I want to give back to the WSO community and talk about my journey to buy-side. I currently work on the buy-side after years in sell-side equity research at a bank. I want to first thank user @Subutai Baghatur (abbreviated as “SB”) and highlight the article Breaking Into Buy-Side Equity Research - My Experience as the article that helped me the most. I am happy to take any questions here as well.
My take on sell-side ER is exactly the same as SB’s, due to my introduction to fundamental research as a self-taught value investor. I did not enjoy my job - the return on time is very poor with a lot of meaningless work, not much access to thoughtful investors, and a lot of PR stuff. Sell-side ER spends a lot of time kissing butts - IR, C-suite, equity sales, bankers, etc. and the event-planning (for the annual conferences) really does not make you a better investor in any way. I do know it was a short-term gig but still will not stop complaining about how absurd the profession is. So also keep in mind that if your goal is to go work for a trading-oriented shop, this article is not helpful.
There are enough articles on WSO about what sell-side ER is all about (a little plug - check out my Instagram account @dickthesellsider to get your daily dose of sell-side ER life), so I will only highlight one recent structural change that has made ER a less attractive jump board to a career in long-term oriented public market investing.
Analysts are evaluated based on the number of client votes during the annual Institutional Investor (“II”) survey. Historically, votes are weighed by clients’ assets under management (“AUM”) to rank Analysts in a sector. Last year, II changed the weighting to commissions paid, which immediately signaled to me an acceleration toward prioritizing serving ultra short-term oriented clients (who pay a lot of commissions because they trade a lot). If your end goal is NOT to work at a trading-style shop like Citadel, Balyasny, Millennium, just know that sell-side ER is going to be more useless to you than before (of course, Baupost, Harris Associates, Ruane Cundiff, and the likes were not using sell-side ER that much before this change anyways).
Here are some of the key lessons I have learned along the way:
Mindset training
You might be wondering: Why is mindset training top of the list? The reason is: going to the buy-side is one arduous journey - there will be rejections, there will be ghosting, there will be no-replies, etc. You have to believe that perseverance will pay off (I am an example and so are others who have made it). The best book on the subject is Mindset by Carol Dweck. Read the book, internalize it and go get what you deserve. I also recommend Influence by Cialdini, because you will be networking a lot and the timeless techniques in the book are super helpful for your search and more importantly for you to become a better person.
Buy-side is a very intrinsic profession
You need to demonstrate the ability to think about businesses and the market and then articulate concisely why an investment opportunity is attractive. These skills cannot be crammed - a strong candidate will easily show the passion and knowledge in the interview. Value investing has now been very well popularized that any amateur can throw out words like “margin of safety” or “Mr. Market” without knowing how to apply them. Sadly no one pays you to recite Ben Graham’s book, you only get paid for finding the next 50-cent dollar bill.
Create real work products
Hiring firms will want to see a stock write-up or two at some point in the recruiting process. From the interviewer’s vantage point, it helps eliminate candidates who aren’t passionate and can’t demonstrate intrinsic ability to pick stocks. “Everyone wants to go to heaven, but nobody wants to die.” So the stock write-ups are a highly effective way to weed out people who “don’t want to die”.
There are a few good articles on the forum on how to do a stock write-up, so I won’t go into that. Make sure you have a few strong stock pitches (long and short) that are concise. It’s always better to have strong pitches in smaller numbers than having 10 mediocre pitches. These pitches help you land networking calls and interviews. You will likely do a stock case for the final round interview anyways.
Define philosophy and addressable job set
You will find that a lot of buy-siders are very biased toward their way of thinking about investing (so much for appreciating diversity of thinking). You need to know what kind of stock situations / businesses resonate with you.
It’s going to be a balance between having more job leads where you have to somewhat bend your philosophy and having less job leads but you will be a nearly perfect fit. If you decide to go for a larger addressable job set, you have to prepare more tailored stock pitches - eg. two value stocks, two growth stocks, two special-situation stocks, etc. Like I said, even though Buffett says growth is part of value (which is true), you likely won’t get an offer from a value shop by pitching Carvana (and you definitely won’t get an offer from a growth shop pitching a highly cyclical commodity business).
Networking
Networking is not optional - it’s the core search activity. That’s how you get job leads. There are a lot of people on the buy-side who are willing to give back - especially the ones who have been in your shoes. You just have to ask. My tips would be:
* Have a CRM system. Use a spreadsheet to keep track of your connections (search on WSO for a template).
* Do your homework: know their professional / education background obviously, but also know the fund’s strategy (using Form ADV) and positions (using Whalewisdom and Dataroma; mutual funds’ short positions can be found in the prospectus / annual filing)
* Rehearse your story / pitches: rehearse a 2-minute story of your resume and don’t ramble, buy-siders are assessing your ability to get to the essence - a core competency. Same goes for stock pitches. Time yourself and refine if it’s longer than 2 minutes.
* Be consistent with your brand: One of my favorite graduation speeches is from Jamie Dimon at HBS where he said “there is already a book written about you”. Buy-side is an incredibly small community and people know each other. As you network, build a consistent brand so that your future employers don’t sniff out lies when talking to other funds about you. For example, I got an interview with a very respected value fund because the Director of Research talked to someone at the hedge fund where I was an intern and that someone put in good words for me.
* LinkedIn is most effective. Buy-siders get a lot of emails (sell-side spamming included), I have found that LinkedIn has the highest response rate. Use your judgment on how much you want to tailor your message because of the time tradeoff: the goal is to convince your connection that you will not waste their time.
* Keep your relationships: Connections have lifetime values, it’s your responsibility to keep them. Don’t think of them as just means to get jobs - they are mentors who can make you a better thinker, person, and investor. Send them interesting articles and big reports your team puts out, follow their fund’s quarterly letters, and generally be of value to them. Reciprocity is a powerful thing - focus on giving.
* Have an ask at the end: At the end of your informational interview, ask for referral to talk to two other people
Sourcing Job Leads
The toughest part is to even know where the job openings are - buy-side is so relationship / lineage-focused. Few points: 1) the less publicized the job is, the better it is because there is likely zero competition 2) you never know - always apply / reach out, maybe you saw a role that you are over/underqualified, but HR / hiring manager might forward your resume to a team that has an unposted opening that is suitable for you 3) Be open to relocations.
I categorize the sourcing channels into the following:
- Equity salespeople: I did not build close relationships with them but I heard they are an excellent source of jobs. Just make sure you are really personally tight with them to comfortably fly under your boss’ radar.
- LinkedIn: Set up job alerts under keywords such as “investment analyst”
- Firm career website: create accounts on investment management firm’s career website, submit your resume, set up alerts for investment-related jobs. If something comes up, find out who the hiring team is, use your bank’s CRM system to cold email the hiring team, attaching your resume and stock write-ups. Avoid dealing with HRs until after you have gotten the job.
- Job board sites: such as eFinancialCareer, GoBuySide, Pinebase, etc.
- Bloomberg terminal: a lot of small funds post on BB terminal for openings
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Investment platforms: this takes most amount of work but you can submit your stock write-ups to Value Investor Club (VIC) and SumZero and hope to be accepted as a full member.
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SumZero particularly has a job board where small funds post. Submit your best work for a chance to be accepted.
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VIC has secret meet-ups among members, but I presume it’s hard to get invited to those even if you are a full member.
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Recruiters: They are much more useful for candidates who “fit the bill” (the 2-year program graduates with an Ivy League degree), but again you never know - build relationships with recruiters and they might tell you some good leads, most of their searches are for more short-term minded funds.
Deciding on offer
It came down to 4 criteria for me:
- Investment philosophy: I don’t think the perfect alignment exists. So, just make sure it does not violate too many of your core principles as an investor (eg. the trading-the-quarters and event-driven / special sit shops are my no-go zones)
- Quality of capital: “Investor alpha” is real, preferably you want to be where the capital lock-up is solid
- People: buy-side generally has small teams. Make sure the people (especially the founder) are not assholes and can teach you their process and investment acumen
- Monetary: hopefully the founder is willing to monetarily take care of you as the fund grows, and be open to a pay cut on the base salary to trade for the future upside
Conclusion
Buy-side search is hard, but I think openings will continue to exist. The industry is shrinking but if public market investing is what you are truly passionate about, don’t give up and be consistent and persistent. Also continue to work on your craft as an investor. Finally, pay it forward by helping future aspiring investors.
Good luck! I will make this a live document. Please give me feedback and share any additional insights from your journey. Thank you.
Reference posts:
Hey, thanks for the post - super helpful. I was wondering if you had any thoughts on working at a small shop as a generalist vs. a big shop where you have sector coverage early on in your buyside career. This is just theoretical - assuming they're more or less regarded the same by people that know both.
Sure thing. It really depends on what you are passionate about. I am a firm subscriber to the idea of mental lattice (Munger stuff) and the generalist model and very curious about many things so I want to be a generalist.
Both models have strengths and weaknesses. If you go specialist, you are trading breath for depth. Vice versa if you go for generalist model. If you go for big shop, you are trading upside for prestige / stability. If you go for small shop, you are trading stability / prestige for higher upside and more responsibilities / direct access to the founder early on in your career.
Thanks so much for the post - very helpful.
Had a few questions for you:
How long was the job search approximately, and when did you feel you were prepared?
How did your sector coverage help / hurt your chances during the recruitment process?
Approximate comp progression? While SS ER's comp is fairly transparent, it seems many buy side's comp is a complete black box - grateful for any color you can give on this.
Sure thing. I am glad it's helpful.
Job search took about ~1 year. I always felt very prepared because I am so passionate about it. In reality though, you will never feel prepared because buy-side search is not even a fair game - I got involved with a few long-only leads and got rejected close to final rounds without any reasons (but very sure it's because they ended up hiring someone with 5+ years of direct buy-side experience versus taking a chance on me).
My sector coverage helped me. Buy-side is really dumb on this front - the money raising process is totally backward looking. Right now I'd argue a lot of value funds should be raising dry powder easily but reality is most roles are for coverage of TMT and healthcare in growth-oriented portfolios (you get hired into portfolios, not shops).
Comp: Hard to say. There needs to be a clear path to tie yourself to the fund performance / your own stock selection on the incentive side. The rest is totally up to the fund if it's HF. For LOs, probably more rigid.
You are welcome. DM me, we can chat in more detail if you like.
Not disclosing length - just say it was long enough.
I assume you meant Graham and Dodds. If you define "great investor" as G&D, you will learn things on your current job that contradicts what you will learn from Mr. Graham. IMO, you will get dumber if you ingrain the thought process of sell-siders.
I think every investor's job is to identify dislocation between the price of a security and the value of the business. So I am fine with: a) buying a 30% consistent grower that's priced in 10% consistent growth, or b) buying a restaurant name that is comp'ing -2%, but can do 5% comp going forward. Both are value investing to me, but the long-only (LO) community (especially) will make a distinction that A is growth investing and B is value investing. The problem with LOs, though great spots to be because of scale and long-term capital, is:
Hedge funds have their own problem, but at least they run on absolute return - so they can be value or growth or ... just guessing.
The true value investors that I respect are evolving - they know definition of value is changing as the world changes, and the world is shifting toward more service-oriented / asset-light business models, long gone are the Rockefellers and Carnegies (with their oil and steel). The result is Seth Klarman is long FB/GOOGL, Bill Nygren is long GOOGL/BKNG. They are still buying stocks that are trading less than their worth, but these are asset-light businesses. Traditional deep-value strategies still exist (Pzena, Donald and Co., Third Avenue), but I have to imagine they are not doing as well (because deep-value stocks are cheap for a reason right now, likely low / negative ROIC businesses).
You are completely right that some legit value shops are probably "throwing in the towel" and buying growth names that I personally am not comfortable with, such as Shopify. That could end very badly for them if not careful.
Fund raising: Say a value fund that has had a consistent process since its inception (most important thing as a fund IMO) but only started 5 years ago, the fund likely has not performed well compared to its peers that own/trade high-growth momentum names. I'd imagine that value fund will have trouble raising money in this environment in anticipation for a sell-off (not making a call here on when/if a sell-off) because investors / allocators are not interested in giving money to a fund that hasn't done well IN THE PAST, even though a robust process will likely generate exceptional return when the market regime does change.
Pick analyst over anything else (of course, sector and shop matter, but unlikely a role will match all three criteria perfectly)
BB
Pro: stable platform, brand, better infrastructure (Bloomberg / Factset subscription, access to data vendors like SNL, Gartner, Kagan, etc.)
Con: relationship building tasks don't make you a better investor (II, marketing); increasingly harder to exit to long-term investors because of focus on serving "fast money" clients (eg. previewing quarters, lots of "why 31% margin vs. 32% margin?" questions)
Boutique:
Pro: they can have more independent views so you learn real way of analyzing businesses, and you might work for someone with extensive industry experience (eg. Bernstein, MoffettNathanson model where the analysts used to work in Telecom, Media, Payment, etc. and they are all top analysts)
Con: not stable (depends purely on readership subscription), lower pay, probably sh*ttier hours