This is just one of those threads, where we talk about what the ER industry is like. I'm a first year associate at a BB in ER, and I just finished my 2nd week. I'm working under a group that I really like and I thought I would create this thread to help those out who want to understand the ER industry.
But I'm going to approach this thread from a different perspective. Instead of being a straight Q&A, I'm going to talk about things I thought I knew about the industry or what my perception of the industry was and how that compares to reality. Of course, feel free to ask questions at the bottom. I'll update this as I go along into my new role and I learn more thing.
Perception #1: ER is a cost center and the first one the be laid off.
Reality: ER is not a cost center and is one of the biggest reasons your bank will generate trades from the buy side and have them use your services versus the competitor. The ER department is one of the most useful services for a buyside firm from a sell side firm, so its essential to the success of a BB or any broker for that matter. Therefore, it is not a cost center, it just generates revenue indirectly.
Also, if you are an II ranked analyst, chances of you getting laid off are pretty low. If headcount needs to be cut, the analysts that will be cut will be those that are not II ranked or are generally not seeing a lot of trades in their sector by clients. II rankings and how your bank is trading a particular sector matters a lot when deciding who gets laid off or not. So if you are an associate going into ER, try to get into a group with a II ranked analyst.
Perception #2: Sell-side analysts live and die off the financial models.
Reality: Depending on your analyst, models are more or less used just to create an EPS number and a price target. It is not the real value add by the sell side analyst to the buy side PM because the buy side PM has a buy side analyst who could do the same thing.
The value add of the sell side analyst is to provide the buy side firm with a different perspective on the stock and get color on companies from their industry contacts. Buy side doesn't care what your rating or your price target is. They care to a degree what your estimate is and they care a lot what kind of perspective you are giving them (generally its something out of the ordinary) and what kind of legal information you can generate from your contacts.
Also, analysts typically don't build models. In fact, analysts are rarely in the office. An experienced analysts job is to meet with clients, entertain, meet with industry contacts, entertain, visit companies and their subsidiaries, visit conferences, host conferences, figure out different perspectives on your companies, and figure out what your next note(s) are going to be.
90%-99% of the modeling, analytic work is done by the associate. They are the number cruncher.
Perception #3: You don't work banking hours.
Reality: It depends on how big your team is and how much work your analyst wants to do. For majority of the associates, they come in around 7:30-8 unless they need to be on their sectors morning call. They also stay until 7-8pm. This is the average day, when you don't have a big note going out the next day or earnings aren't being reported etc.
On the other hand, if you are working for the bigger, II ranked analysts, your hours can be much more. These analysts tend to generate a lot more face time with clients, therefore they need to be constantly thinking of the next note or what else can they do to improve their perspective etc. So these analysts generally assign their associates a lot more work, so your average day can range from 7-8AM to about 9-10PM. If you have a big note going out the next day, you are likely in the office from 6:30AM-12/1AM.
So it really depends. Also the size of your team generally depends on if you are an II ranked analyst or the amount of volume your particular sector is generating in client interest. Again this is generally, but it could vary. I've so far seen the II ranked and top sectors with on avg 2 associates, but sometimes 3, and the non ranked analysts and those in the lower groups only have 1.
Perception #4: Sell side analysts research is BS and they don't know how to pick a stock
Reality: This again depends. Going in I thought most of sell side research was mediocre. But there are some really smart analysts in sell sides who really understand the fundamental dynamics of the stocks they cover. Also, a lot of buy side PMS were at one point sell side analysts who were usually ranked or close to. But there are some really smart guys in sell side research who really know their stuff. There are also some real big dumbass analysts who fit my perception of them going in.
Perception #5: The morning sales call must be so cool
Reality: No one goes to a morning sales call unless you are in sales or if your team is presenting.
I'll update as I go along and learn new things.
Here are some tips from the buy-side. I thought it might be useful to some, or maybe not, you'll be the judge of that. It's not my intention to cause animosity or be patronising, just to show you what a buy-side person thinks. I apologise in advance if anything below comes off derogatory or snobbish, I only aim to offer my 2c.
1) I understand that the core of your work is reading a lot of company filings and press releases etc. However, you need to think how you can add value to your model/reports. Just modelling what SEC filings are out there and regurgitating comps for peers etc, is the bare necessity, it's not adding value. When you talk to someone on the phone to discuss your model and view of the company you need to offer something extra. So go the extra mile, do some more research, read blogs, read technical docs (how many of you have ever read the feasibility studies of miner startups or the patent filings of companies?). It does show when you have just glossed over the basics and your only source of info is the management. The reason for this is very simple, the buy-side on the other end of the phone has already read the filings and press releases of the company and has done some due dilligence on the peers and built their own (basic) model. So unless you go the extra mile you are not adding any value to the conversation.
2) Try and keep the number of companies you are researching under control. When I see analysts covering 30+ companies that belong to all sorts of different industries I am sceptical on the depth they have actually modelled the stock. Everybody acknowledges that you can't do a proper job following the whole market and not carving a niche. Obviously we understand that you get a lot of pressure from higher ups to do all the work you do, but try to negotiate your way on your workload (if possible) so that you can actually build knowledge on sector(s) and companies. Be aware that a lot of buy-side people actually screen your recommendation and look at your coverage universe before even deciding whether they will ask to talk to you or not. You don't want to lose before you even start.
3) An obvious problem is that virtually noone dares put a SELL on a stock. We all know why it happens and I don't know if you can do anything about it, but I wish that would change.
4) Please, do come prepared and avoid bluffing your way through. We may not show it but we can tell when you are haven't done your work properly and when you are bullshitting us, and we will not call you again if we feel like you are insulting our intelligence.
5) When you don't know just say it. But make sure you always know if possible, we are coming to you for information and showing ignorance on fundamental aspects of a company shows that you are ill prepared. I appreciate that you are stretched out and that there are good reasons why that happens, but just don't take the call if you are not 100% ready.
6) Do follow up when you say so on the phone! If someone asks for a model or some extra bit of info, and you agree to send it later, don't forget it. We are all busy but it comes off unprofessional. Also, if you feel you came off unprepared on any bits of the discussion, look them up and offer a follow up email or call to cover them. Everyone appreciates someone who is eager and respectful of their profession.
All in all, I acknowledge that you have your own constraints and pressures. By no means am I saying that you analysts are incompetent etc. I appreciate that you are trying to juggle everything under pressure, but my advice is to avoid trying to bluff your way through as much as possible and try to go that extra mile whenever possible.
regards,
justanother