So I'm about a year into my position as an equity research associate, just attempted the CFA Lvl 2 in June...but I'm looking for ways to continue improving my technical knowledge base. I can perform most activities you would expect from a one-year associate. Is there a skill or expertise that could potentially separate me from others down the road on the buy/sell-side (other than industry knowledge, obviously)? Not really thinking about making a run at IB...my initial thoughts were M&A modeling or attacking bond analysis, credit analysis. Can clarify the question if needed. TIA
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I think it might be more important to develop your investment skills, ie what makes a good investment vs. a bad one, as any type of modeling will mirror any thesis you try to prove.
It probably wouldn't hurt to learn to create detailed models (M&A/LBO). Perhaps someone else could chime in
It really depends upon what you want to do long term and what exactly you're doing now. By that I mean:
What you want to do long term: stay in equity research? If so, buy or sell side? Industry or regional based coverage? If buy side, what type of investment philosophy do you use (growth, value, GARP, quality, macro, etc.)? Or do you have a specific strategy in mind i.e. merger arb, distressed debt? On and on...
What you're doing now? Buy or sell side. Industry coverage or regional? Like what you do or no?
If you can give some more details I'll give my thoughts. One year of experience isn't that much but its good to see that you're thinking long term. I wish I had done that a bit earlier in my career.
Eventually want to get to the buy side. I'm on HC now which is interesting...pretty open to the future though. I'm looking for something that applies to most buy-side jobs and is somewhat investment philosophy agnostic. Correct me if I'm wrong, but the PM would dictate the philosophy and I would do the "dirty work". Getting to the buy side for me will be the biggest challenge for reasons I won't list here. So if there's a subject I can become very knowledgeable of and is broadly applicable, I think that would help set me apart from others with fancier degrees/work experience. So asked another way, is there a certain skill most PMs look for in junior analysts that most applicants lack?
Not really. If we're talking about a simple / conventional L/S equity fund, the PMs simply want you to be able to 1) efficiently model companies out 2) think on your feet 3) effectively communicate with management, IR and the sell-side and 4) simply to learn quickly as you go along since you will undoubtedly find unfamiliar stuff day after day.
I feel confident in performing those abilities. Obviously not an expert at any one, but above average at most. I've always thought there was so much gray area in estimating required return on equity...you think that would be worth diving into? I feel that could bring value...besides CAPM is dog shit.
Would say it's definitely not worth going into. You just ballpark the cost of equity by being a tad harsher than what something like CAPM would imply and that should be sufficient. True cost of equity depends on the weighted-average of every investors' cost of equity, which you obviously cannot know anyway.
It's much more important at the bottom of the curve though? Are you slapping a relative market multiple on your price objectives or are you discounting cash flows...assuming you aren't dealing with deep value stuff. I've only been briefly exposed to cost of equity/debt...but isn't it worth the effort to look at bond equivalent plus risk premium and some other methods? It seems like people always get the cost of capital wrong on these names and distort price objectives, assuming they are looking at cash flows.
In my experience, your investment philosophy needs to be congruent with the PM's / firm's. This may not matter at the entry level if you're just putting together comp sheets and doing basic modelling, but at an analyst level it absolutely matters.
People on the buy side get paid for generating investment ideas or managing a portfolio of investment ideas. Nobody on the buy side gets paid big bucks for doing "philosophy agnostic" work such as basic modelling. If you have a growth or macro bias and you're working at a value fund, that relationship won't last long. In fact, you'll usually never get hired. When interviewing for a post MBA position I always found investment philosophy fit to be very important, right up there with cultural fit. If the fit wasn't there, nothing else mattered.
If you like philosophy agnostic work you should stick to the sell side. Sell side analysts are generally supposed to be philosophy agnostic.
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