Q&A - Buyside Equity Research Analyst/PM

Hey, thanks for the post. Have a rather philosophical question for you - how do you think like a buy side analyst?

I understand the basics (at least, i think i do) - what makes the stock price go up/down, what’s being priced-in/not, what’s the company about, where do we see further up/downside etc. but how would you go two steps further in your thinking/analysis? When I listen to the seniors talk about a stock they’re pitching, it makes sense and I get what they’re talking about, but when it comes to my own work, I find it difficult to bridge that gap between ‘facts’ and ‘analysis’.

Would love to hear your perspective on this. Thanks!

Thanks for sharing. I’m working in HK at a buyside as an emerging market equity analyst (APAC focus) now, having started my career three years ago.

I did not go to school in US but am interested in moving to global equities one day, either in NY or London, even better if in HK/SG but I guess chances would be smaller.

What would you say is the biggest dealer maker of you moving from EM to global equities? Is it all about looking for more opportunities, or going to a slightly worse firm?

If someone doesn’t work at a hedge fund it takes years to become senior and even longer to be a PM. Crossing field would not be easy as I can imagine.

Thanks much

The number of job openings for buyside is lower than on the sell-side so it is naturally rarer to land a buyside job than a sell-side job. Internships are less structured and less common. It is extremely rare for buyside firms to recruit straight out of college unless it's a return offer from internships. Most buysiders start out on the sell-side and then move over with a few years of experience. 

I wouldn't shy away from securing a sell-side role (especially ER) with the idea of switching over later in your career.

That said, people on the buyside appreciate hustle. Most of the investment roles on the buyside requires a significant amount of initiative and there's very little of hand holding/telling you what to do. This means  just having the nerve to hit someone up asking for a coffee chat or a job has a higher chance of being viewed positively. Even if they don't have a job for you today, there is a chance they will remember you when you come knocking again.

I have always worked on the buy-side. But I have plenty of friends/colleagues who started their career on the sell-side and I interact with sell-side analysts on a daily basis. 

Most of my day is spent on a small number of investment ideas (or sometimes one idea). A big chunk of that is reading - and a large portion of that chunk is sell-side research. I spend at least a few hours a day on meetings, sometimes internal meetings to discuss investment ideas, sometimes with sell-side analysts so I can ask questions about stocks I am working on, and sometimes meeting with CEO/CFOs of companies I am looking it.  Sometimes I spend my time just playing around with my own excel model or a model I had a sell-side analyst send to me. I end my day by planning for my next day, or the next week. Scheduling meetings in advance and preparing things I will need.

The biggest mindset shift is (1) the increase in control over your own time and the expectation that you best utilize it (2) getting discouraged from spending a lot of time on a stock that will just be a "hold"/"equal weight"/no strong opinion and encouraged to focus on ideas with the highest upside to buy or worst downside to sell. (3) Having the power to setup calls with very senior sell-side analysts and CEOs of companies and needing to not be shy to use it.

So the biggest quality people look for is the ability to be a self-starter and a hunting instinct. There is limited training and you are expected to teach yourself on the job. Courage, hustle, curiosity.

Good luck!

Thanks! It took me less time than average. Most people take 10+ years, but I got lucky by getting to work as an analyst dedicated to the portfolio early on.

Long-only bias, but people (myself included) believe passive ETFs and Alternative Assets can't replace LO. I can give you a whole hour on it but it basically boils down to our belief that indices are backward looking - so buying an index means you are assuming that the winners of yesterday will be the winners of tomorrow. That has been true in the last several years but there are plenty of historical precedents why it would not last. A combo of passive ETFs and Alternative Assets dismisses the chance of striking gold by finding the winners of tomorrow within the public equity space and making big bets on them.

Will it be harder to progress to PM from ER over the next 10-20 years? Now that alternative investment options to LOs are more visible/accessible/viable than in the past, I expect elevated competition for capital over the next 10-20 years than the last 10-20 years. Which means uncompetitive shops/strategies will close down/downsize which lead to fewer jobs. Ultimately though, I believe if you are good enough you are good enough. And if you are not good enough, you won't be allowed to linger as long.

Interested in LO vs. L/S too

Internship - I was given the task of finding an investment idea within the automotive industry or its adjacencies. I didn't cover any security as all my time was spent looking for that one idea - although it does involve looking at 100+ companies to begin wtih.

HK - I was assigned to cover Chinese Equities across all sectors. It was technically a generalist role but I found myself focusing a lot of my time on technology and consumer sectors which was where I thought the more interesting ideas were in.

NY - Global Equities is defined as any stock listed in any stock exchange anywhere in the world. So Yes, EM + DM. I was given a generalist role and now I look at all sectors. 

Thanks! Most shops are setup with one of these two models (1) a research platform where the analysts provide recommendations to multiple portfolios (2) siloed portfolio management teams with their own dedicated analysts. OR a combo of both.

There is no one uniform pathway but you generally start out looking at one sector and want to end where you’re looking at multiple sectors and spending the majority of your time working with one portfolio/strategy. Once you develop a good enough stock picking skill and relationship with the team, there will eventually be an opportunity to step up into a PM role for that team. Not every analyst makes it.

Comp - you get paid a standard salary and then a huge bonus if you do well. Your bonus will either be an agreed percentage of the revenue your strategy generates for the firm (via management fees) or a discretionary bonus but both have direct correlation to your performance. On my case, my salary is the same post promotion, but I know the upside to my bonuses is much higher than before.

news - bloomberg is a good source to keep tabs on. Since pretty much all buy side PMs have Bloomberg and we all see Bloomberg news daily.

Info/analysis - for learning purposes the best source of information is a more experienced investor. But to have a good convo with them you’ll need to know at least a few stocks in pretty good detail. Find books about companies and company founders/ceos every chance I get. I find investment podcasts that are focused on company analyses - avoid the ones that just talk about stock moves next few weeks. Business Breakdowns is a good podcast to start learning about how investment professionals think about companies.

Your goal in consuming these information is to think - how does this company make its revenue - is it trying to grow its sales or taking a cash cow approach? Why? What makes up its cogs items, op margins, what is the margin trend, why? Does it distribute dividend or do buybacks, why? Then it take your understanding and ask the more experienced investor how he/she values the stock, what multiple/target price would they give it? Their answer will contain elements of the things you have looked it and you can then get the convo going from there.

In a nutshell, That’s how I learned about stocks.

Hey! Each place will have their own system, but in essence it’s just research analyst and PM. Some places have a transition role labeled junior PMs etc. where they’d want to see how you would function as a pm before giving you the title.

At some places when you’re fresh out of college you might a junior to an analyst sometimes called an associate where they’d want to see how you perform as an analyst before handing you that title.

At the shop I’m in, progression is less quantified. My journey was quite organic, one PM team took more interest than others in ideas I was pitching, and before long I was spending more than 80% of my time with them. Eventually they asked me to join the team officially as a dedicated analyst working only with them. As I got more intimate with the team’s philosophy and get better at stock picking the team started acting on my recs at a near 100% rate. And after a while, they started trusting me to make decisions on the stocks l looked at. And then eventually the PM title came.

Bottom line is, get to a point where you’re a full fledged research analyst. Do well at your job, and find opportunities to work more closely with PM teams you’re interested in. Because there is often not a defined structure - you just have to hustle your way through and carve your own path.

LO funds have the impression that it has stable job security especially relative to L/S and HFs so people in those industries sometimes see LO as a way to lower their workplace stress. And when you decrease the amount of effort you have to put in - some people call it early retirement. 

Personally, I don't think that's true. It may have been true in the past where LO jobs are plentiful relative to the number of people who want them. But that is less true today especially with increasing competition for customer's capital (see my earlier responses) and continuous inflow of talent in the buyside. 

If you can't raise/maintain assets, then you don't have income - this statement is as true for HF as it is for LO. Especially if you are a PM or part of a PM team. 

If you are an analyst not dedicated to a PM or strategy, you maybe less impacted but you are still in trouble if the overall shop struggles. 

At my shop, about 10% of senior ppl (Director and above) get let go every year due to poor performance so it is not a place you can cruise and expect to keep your job.

Ultimately, those who love the "game" of investing will end up doing better than those who see it as an "early retirement" option and those with an early retirement option gets the boot.

You're welcome.

(1) You just have to find the time and the energy to do it. I tried to make it fun and make it a habit to consume information about these industries. I set alerts on my bloomberg (you can do this on other providers too) whenever there is a long report on a company or an industry, an initiation report, or even better a teach-in/primer series written by a sell-sider - which answers your second question - I rely heavily on the sell-side to get me up to speed. And then I make it my #1 priority of the day to read them. These are way more experienced analysts than I am, and to whatever extent I can tap their brains whether through reading their research or listening to their calls or even scheduling a 1 on 1 with them. 

(2) I would only recommend MBA if you're thinking about a career pivot. Everyone in the industry knows you learn way more on the job than in school. Instead do the CFA. There are way more job posts with "CFA preferred" than "MBA preferred". 

(3) That depends on what you ultimately want to do. Every bit of finance is highly competitive - you get paid a lot more by being the best than by being second best. Worry about what you are best at and they pay will come. That said, HF is already very well paid. You might not feel it in the 1st year or two since pay is pretty much the same across all of finance with at most a +/- 20k USD.  

I am a bit biased but I think HF is the best place to learn when you start out - you get the high paced environment that forces you to be at your best that people found valuable about banking, Getting to actually learn how to invest and analyze companies which is the draw of ER, and the independence and authority to carve your own path (and having sell-side MDs teach you because you're their client) that comes with being on the buyside.

Good luck!

Hey, thank you for your question and apologies for the slow response, I have been away from the site for some time. 

AI disruption has always been a topic of discussion in the industry even before ChatGPT came along. There is a growing number of well-performing AI-led investment strategies (also known as Quant strategies), but the fact remains that such approaches can only take a portion of the market share. 

Investing is a complex blend of the arts and sciences combined with a forecast of the future accounting for an infinite number of variables in a way that even the smartest AI is still some distance away.

Back in the 1990s, there was a similar chatter about how the internet will replace what investment professionals do because all the information will be easily accessible to a much broader audience. Yet as we know, the industry adapted and grew to be much larger with investment professionals now incorporating the internet into their workflows. It is my belief that a similar phenomenon will happen with AI.

When you recruit for buyside, the job postings you come across will typically include the sector coverage you will be given. I see your position as an advantage as you can pivot/position your resume and cover letter to whatever sector/industry of coverage you are applying to. Additionally, from a recruiter's perspective, as long as you mention each of these sectors in your profile/communication to them, they should be able to get you to any of the sectors listed. 

Naturally, you will have the biggest advantage in the sector that you have spent the most amount of time/dedicated the most amount of effort. 

This is an industry where background knowledge is a key competitive advantage. 

If you are not strongly attached to any of the sectors you have covered, then applying to a generalist position might be a good move. Generalist positions typically prefer individuals who have experience drawing parallel insights across multiple sectors/industries. 

Good luck!

The best way to recruit for sell-side ER is to secure a sell-side ER internship, as you have identified. It has been a long while since I graduated/recruited so my below points will likely be out of date. But I did recall back then ER would have a slightly delayed timeline for internship applications as opposed to IB for the same firms but not by much.

For ER, you are expected to be more in touch with the market, investment landscape, and any experience in analyzing a company's financial statement and/or valuation of a security's price should be highlighted. You need to be able to show that interest/curiosity about how the stock market works and desire to understand how a company operates, makes  money, and attract investors. Most of the topic preps should be the same, ER will have more emphasis on the public stock markets. I would advise you to come prepared talking about a stock that you like and a stock that you do not like and be ready to defend your views with answers that show you have good grasp of the company's financials and the ability to evaluate financial statements and conduct valuation analyses. Having that stock match the sector coverage you are applying to is big plus. 

Good luck!

My suggestion would be to find yourself a similar role to your current position at a boutique/smaller farm. From there you can network internally and transfer into a job that is closer to where you want to be. As an internal candidate, you would have had many more opportunities to interact with the team you want to interview for and that translates to opportunities to create good impressions. There are plenty of cases within my company where people would start out as research assistants, admins, sales, or even IT who eventually found themselves in an investment role. You will definitely need to get creative with your pathway.

As an assistant/admin, try to go one step further - if they ask you to transcribe a meeting, include some analysis. If they asked you to register for a conference, go the extra mile and see which CEOs are worth seeing which might represent a company they are thinking about.  

Good luck!