Equity Research Q&A with bearing

bearing's picture
Rank: Neanderthal | 2,228

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.

Comments (34)

Aug 29, 2012

Great post, thank you

Aug 29, 2012

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.

Aug 29, 2012

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?

Aug 29, 2012
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.

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Aug 29, 2012

Thanks man, quality post.

Aug 29, 2012

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?

Best Response
Aug 29, 2012
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).

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Aug 29, 2012

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?

Aug 29, 2012
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.

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Aug 29, 2012

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.

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Aug 29, 2012

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

Aug 29, 2012

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.

Aug 29, 2012
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.

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Aug 29, 2012
bearing:

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.

Did you mean "You will come in as an analyst" ?

Aug 29, 2012
bearing:

A ranked II analyst can expect to receive 250-300 base and multiples of that as a bonus.

Sorry, maybe a bit naive question. What is ranked II analyst? An analyst in second bucket(in performance review) ?

Which B schools are good for ER recruiting at the MBA level - other than M7 and Stern.

Aug 30, 2012

1st year post-MBA in ER starts as an Associate and makes about 100k base plus bonus at BB's in NYC, with a rubber-stamp raise (to like 120) given 6 months after starting (at bonus time). This is from a few years ago, so may be higher / lower but probably not by much. Kids nowadays might not get the raise either, but I really don't know.

Huge variance in Analyst level salaries in ER depending on whether II ranked, or junior guy just starting out. Depends on deal flow, trading commissions, II votes, all the usual stuff.

Easiest way to make $$ in ER is to get poached to another firm and make them pay. There's serious pressure on wages right about now and nobody pays you a dime over what it takes to keep you in the seat for another year.

Aug 29, 2012

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

Aug 29, 2012
Ovechkin08:

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

Everything equal that's generally true but when is everything equal. Working for a BB makes it easier to get yourself noticed because you have such a large sales and trading force and your bank has working relationships with all the major buyside shops on the street. You also get a lot more resources since you have more BS to play with. Smaller shops can be great to as you might get to cover names faster and get noticed for making great calls on some of the smaller stocks. I don't know the specifics of your shop but fidi and BR have some the largest AUM on the street so they own equity in a lot of publicly traded companies.

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Aug 29, 2012

Thanks for this thread.

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Aug 29, 2012

Thanks bearing for the thread. Gives a total noob like me some understanding.

Aug 29, 2012

bearing - thanks for the thread, very insightful.

You'd touched on people coming from industry via an MBA/MSF but how often do they come directly from industry (if ever)? What kind of roles do they generally have in industry?

Aug 29, 2012
Mtn Goat:

bearing - thanks for the thread, very insightful.

You'd touched on people coming from industry via an MBA/MSF but how often do they come directly from industry (if ever)? What kind of roles do they generally have in industry?

A few but like I said it's very team specific. The covering analyst probably needed someone with deep technical knowledge for the position. Examples might be the aerospace analyst might hire someone who worked in the skunkworks at Lockheed, biotech guys might need a former MD who has a solid grasp if a drug might pass clinical trials or the Chem team needs a former ag consultant to help cover Monsanto or POT.

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Aug 29, 2012
bearing:
Mtn Goat:

bearing - thanks for the thread, very insightful.

You'd touched on people coming from industry via an MBA/MSF but how often do they come directly from industry (if ever)? What kind of roles do they generally have in industry?

A few but like I said it's very team specific. The covering analyst probably needed someone with deep technical knowledge for the position. Examples might be the aerospace analyst might hire someone who worked in the skunkworks at Lockheed, biotech guys might need a former MD who has a solid grasp if a drug might pass clinical trials or the Chem team needs a former ag consultant to help cover Monsanto or POT.

Thanks again for your answers, I've been thinking a lot about the industry and your post has been super helpful.

Is there any hope for someone with my bg getting a shot at ER? 1.5 years, 3 rotations throughout a large life insurer - PM&A in Asset Management and life insurance business, and investments group. I definitely don't have deep technical understanding of a specific part of the business but think I can sell that I get the fundamentals of the industry. CFA Level 3 candidate.

Aug 29, 2012

what is entry level salary for an ER associate at a BB vs that at a buyside firm? also what is the difference in hours per week?

by the way thanks for this-- huge help.

Aug 29, 2012
colajo01:

what is entry level salary for an ER associate at a BB vs that at a buyside firm? also what is the difference in hours per week?

by the way thanks for this-- huge help.

I think it's still 70 for BB if your just came from undergrad. Buyside is all over the place. I've heard everything from as low as 60 to as high as 90 (highly skeptical about getting 90k with only an undergrad degree). Hours are still the same for both sides of the business, expect atleast 60 hours to approaching banking hours during earnings or when you have to do a roadshow or coming out with a large report. At a buyside firm you might be like an ibanking junior and work for the entire department so you might have projecst coming in from 3-4 different analysts.

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Aug 30, 2012

As someone in ER, I noticed the rapport misspelling and the incorrect usage of 'your' in about 5 seconds flat. This is how I know I need to get out of the office more.

Great post though, just giving you a hard time.

Sep 5, 2012

Bearing, how familiar are you with the ER biotech people? I'm wondering how common it is to have an advanced degree (MS or PhD) in life sciences or chem/bioengineering for ER.

Sep 7, 2012
NixHex:

Bearing, how familiar are you with the ER biotech people? I'm wondering how common it is to have an advanced degree (MS or PhD) in life sciences or chem/bioengineering for ER.

Only familiar with the firm's team but I know that most of them have some form of advanced medical/sciences degree. When they got a new associate he was previously an MD who got in through the MBA route.

Sep 6, 2012

Apologies to bearing but I happened to read this and thought I should respond.

In my firm, I believe most of the biotech team has advanced degrees (PhD, MD, MS, etc).

I think a lot of the job is understanding how FDA approval process works, and you need to understand what is happening in these clinical trials so you can distill it down for regular investors. You need to be able to talk to industry experts and really understand what they are talking about. Tech teams will have a lot of engineers and CS types, but it's not considered as critical as the biotech guys, IMO.

This was also the case at my last firm.

Sep 8, 2012
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Jul 13, 2014

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