Equity Research Q&A with bearing

bearing's picture
Rank: Neanderthal | 2,234

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.

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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.

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