Krawcheck: Sell Side ER Best Job Out of College

Eddie Braverman's picture
Rank: The Pro | 21,111

Many people wonder what is the best Wall Street job right out of college and there's no simple answer to this question. But former Merrill Lynch president Sallie Krawcheck took a swing at it a few days ago on LinkedIn and she raises a lot of good points as to why sell side equity research might be the sweet spot.

She makes the point that you need to be really sharp and stay quick on your feet. You need to be able to articulate your ideas well and you need to be able to deal with people smarter than yourself. You must be a self starter and your very reputation is determined by your accuracy. All of these things lead to great exit ops.

You have to make lots of decisions based on imperfect information. By no means do you ever have all the information needed to make a stock recommendation. But you do have (mostly) the same information as your competitors, and your job is to pull together that information in a coherent way. And then based on that, you have to determine if the stock of the company is a Buy or a Sell. (Forget about Hold's; they translate into "I have nothing to say.")

I'll be honest. We never had much respect for research analysts back in the day. Now I realize it's because the analysts we had greatest access to were there to talk our book - and our book sucked ass, frankly. It's no wonder everything they told us to buy went down.

But a good research analyst is worth his weight in gold. Just look at Mike Mayo or, on the flip side of the coin, Muddy Waters. Both move the market in their own way with their proclamations. And if I'm a college kid looking to start on the Street, that's a pretty cool thing to shoot for.

Equity research makes up a significant portion of my time these days (more than I would prefer, actually), but I know I wouldn't have had the head for it in my early 20's. Krawcheck definitely makes a compelling case for considering that side of the house.

I'm curious. Those of you who plan to get into ER: what's the motivation? Are you particularly good at writing reports? Do you have a background in a particular market segment going in? Or do you just dream of becoming a rock star analyst and seeing your mug on CNBC?

Comments (17)

Jan 29, 2013

I knew a guy that spent two summers in investment banking at top firms only to make the switch to ER last minute for full time. I'm not interested enough in public markets to make it happen but it seems like a solid gig. He, on the other hand, is very interested in the markets and wants to end up at an HF so the skillset matches his interests.

Jan 29, 2013

I am finding that alot of HFs are looking at bankers as opposed to sell side research associates to fill junior analyst roles. I got into ER with the same mindset that it would be a good stepping stone to a L/S HF but the transition is looking more difficult than I had imagined when I signed on for ER

Jan 29, 2013
LukeJackson:

I am finding that alot of HFs are looking at bankers as opposed to sell side research associates to fill junior analyst roles. I got into ER with the same mindset that it would be a good stepping stone to a L/S HF but the transition is looking more difficult than I had imagined when I signed on for ER

I've found the same thing, and it sucks. Especially if you work for an analyst that isn't well respected.

The problem, as far as I can tell, is that funds that have turnover - and hence, job openings - tend to just want model monkeys to grind down. Bankers tend to be the best fits there. The ones that want ER guys don't have as much turnover.

Jan 29, 2013

Ain't no party like a sell side ER party.

Jan 29, 2013

In Toronto to get into ER you need much more than ugrad...but yeah I would say ER is probably up there in top entry level careers

Jan 29, 2013
Unforseen:

In Toronto to get into ER you need much more than ugrad...but yeah I would say ER is probably up there in top entry level careers

Agree

Jan 29, 2013

I started out in buyside ER....but, I reckon top tier consulting would be up there as best jobs out of undergrad....more intellectually stimulating than banking (marginally) but gives you easily transferable skills. Never done it though, so obviously pinch of salt and all that.

My worry would be that SS ER would pigeon hole you a little bit.

Jan 29, 2013

carson block...

Best Response
Jan 29, 2013

ER is a weird job. All Capital Markets positions are different from the other side of the street, but ER is especially odd, there are a lot of pieces to the puzzle when you're trying to be good at the job.

First, there's modeling, straight up building it out to get the answers. You need to be able to back up every assumption you make in your model. Why did you risk X by Y%? Why did you assume $2.00 for pricing? Why did you whatever... you need to be able to justify it all, and it shouldn't be answers like, it's consensus, or rule of thumb, because if that's the case, why is the buy side guy going to listen to you instead of everyone else. Further, there's a lot of moving parts in a company, so the models can get big. (side rant: I fucking hate analysts that have a 4.5X multiple on EV/DACF with a 15% adjustment for situational specific reasons, you either have a multple or you just fuck with it to meet concensus target, cowards).

Second, you've gotta write. I mean, you always have to write. If there's no news, if you're busy, whtever, you need to get material in the morning package often, not every day, but you're competing for space in the minds of your clients, and the sales team. If you aren't talking to them constantly they will push stocks for guys that are. It's not that they don't like you, but... as an analyst you have 20 names under coverage, another 20 names you follow, and a bigger number that you're aware of. As a sales guy, you've got a brief understanding of over 100 names, you can only push so much info on any stock.

Also, there's lots of writing styles out there, and the problem is that you need to match your style to the readers. I know guys are bank owned shops and smaller boutiques that have disticntly different institutional clients, and the writing style changes signficantly. Some guys do a great job of technical writing, some focus on big picture, it depends on the individual's strengths. What kills me is that I've spent two hours trying to get all the main pieces from our investment thesis on the front page a report, tweaking words, adjusting sentences, knowing full well that the PMs are going to skim it and never notice, but realizing that if I don't get it on the front page, it'll never be read.

Third, writing versus speaking to clients. There's a trend of analysts pushing shorter and shorter reports, and spending more time in calls or one on one with clients. All analysts (that want to get paid) have to talk to buy side guys every day, some are really good at it,so they shortcut on writing, some are less talented, thing introverts that write and model well, but don't want to leave the office. But to be good, you need to be able to speak to people, what are the three to five key points about the news or the company. Any more than that and you won't be remembered.

Weird thing, modeling/writing/speaking to clients are almost left side/right side brain things, it can be tough to be really good at all of them.

Fourth, being wrong. One of the hardest things to do in Capital Markets is to be wrong, and go back to the same client and ask for more money. As an analyst, you stand in front of a PM, tell them that this stock is your top pick for the year and three weeks later it craters. PM sells, takes a big hit in the portfolio. Now you have to go back to his (or her) office and give them your new top pick and why it's the greatest stock since the last one.

Last, No time off. @Iamobama (//www.wallstreetoasis.com/user/20428) put out a piece where he mentions that his boss is always working, thinking about work, talking to clients etc... It's true. If a company we cover puts out news at 3:00 AM, I still have to get it written and in my salesguys' hands before market open. Doesn't matter if it's christmas eve, I'm in Hawaii or still at the office, if you want to be a good analyst, you need to always get the information out. That said, anything after market is the same as pre-market the next day, so if it comes out at 5:00 on a Friday and I don't mind working Sunday...

TL:DR:
Ended up beign a wall of text, but I agree that being good at ER has a high correlation with being good at a lot of things, probably have both left and right brain working with talents in presentation, writing and modeling. But I really don't know what exit you get outside of buyside or IR.

    • 2
Jan 29, 2013
overpaid_overworked:

Third, writing versus speaking to clients. There's a trend of analysts pushing shorter and shorter reports, and spending more time in calls or one on one with clients. All analysts (that want to get paid) have to talk to buy side guys every day, some are really good at it,so they shortcut on writing, some are less talented, thing introverts that write and model well, but don't want to leave the office. But to be good, you need to be able to speak to people, what are the three to five key points about the news or the company. Any more than that and you won't be remembered.

Weird thing, modeling/writing/speaking to clients are almost left side/right side brain things, it can be tough to be really good at all of them.

Fourth, being wrong. One of the hardest things to do in Capital Markets is to be wrong, and go back to the same client and ask for more money. As an analyst, you stand in front of a PM, tell them that this stock is your top pick for the year and three weeks later it craters. PM sells, takes a big hit in the portfolio. Now you have to go back to his (or her) office and give them your new top pick and why it's the greatest stock since the last one.

These two things are often overlooked. Getting clients on the phone is critical. The research reports/models are of marginal value. The phone call lets the analyst really dive into the stock, and present it within the context of that client's portfolio. It also lets the analyst build relationships, and (I am guessing here) probably helps attract more fees than a standard note. If two analysts take the same perspective on the same event, but one sends an email, and the other spends 15 minutes on the phone with you, guess who is getting the fees for that trade?

As for being wrong, I think this is why you often see analysts with very safe buys/conviction buys. You often find stocks that have asymmetric payoffs e.g. 5% they plummet 50%, 45% they stay flat, 50% they double. As stock like that is a good investment, but would scare the hell out of a sellside analyst. So instead their conviction buy will be a marginally undervalued blue chip with 20% upside that could, at worst, underperform the market by a few %.

Jan 29, 2013
overpaid_overworked:

ER is a weird job. All Capital Markets positions are different from the other side of the street, but ER is especially odd, there are a lot of pieces to the puzzle when you're trying to be good at the job.

First, there's modeling, straight up building it out to get the answers. You need to be able to back up every assumption you make in your model. Why did you risk X by Y%? Why did you assume $2.00 for pricing? Why did you whatever... you need to be able to justify it all, and it shouldn't be answers like, it's consensus, or rule of thumb, because if that's the case, why is the buy side guy going to listen to you instead of everyone else. Further, there's a lot of moving parts in a company, so the models can get big. (side rant: I fucking hate analysts that have a 4.5X multiple on EV/DACF with a 15% adjustment for situational specific reasons, you either have a multple or you just fuck with it to meet concensus target, cowards).

Second, you've gotta write. I mean, you always have to write. If there's no news, if you're busy, whtever, you need to get material in the morning package often, not every day, but you're competing for space in the minds of your clients, and the sales team. If you aren't talking to them constantly they will push stocks for guys that are. It's not that they don't like you, but... as an analyst you have 20 names under coverage, another 20 names you follow, and a bigger number that you're aware of. As a sales guy, you've got a brief understanding of over 100 names, you can only push so much info on any stock.

Also, there's lots of writing styles out there, and the problem is that you need to match your style to the readers. I know guys are bank owned shops and smaller boutiques that have disticntly different institutional clients, and the writing style changes signficantly. Some guys do a great job of technical writing, some focus on big picture, it depends on the individual's strengths. What kills me is that I've spent two hours trying to get all the main pieces from our investment thesis on the front page a report, tweaking words, adjusting sentences, knowing full well that the PMs are going to skim it and never notice, but realizing that if I don't get it on the front page, it'll never be read.

Third, writing versus speaking to clients. There's a trend of analysts pushing shorter and shorter reports, and spending more time in calls or one on one with clients. All analysts (that want to get paid) have to talk to buy side guys every day, some are really good at it,so they shortcut on writing, some are less talented, thing introverts that write and model well, but don't want to leave the office. But to be good, you need to be able to speak to people, what are the three to five key points about the news or the company. Any more than that and you won't be remembered.

Weird thing, modeling/writing/speaking to clients are almost left side/right side brain things, it can be tough to be really good at all of them.

Fourth, being wrong. One of the hardest things to do in Capital Markets is to be wrong, and go back to the same client and ask for more money. As an analyst, you stand in front of a PM, tell them that this stock is your top pick for the year and three weeks later it craters. PM sells, takes a big hit in the portfolio. Now you have to go back to his (or her) office and give them your new top pick and why it's the greatest stock since the last one.

Last, No time off. @Iamobama (//www.wallstreetoasis.com/user/20428) put out a piece where he mentions that his boss is always working, thinking about work, talking to clients etc... It's true. If a company we cover puts out news at 3:00 AM, I still have to get it written and in my salesguys' hands before market open. Doesn't matter if it's christmas eve, I'm in Hawaii or still at the office, if you want to be a good analyst, you need to always get the information out. That said, anything after market is the same as pre-market the next day, so if it comes out at 5:00 on a Friday and I don't mind working Sunday...

TL:DR:
Ended up beign a wall of text, but I agree that being good at ER has a high correlation with being good at a lot of things, probably have both left and right brain working with talents in presentation, writing and modeling. But I really don't know what exit you get outside of buyside or IR.

It's like you can read my mind. Couldn't have written it better myself. I was discussing with my friends the other day about alternative choices "what kind of job in finance that would largely resemble consulting" and I said ER with the same reasons (well, most) you listed above. Throw you a SB!

My formula for success is rise early, work late and strike oil - JP Getty

Jan 29, 2013

Nice to hear SS ER getting some positive press (ok, it's business insider, but still...)

I, like moneymogul's friend, did IB internship and then ER GT. I realized pretty early that I didn't like IB, and therefore probably wouldn't like PE. Deals are interesting enough, but the low rate of success really killed my enthusiasm. You might spend 1-2 weeks killing yourself on a pitch book that has a

I am under no illusion that the buyside reads the reports we send out. It would be impossible for them to do so. 25 sectors, each with ~10 decent analysts, publishing 2x per week (conservatively) = 100 sellside reports per day. But sending out a 1-2 report that will go unread doesn't bother me like working past midnight for weeks on a pitchbook that serves no purpose.

Then I also realized I was interested in the markets. For years I had believed in the EMH, and that it was impossible to consistently outperform. As I became more familiar with finance, I realized this was very wrong. I became very interested in value and event driven investing. While my PA had been mostly just an array of ETFs, I started investing, and was hooked.

I actually enjoyed researching stocks, so I tried finding jobs that would allow me to do so. Not many reputable hedge funds will hire undergrads. I was interviewing with one that had ~100m AUM before I stopped the process, realizing that I would rather return to IB than take a chance with an unproven fund. I also interviewed with asset management firms, but they almost exclusively hired from their summer classes. Most hired 1-2 people nationally during FT recruiting, and I still wasn't sure how to really pitch a stock. In retrospect, I am amazed I was invited to as many superdays as I was...really, my pitches were terrible. So, ER was the best option available.

I plan on either moving to buyside ER at a large asset manager or a L/S equity fund after a few years. I think sellside ER is a great lifestyle (even as a RA), but competing for votes sounds miserable. Like some sort of high school popularity contest that impacts your compensation. My interest in a stock is also directly related to its potential for appreciation (or massive depreciation). Researching a fairly valued company is painful for me.

Jan 29, 2013

Nice.

Jan 29, 2013

Great points on writing, client interaction, etc.

But the question was best job out of college. How much of this do you really do as the lower case analyst vs being the upper case Analyst.

It's not likely the new guys picks up the phone and calls his rolodex of buyside contacts. The day to day is still research, writing, editing, and light modeling. No one fresh from undergrad or B-School enters as an Analyst.

Jan 29, 2013
freeloader:

Great points on writing, client interaction, etc.

But the question was best job out of college. How much of this do you really do as the lower case analyst vs being the upper case Analyst.

It's not likely the new guys picks up the phone and calls his rolodex of buyside contacts. The day to day is still research, writing, editing, and light modeling. No one fresh from undergrad or B-School enters as an Analyst.

I speak to clients all the time. As soon as my name started appearing on the reports (thank you series 86 & 87). You don't have to be the lead analyst to jump on a call with an account and start talking about your sector. My analyst wants me to answer questions and address as many requests as possible, especially when he is traveling or his day is completely booked. It's part of the associate's job. It's also my personal favorite part of working in research.

    • 1
Jan 29, 2013

I'm looking into ER post-MBA.

For me, it's pretty simple. I enjoy writing and doing research. I like financial modeling. I think that I would be able to combine those two skills--quantitative analysis and effective communication--very effectively. The idea of doing in depth research on a stock is also much more appealing to me than doing an M&A deal. The lifestyle is also much better in ER.

Jan 30, 2013
Comment

Pages