitzer (when I graduated), I always thought of ER as more desirable/prestigious than banking. Interesting to hear how things have changed or how my perception was wrong.

why are ppl throwing around spitzer? i think i missed how his hookers changed finance...

I really, really hope you're kidding.

Why don't you Google the global settlement and Spitzer's involvement as the NY attorney general.

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In reply to Going Concern
11/13/12
Going Concern:
West Coast rainmaker:
Going Concern:
APAE:

Sadly, it's analogous to so many other things in life that are driven by "prestige," but the image among recruiters is that the technical skillset those coming from a 2-year banking stint have is more rigorous and their deal experience is broad-based, giving them an advantage over the ER guys.

Precisely. I'm of the skool of thought that feels this "image" is basically a self-reinforcing delusion. Personally I don't see how formatting pitchbooks and following orders is "more rigorous", but I'm also pretty dense.

Well, sounds like I'm in trouble. Time to buy a potted plant for the office - I might not be going anywhere for a while.

Perception drives reality, unfortunately. Having experience in both IB and ER, I would say you spend a similar amount of time in excel in IB and ER. ER is just less presentation focused, and has less clerical work.

You care about stock prices and price movements in ER. In IB, not so much - prices are mainly just there to provide a numerator for your multiples. This is good and bad. If you stayed in ER for many years, I could imagine that you might become overly focused on short term catalysts. That said, you also get a better sense for how the market values your company (almost never a DCF in most industries).

If I was making HF hiring decisions I would much rather hire a good ER guy than some slimy banker bro. I guess the problem with both though is that they both consider DCFs to be legitimate analysis. DCFs are about as useful as a potted plant.

but you're not so thats irrelevant.

the bankers that end up at hf tend to be more markets guys anyways that for one reason or the other ended up in banking, banking-->hf is a well enough established path for a reasonable amt of guys that care about investing to take it (as opposed to long only buyside or smaller hf straight out of undergrad).

i think part of the reason is also that most hf guys think sellside research is completely useless.

In reply to leveredarb
11/13/12
leveredarb:

i think part of the reason is also that most hf guys think sellside research is completely useless.

As opposed to a banker's colorful picturebook which is the epitome of usefulness!

Brush away the cobwebs from your daydreams
In reply to SirTradesaLot
11/13/12
SirTradesaLot:
Fundamentally Undervalued:
SirTradesaLot:

Pre-Eliot Spitzer (when I graduated), I always thought of ER as more desirable/prestigious than banking. Interesting to hear how things have changed or how my perception was wrong.

why are ppl throwing around spitzer? i think i missed how his hookers changed finance...

I really, really hope you're kidding.

Why don't you Google the global settlement and Spitzer's involvement as the NY attorney general.

no i really, really wasn't kidding. I didn't know spitzer spearheaded the whole thing (it was before my time)...but thanks for helping further my personal and professional development. much appreciated

11/13/12

http://www.forbes.com/sites/brettnelson/2012/09/27...

I'm still not too clear on this whole Eliot Spitzer business. As the link above highlights, the number of sell recs has definitely gone down in the last 10 years (which doesn't bode overly well for ER's credibility), but the global settlement should have made sell recs more prevalent since research analysts no longer had to worry about losing banking revenue. So if we assume cause and effect, the data doesn't make too much sense. Someone wanna lend a helping hand here?

Brush away the cobwebs from your daydreams
11/13/12

ER is less of a profit center as a result of Spitzer which explains everything else mentioned in this thread. Really not that hard to understand.

11/13/12

This thread is full of some many inaccuracies. As someone who has worked in both BB IBD and ER, I'd like to clear a few things up.

1. IBD is NOT more selective or harder than get into than ER. ER doesn't have 100 analyst classes and it is usually on an as needed basis. ER also rarely hires out of undergrad, you add no value out of undergrad and ER runs too lean to waste time training you.

2. HF's LOVE ER guys, every guy who has left my ER firm, has gone to a top, top HF (Soros, Man, Tiger etc). ER guys have one HUGE advantage - They already have the hook ups. IBD folks need to rely on headhunters, ER guys have extensive communication with the buyside almost everyday..i.e this week I'm going to a basketball game with 5 highlevel buysiders.

3. The caveat is your desirability depends on your analyst. If you work for a nobody, don't expect wonders. If you work for an II ranked analyst, you're good to go.

4. As someone who has done both IBD and ER, the skill set is without a doubt more relevant in ER, as long you focus on equities...distressed funds etc are the exception.

11/13/12

There is a stigma about equity research at hedge funds, because you learn to automatically disregard their opinions. Of course they are valuable to get ramped up on a company and keep you up to date on sentiment and the latest news, but hedge funds are quick to use equity research folks as a contrarian indicator and look through their notes/models in painstaking detail to find mistakes that can be exploited. There is a certain belief (almost unconscious) that because junior equity research guys have learned their craft in this environment, they cannot unlearn this, and are tainted. Junior investment bankers, on the other hand, everyone realizes that they know absolutely nothing except how to be a model jockey. So they are more malleable, as long as you see the passion and the raw talent, you can transform them into a thinker.

I will probably get hate for this post, but I am merely trying to explain a phenomenon that is not well understood. I will note that my firm wouldn't be against hiring someone from equity research, particularly if it was a junior analyst that we had a call with and impressed us with their knowledge of the company we were asking about. But honestly, it doesn't happen often. Of course, every fund has a different hiring philosophy, and I'm sure there are ones that have a more favorable view of an equity research background (particularly ones that have ex-equity research guys).

In reply to slowdive
11/14/12
slowdive:

There is a stigma about equity research at hedge funds, because you learn to automatically disregard their opinions. Of course they are valuable to get ramped up on a company and keep you up to date on sentiment and the latest news, but hedge funds are quick to use equity research folks as a contrarian indicator and look through their notes/models in painstaking detail to find mistakes that can be exploited. There is a certain belief (almost unconscious) that because junior equity research guys have learned their craft in this environment, they cannot unlearn this, and are tainted. Junior investment bankers, on the other hand, everyone realizes that they know absolutely nothing except how to be a model jockey. So they are more malleable, as long as you see the passion and the raw talent, you can transform them into a thinker.

I will probably get hate for this post, but I am merely trying to explain a phenomenon that is not well understood. I will note that my firm wouldn't be against hiring someone from equity research, particularly if it was a junior analyst that we had a call with and impressed us with their knowledge of the company we were asking about. But honestly, it doesn't happen often. Of course, every fund has a different hiring philosophy, and I'm sure there are ones that have a more favorable view of an equity research background (particularly ones that have ex-equity research guys).

I pretty much agree with this. I know I'm definitely in the camp that thinks using sell side analysts for information only helps when you have particular objective questions that you can't get answers to without the type of openness management would have with the ER guys. Very few analysts do I want to get the opinion of on a name I'm looking at, and I never use them to get up to speed on a company... you can do that on your own and usually much better than the research guys since they don't know what you will think is most important. Obviously I could be biased like you said but I truly do think that sell side doesn't look at the stuff that we care about and that's mostly because they're focused on only the next quarter or two whereas I might be looking at the business as a 5 year investment.

But of the few analysts that I do trust, I'd give them or their associates priority way faster than I'd give it to some superstar junior banker. When someone has the natural edge that some great investors seem to just be born with, it's not hard to see that, so again it's more about the individual than whether or not you took the ER or IBD route. Unfortunately since most people in these fields are pretty homogeneous it's safer to pick the banker or at least recruit them harder, but more of the guys that stand out will probably come from ER.

I hate victims who respect their executioners

In reply to slowdive
11/14/12
slowdive:

There is a stigma about equity research at hedge funds, because you learn to automatically disregard their opinions. Of course they are valuable to get ramped up on a company and keep you up to date on sentiment and the latest news, but hedge funds are quick to use equity research folks as a contrarian indicator and look through their notes/models in painstaking detail to find mistakes that can be exploited. There is a certain belief (almost unconscious) that because junior equity research guys have learned their craft in this environment, they cannot unlearn this, and are tainted. Junior investment bankers, on the other hand, everyone realizes that they know absolutely nothing except how to be a model jockey. So they are more malleable, as long as you see the passion and the raw talent, you can transform them into a thinker.

I don't necessarily disagree but it's really mind boggling to be honest. The irony of knowing nothing to be someone's strongest asset! ER guys may not know all the sneaky tricks that HF bros do, but a good chunk of the work and thought process is overlapping.

Brush away the cobwebs from your daydreams
11/14/12

What isn't anyone here talking about sell-side S&T traders? So HF's will not even look at them?

And I am assuming for the purposed of this thread, BB AM ~ BB ER?

In reply to Going Concern
11/14/12
Going Concern:

http://www.forbes.com/sites/brettnelson/2012/09/27...

I'm still not too clear on this whole Eliot Spitzer business. As the link above highlights, the number of sell recs has definitely gone down in the last 10 years (which doesn't bode overly well for ER's credibility), but the global settlement should have made sell recs more prevalent since research analysts no longer had to worry about losing banking revenue. So if we assume cause and effect, the data doesn't make too much sense. Someone wanna lend a helping hand here?

If you aren't made aware IBD's pitches, then you want to keep buys/holds on everything that could even possibly generate IB revenue. Hard to win a bake-off if an analyst is advocating a short of that company. It also has to do with how ER generates revenue - if ER can't generate IB fees, then they need to add more value through corporate access. Again, hard to do if you have a sell on the stock.

But this would imply that Eliot Spitzer waged this war to advance his own career, not clean up Wall Street. A politician would never pass bad legislation to curry favor with voters, right?

In reply to BlackHat
11/14/12
BlackHat:

I pretty much agree with this. I know I'm definitely in the camp that thinks using sell side analysts for information only helps when you have particular objective questions that you can't get answers to without the type of openness management would have with the ER guys. Very few analysts do I want to get the opinion of on a name I'm looking at, and I never use them to get up to speed on a company... you can do that on your own and usually much better than the research guys since they don't know what you will think is most important. Obviously I could be biased like you said but I truly do think that sell side doesn't look at the stuff that we care about and that's mostly because they're focused on only the next quarter or two whereas I might be looking at the business as a 5 year investment.

But of the few analysts that I do trust, I'd give them or their associates priority way faster than I'd give it to some superstar junior banker. When someone has the natural edge that some great investors seem to just be born with, it's not hard to see that, so again it's more about the individual than whether or not you took the ER or IBD route. Unfortunately since most people in these fields are pretty homogeneous it's safer to pick the banker or at least recruit them harder, but more of the guys that stand out will probably come from ER.

Would you say this is somewhat dependent on industry? If I were on the buyside, I probably wouldn't put much stock in a tech/consumer/industrials analyst. Those businesses are fairly straightforward, and I would prefer to think independently about them.

But if I were investing in a Biotech/Pharma/Insurance/Banking company, I would want some additional expertise. Am I able to accurately forecast the likelihood of a drug making it past phase 2 testing? Hell no - I wouldn't bet my own money on that, let alone other people's money.

In reply to West Coast rainmaker
11/14/12
West Coast rainmaker:
Going Concern:

http://www.forbes.com/sites/brettnelson/2012/09/27...

I'm still not too clear on this whole Eliot Spitzer business. As the link above highlights, the number of sell recs has definitely gone down in the last 10 years (which doesn't bode overly well for ER's credibility), but the global settlement should have made sell recs more prevalent since research analysts no longer had to worry about losing banking revenue. So if we assume cause and effect, the data doesn't make too much sense. Someone wanna lend a helping hand here?

If you aren't made aware IBD's pitches, then you want to keep buys/holds on everything that could even possibly generate IB revenue. Hard to win a bake-off if an analyst is advocating a short of that company. It also has to do with how ER generates revenue - if ER can't generate IB fees, then they need to add more value through corporate access. Again, hard to do if you have a sell on the stock.

Ahhh, that makes a lot of sense. Threw you an SB. I think your second point is the more likely one tho. For the 1st point, why would ER care about IB revenue if they're not involved? Not to be overly cynical, but it's not like they're losing sleep over the well being of the firm. And there are separate revenue streams and bonus pools (ties with trading desks but that's still separate from IB). And given the Chinese wall, I assume some banking MD won't just call up a research analyst and scream them out for having a Sell rec on and ruining his baked goods.

Brush away the cobwebs from your daydreams
In reply to West Coast rainmaker
11/14/12
West Coast rainmaker:

Would you say this is somewhat dependent on industry? If I were on the buyside, I probably wouldn't put much stock in a tech/consumer/industrials analyst. Those businesses are fairly straightforward, and I would prefer to think independently about them.

But if I were investing in a Biotech/Pharma/Insurance/Banking company, I would want some additional expertise. Am I able to accurately forecast the likelihood of a drug making it past phase 2 testing? Hell no - I wouldn't bet my own money on that, let alone other people's money.

To some extent I'd say it is... some analysts like to use sell siders more than others, but for better or worse there's a bit of an ego thing (at least from what I've seen) that relying on equity research to help you pin down basics about a company no matter how complex is poor form.

My thinking is that if I can't figure out the likelihood of a drug making it past phase 2 testing, then it's likely not many other people can do an amazing job at it no matter how much they cover the name. But I do think some industries that are a bit more esoteric would definitely make me want to bring in a sell side guy earlier than I would on something simple like a machinery manufacturer. Problem is the more esoteric it is the more divided the opinions and it's hard to parse through what's sugarcoated and what's an analyst's honest opinion sometimes.

Using them to get a handle on the business has never been something anyone's told me is common practice, but I've always been at research-heavy shops. My favorite thing about sell side analysts is that they will actually travel to go visit the company on-site and see the factories or farms or what have you and getting some objective insight on those things can go a long way since I can't be traveling all over the place on every name we look at.

I hate victims who respect their executioners

In reply to BlackHat
11/14/12
BlackHat:

My thinking is that if I can't figure out the likelihood of a drug making it past phase 2 testing, then it's likely not many other people can do an amazing job at it no matter how much they cover the name.

This is a bizarre statement. Biotech/Pharma investors have Medicine/Biochem PhDs on staff who understand the science and FDA regulations/process better than someone else would be able to.

Brush away the cobwebs from your daydreams
In reply to Going Concern
11/14/12
Going Concern:
BlackHat:

My thinking is that if I can't figure out the likelihood of a drug making it past phase 2 testing, then it's likely not many other people can do an amazing job at it no matter how much they cover the name.

This is a bizarre statement. Biotech/Pharma investors have Medicine/Biochem PhDs on staff who understand the science and FDA regulations/process better than someone else would be able to.

...Really? I'm talking about analysts...

I hate victims who respect their executioners

In reply to APAE
11/18/12
APAE:

This was actually discussed extensively in a longer thread almost two years ago.
http://www.wallstreetoasis.com/forums/investment-b...

Look specifically at the 3rd post and any others by DurbanDiMangus. Essentially it boils down to the perception you will have coming out of that role.

That was a really informative discussion. Does any of this change at the post-MBA level? Obviously the standard path is IBD analyst -> HF analyst but what about coming out of an MBA program? As a career switcher I was also naively thinking some time in ER would be most applicable to HF work and would help me make the transition. Should I be considering an IBD Associate role and then trying to switch from there? I know that as an Associate you aren't quite as involved in the models as the analyst is.

11/27/12

I think there is a decent bias on WSO towards IB so I'd put those filters on when you read anything. As mentioned though you will be more appealing to a wider variety of funds coming out of IB.

Frankly I have heard more then 1 manager badmouth bankers ability to RUN a long short fund.

2/5/15

Bumping this up because its an amazing thread.

2/5/15

Had this discussion at work the other day. The conclusion was that:

ER teaches you the exact wrong way to think, if you want to be an investor.

IB doesn't teach you how to think about anything at all, and you are still a blank slate when you come out.

For a junior employee, the consensus was that they would rather find a motivated/hardworking banker, who they can teach to think like an investor.

In reply to Cries
2/5/15

Can you elaborate on the wrong ways ER teaches you to think?

2/5/15

Tree vs Forest.

Studying the numbers vs Studying the business.

etc etc

In reply to Cries
2/5/15

Cries:

Had this discussion at work the other day. The conclusion was that:

ER teaches you the exact wrong way to think, if you want to be an investor.

IB doesn't teach you how to think about anything at all, and you are still a blank slate when you come out.

For a junior employee, the consensus was that they would rather find a motivated/hardworking banker, who they can teach to think like an investor.

This logic is amazing.

Let's hire someone who knows nothing, because people can never learn new things, right?

Wait, but the M&A guy has learned wrong things in his finance courses in college as well! Better to hire a hard working and motivated high school kid than someone who has been ruined by false knowledge.

Hang on there, the high school kid has learned how to think wrongly as well in his economics classes! Better to hire a hardworking and motivated toddler than some high school kid!

I totally agree with you that people in research aren't motivated or work hard, despite the fact that it's much harder to land a position and they're still at the office long after I have left. No wonder hardly any HF can make consistent returns with logic like this.

As an aside, I have no skin in the game here, as I'm not in equity/rates research, but I do think this thread is hilarious.

In reply to Monkeyfaces
2/5/15

Monkeyfaces:

Cries:

Had this discussion at work the other day. The conclusion was that:

ER teaches you the exact wrong way to think, if you want to be an investor.

IB doesn't teach you how to think about anything at all, and you are still a blank slate when you come out.

For a junior employee, the consensus was that they would rather find a motivated/hardworking banker, who they can teach to think like an investor.

This logic is amazing.

Let's hire someone who knows nothing, because people can never learn new things, right?

Wait, but the M&A guy has learned wrong things in his finance courses in college as well! Better to hire a hard working and motivated high school kid than someone who has been ruined by false knowledge.

Hang on there, the high school kid has learned how to think wrongly as well in his economics classes! Better to hire a hardworking and motivated toddler than some high school kid!

I totally agree with you that people in research aren't motivated or work hard, despite the fact that it's much harder to land a position and they're still at the office long after I have left. No wonder hardly any HF can make consistent returns with logic like this.

As an aside, I have no skin in the game here, as I'm not in equity/rates research, but I do think this thread is hilarious.


Excuse my typing. Lets assume they are both equally hard-working and motivated. The comparison was meant to be just on the skillset & default thought processes.

I didnt come from either background, so I don't really care either. I'm just telling you what the consensus was on the skillset acquired in junior analysts' past lives.

I don't think the preference is real; however, because if they actually had that preference they would never have hired me.

I believe this just reflects their perception of the two jobs.

In reply to Cries
2/5/15

Cries:

Monkeyfaces:
Cries:

Had this discussion at work the other day. The conclusion was that:

ER teaches you the exact wrong way to think, if you want to be an investor.

IB doesn't teach you how to think about anything at all, and you are still a blank slate when you come out.

For a junior employee, the consensus was that they would rather find a motivated/hardworking banker, who they can teach to think like an investor.

This logic is amazing.

Let's hire someone who knows nothing, because people can never learn new things, right?

Wait, but the M&A guy has learned wrong things in his finance courses in college as well! Better to hire a hard working and motivated high school kid than someone who has been ruined by false knowledge.

Hang on there, the high school kid has learned how to think wrongly as well in his economics classes! Better to hire a hardworking and motivated toddler than some high school kid!

I totally agree with you that people in research aren't motivated or work hard, despite the fact that it's much harder to land a position and they're still at the office long after I have left. No wonder hardly any HF can make consistent returns with logic like this.

As an aside, I have no skin in the game here, as I'm not in equity/rates research, but I do think this thread is hilarious.

Excuse my typing. Lets assume they are both equally hard-working and motivated. The comparison was meant to be just on the skillset & default thought processes.

I didnt come from either background, so I don't really care either. I'm just telling you what the consensus was on the skillset acquired in junior analysts' past lives.

I don't think the preference is real; however, because if they actually had that preference they would never have hired me.

I believe this just reflects their perception of the two jobs.

Fair enough. Perceptions aren't always grounded in reality, and people are quick to stereotype. I've met plenty of research analysts that are brilliant people, especially on the macro side. It might not necessarily make them great investors, but I'm sure they can be taught.

It's also not the case that most HF people do things so differently that we sell siders have no idea what they're doing. We know damn well why you're putting on a particular position, and we keep track of your trades just like you do, so it's not like we're left scratching our heads because we have the wrong knowledge.

I'd say a diverse background would be a plus for a hedge fund, because you definitely don't want people that all think in the same way. Group think is bad enough as it is in finance.

2/6/15

^ How exactly does the research department track HF trades which go through multiple different brokers and borrows are through the prime brokerage division?

Please let me know if this happens at your bank, it'll be important for the deposition.

In reply to SanityCheck
2/6/15

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In reply to SanityCheck
2/6/15
2/6/15

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