Ask an equity researcher anything!

erwannabe's picture
Rank: Orangutan | 331

Hello monkeys!

It's been a while since I've been on this site as I've been working pretty hard the past 2 months at my new job - some of you may remember my success story I posted several months ago. Didn't have a job out of college -> landed a full-time equity research position at a well-known bank after several months of prep.

//www.wallstreetoasis.com/forums/unbelievable-detail...

Anyways, I've been working in equity research for nearly 2 months and I've learned a ton. I absolutely love my job. It's been a crazy experience so far and I've started my first earnings season! Since I promised you guys I'd contribute after this forum helped me land my first job, I wanted to answer any questions you guys might have about equity research as a career, breaking in, day in the life, etc., etc. I definitely have a much sharper and accurate perspective of the field. It's awesome to see so many people pursuing equity research as a career.

Feel free to ask me anything!

Comments (40)

Nov 1, 2012

Thanks for the willingness to help!

My question is...
What an Equity Research job interview like?

Nov 1, 2012

The interview covers a broad base of skills:
1. Behavioral questions
2. Accounting questions (how do the 3 statements link together?)
3. Financial concepts (walk me through a DCF, how to do you calculate free cash flow)
4. 2-3 stock pitches.
5. A modeling test - (update a model according to a press release: could be revising debt, inputing guidance, forecasting).

If you are able to prepare for these, you should be in great shape.

Nov 1, 2012

Cool, that's helpful!

What are the hours like?

Nov 1, 2012

The hours really depend on your analyst/MD. If you have a high profile, highly ranked analyst, you will see your hours go from 7AM-10PM 5-6 days a week. If you have a more relaxed analyst, you will see your hours go from 7AM-6-7PM. Equity research always starts pretty early however, (around 7AM), as research needs to be understood by the traders/sales team before they start the day and the market opens.

Nov 1, 2012

Congratulations! I hope to be in your position someday soon.

Did you want to go into ER, or did you just want to get into finance first? How long did it take you from first deciding to give it a shot to accepting an offer? How did you get your interviews - networking? If so, how did you begin?

Thanks in advance for answering!

Nov 1, 2012
MagnusRex:

Congratulations! I hope to be in your position someday soon.

Did you want to go into ER, or did you just want to get into finance first? How long did it take you from first deciding to give it a shot to accepting an offer? How did you get your interviews - networking? If so, how did you begin?

Thanks in advance for answering!

I knew sometime between my junior and senior year that I wanted to get into equity research. I knew I wanted a FO position, and the idea of covering my own sector appealed to me - it's incredibly rewarding to know a company inside out and create relationships with management and clients - thus I was drawn more toward research than towards banking.

If you read my success story, you'll see that I REALLY started to prep for ER interviews near the end of my senior year and for about 3 months after I graduated. So all in all, I would say it took me nearly 5-6 months in total to get an offer.

I tried networking, but I found that really polishing a resume and applying online worked better for me. When your job search is focused on one field, you are really able to hone your skill set towards it - over time, you will see what ER teams are looking for (modeling, accounting, attitude, and writing skills). That's how you make yourself stand out from the crowd. That's not to say networking is not an effective tool, because it obviously works for a lot of people (I also got interviews through networking). However, I was offered my current position by applying online through the normal pipeline.

Reading my success story will probably be more helpful in understanding exactly how I achieved it.

Nov 1, 2012

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

Nov 1, 2012
resipsa:

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

I mean, modeling is a very broad topic. However, if you are hoping to break into ER at the entry-level, you will have to understand how to build revenue models. I would say that's pretty much the only thing that is constant across the field. Otherwise, every company will require different modeling techniques. For example, if you are modeling a tech company, you will probably be modeling supplier/retailer prices and the economics of that relationship (most likely will have an entire model based just on that, which will flow back into your financial statement projections - eventually to get a DCF). If you are modeling a movie studio, you will probably look at the revenue streams of individual movies, production costs, overhead, etc., (again, you will probably have another separate model for this, which will flow back into your income statement).

All in all, I would say, understand the accounting and how to build revenue models down pat - this should prepare you for most things. Everything else will require training once you get the job.

Nov 5, 2012
erwannabe:
resipsa:

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

I mean, modeling is a very broad topic. However, if you are hoping to break into ER at the entry-level, you will have to understand how to build revenue models. I would say that's pretty much the only thing that is constant across the field. Otherwise, every company will require different modeling techniques. For example, if you are modeling a tech company, you will probably be modeling supplier/retailer prices and the economics of that relationship (most likely will have an entire model based just on that, which will flow back into your financial statement projections - eventually to get a DCF). If you are modeling a movie studio, you will probably look at the revenue streams of individual movies, production costs, overhead, etc., (again, you will probably have another separate model for this, which will flow back into your income statement).

All in all, I would say, understand the accounting and how to build revenue models down pat - this should prepare you for most things. Everything else will require training once you get the job.

Who DCF's? DCFs are the most piss in the wind way of valuing a company. I have yet to interact with any analyst that uses DCFs other than a last resort sanity check on valuation. I have yet to meet anyone who can accurately estimate growth out 5-10 years.

Most sell-side research focuses on earnings forecasts and then slapping on a RV comp based EV/EBITDA or P/E ratio on it.

Nov 24, 2012
erwannabe:
resipsa:

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

I mean, modeling is a very broad topic. However, if you are hoping to break into ER at the entry-level, you will have to understand how to build revenue models. I would say that's pretty much the only thing that is constant across the field. Otherwise, every company will require different modeling techniques. For example, if you are modeling a tech company, you will probably be modeling supplier/retailer prices and the economics of that relationship (most likely will have an entire model based just on that, which will flow back into your financial statement projections - eventually to get a DCF). If you are modeling a movie studio, you will probably look at the revenue streams of individual movies, production costs, overhead, etc., (again, you will probably have another separate model for this, which will flow back into your income statement).

All in all, I would say, understand the accounting and how to build revenue models down pat - this should prepare you for most things. Everything else will require training once you get the job.

Can you elaborate on "building revenue models?" I'm currently an IB analyst and we build these all the time, only off private information. How do you obtain enough information to build a revenue model off public information for say, a software guy?

Nov 1, 2012

When reading a 10-K/10-Q do you read all of it? What are you trying to get out of it?

As an investor, I find a lot of the information ancillary to the overall thesis and still struggle finding the vital parts, despite reading so many of them. Interested in how you deal with this.

Nov 1, 2012
Value Sleuth:

When reading a 10-K/10-Q do you read all of it? What are you trying to get out of it?

As an investor, I find a lot of the information ancillary to the overall thesis and still struggle finding the vital parts, despite reading so many of them. Interested in how you deal with this.

Yes. We read all of it. Every sentence. Every footnote. - you have no idea how much information is in the footnotes.

The whole point of the filings is to understand the company, how it works, and how to model it. At the most basic level, we are trying to make projections on the income statement, BS, and CFS, to eventually derive a DCF, and then a stock price target - this will help us figure out if the stock will move up, or if the stock will move down.

In order to forecast the financial statements, you need information. This is where a combination of the filings and earnings calls helps tremendously. The companies that we are modeling can reveal guidance that will help us understand where revenues/expenses/debt/etc. will go. Press releases and 8-Ks also provide more granularity on individual line items. A combination of the filings, earnings calls, our own hands on/creative analysis, is what drives our forecasts. This is also what differentiates the best ER teams and the worst.

Nov 1, 2012

What materials best helped you prepare for the job?

What level of knowledge do you consider absolutely vital for the interview process?

What was the most effective form of finding interviews for you (online, resume drop, networking, etc.)?

Nov 1, 2012
FSC:

What materials best helped you prepare for the job?

What level of knowledge do you consider absolutely vital for the interview process?

What was the most effective form of finding interviews for you (online, resume drop, networking, etc.)?

I used BIWS (breaking into wall street) - however I found it slightly more watered down than what I needed for interviews. I've heard that WSP (wall street prep) is very good as well. I used the modeling/excel stuff from BIWS and WSO/M&I interview guides.

Accounting is so vitally important. And not just the 3 statements. You need to understand how debt works, how PP&E works. It comes down to the accounting when you are modeling companies because each company has their own unique line items and way of reporting - a strong base in accounting will help you decipher all of it. Remember, your analysis is only as good as your model.

With that being said, a lot of equity researchers get by on relationships. Building a good dialogue with management teams and clients is another way to gain success.

The most effective way of finding interviews for me was simply applying online.

    • 1
Nov 1, 2012

great post, and thank you for linking your success story. Time for me to start studying/learning how to do stock pitches...

Nov 2, 2012
jasper90:

great post, and thank you for linking your success story. Time for me to start studying/learning how to do stock pitches...

Get to it! And goodluck!

Nov 2, 2012

Are you in the UK? I've never heard of a modeling test in the US.

Nov 2, 2012
Raptor.45:

Are you in the UK? I've never heard of a modeling test in the US.

I am in the US - New York.

I landed interviews with several banks - I Was given a modeling test at nearly every one.

Nov 2, 2012

Thanks a lot for answering our questions.

This might sound noob, but what exactly is your mandate? Do you publish research that other firms and individuals purchase? Is your research used in the own firm's investing decisions? Do you feed the S&T desk people your research so they can develop their own ideas and pitch them to clients? Basically, what function(s) does your research serve?

Nov 2, 2012
Pancakes:

Thanks a lot for answering our questions.

This might sound noob, but what exactly is your mandate? Do you publish research that other firms and individuals purchase? Is your research used in the own firm's investing decisions? Do you feed the S&T desk people your research so they can develop their own ideas and pitch them to clients? Basically, what function(s) does your research serve?

Not a nood question at all considering that you pretty much hit the nail on the head. The mandate of an equity researcher is to deliver the story of a company. Investors/traders/sales people all act on that story, just like you aptly mentioned. As to why er is a front office position is because it indirectly generates revenue from those people (the actually selling of research is an extremely tiny part of the revenue brought in). Equity researchers collect 33% of the revenues brought in by the sales team( 33% goes to sales, 33% to traders who execute the trade). This is why trading volume is important to researchers and why u want to be covering high profile names that get see a lot of action.

The other less known mandate of the er team is to give insight to thr banking team. Since we are experts within our sector, anytime deals happen in our sector (ipos, m&a, etc), we are brought in to do our own valuations and deliver the story to the banking team (we are brought over the chinese wall). We usually initiate on that company once the deal goes through as well.

Nov 2, 2012
erwannabe:
Pancakes:

Thanks a lot for answering our questions.

This might sound noob, but what exactly is your mandate? Do you publish research that other firms and individuals purchase? Is your research used in the own firm's investing decisions? Do you feed the S&T desk people your research so they can develop their own ideas and pitch them to clients? Basically, what function(s) does your research serve?

Not a nood question at all considering that you pretty much hit the nail on the head. The mandate of an equity researcher is to deliver the story of a company. Investors/traders/sales people all act on that story, just like you aptly mentioned. As to why er is a front office position is because it indirectly generates revenue from those people (the actually selling of research is an extremely tiny part of the revenue brought in). Equity researchers collect 33% of the revenues brought in by the sales team( 33% goes to sales, 33% to traders who execute the trade). This is why trading volume is important to researchers and why u want to be covering high profile names that get see a lot of action.

The other less known mandate of the er team is to give insight to thr banking team. Since we are experts within our sector, anytime deals happen in our sector (ipos, m&a, etc), we are brought in to do our own valuations and deliver the story to the banking team (we are brought over the chinese wall). We usually initiate on that company once the deal goes through as well.

Hey thanks for the response! Just a quick follow-up.. How do you perform research aside from reading 10-k's and 10-q's? What resources do you use to become an "expert" on a given industry (that perhaps most investors overlook)?

Nov 6, 2012

This is pretty important IMO and after 2 weeks in ER I'm beginning to see that ER isn't what I thought it was.

I was at the monthly Asia ER department meeting and the firm I'm at is pushing out a new product that acts as quick updates on particular companies. The head of the group is pushing his analysts to spend more time in the field in order to pitch to clients or covered companies (relationships lead to information or votes).

I'm in HK and in my group was told that the modeling isn't valuable - anyone can do/copy it. Our assumptions (information from the clients, footnotes, etc) is where we add our value and help us differentiate ourselves from competitors.

erwannabe:
Pancakes:

Thanks a lot for answering our questions.

This might sound noob, but what exactly is your mandate? Do you publish research that other firms and individuals purchase? Is your research used in the own firm's investing decisions? Do you feed the S&T desk people your research so they can develop their own ideas and pitch them to clients? Basically, what function(s) does your research serve?

Not a nood question at all considering that you pretty much hit the nail on the head. The mandate of an equity researcher is to deliver the story of a company. Investors/traders/sales people all act on that story, just like you aptly mentioned. As to why er is a front office position is because it indirectly generates revenue from those people (the actually selling of research is an extremely tiny part of the revenue brought in). Equity researchers collect 33% of the revenues brought in by the sales team( 33% goes to sales, 33% to traders who execute the trade). This is why trading volume is important to researchers and why u want to be covering high profile names that get see a lot of action.

The other less known mandate of the er team is to give insight to thr banking team. Since we are experts within our sector, anytime deals happen in our sector (ipos, m&a, etc), we are brought in to do our own valuations and deliver the story to the banking team (we are brought over the chinese wall). We usually initiate on that company once the deal goes through as well.

Nov 3, 2012

Where do you see yourself taking your career in 5,10, 20 years? What are the best long-term career prospects or exit ops for your position? Do you expect the work hours to stay consistent throughout your career progression (7AM to 10PM you mentioned)?

Nov 7, 2012
Industry84:

Where do you see yourself taking your career in 5,10, 20 years? What are the best long-term career prospects or exit ops for your position? Do you expect the work hours to stay consistent throughout your career progression (7AM to 10PM you mentioned)?

Curious about this as well.

Nov 3, 2012

What's your favorite brand of oatmeal?
Do you notice a strong difference between name brand oatmeal (i.e. quaker oats) and generic store bought oatmeal?
Do you enjoy flavored oatmeal or are you a purist?
How do you feel about raisins, brown sugar and other additives in your oatmeal?
Is instant oatmeal a blessing or a poor substitute for the real thing to you?

How did you feel about Quaker oats being bought out by pepsico. Do you ever feel a twinge of sadness when you type in it's now defunct stock ticker (oat) into Bloomberg. Do you still protest the board's decision to this day?

Array

Nov 4, 2012
reformed:

What's your favorite brand of oatmeal?
Do you notice a strong difference between name brand oatmeal (i.e. quaker oats) and generic store bought oatmeal?
Do you enjoy flavored oatmeal or are you a purist?
How do you feel about raisins, brown sugar and other additives in your oatmeal?
Is instant oatmeal a blessing or a poor substitute for the real thing to you?

How did you feel about Quaker oats being bought out by pepsico. Do you ever feel a twinge of sadness when you type in it's now defunct stock ticker (oat) into Bloomberg. Do you still protest the board's decision to this day?

  • Didn't eat alot of oatmeal in korea. The only thing that's comparable is called "jook" - boiled, seasoned, rice.
  • I've tried pure oatmeal - it's kinda lame.
  • Anything instant is a blessing imo.
  • lol? Gatorade?
Nov 4, 2012

what kind of internship experience did you have before you landed your role?

Nov 5, 2012

What are you actually doing, day to day? You've only been there two months; so do you think the "crazy experience" description is more you just being on an emotional high from recently starting the job?

What companies did you pitch in your interview for this firm? What sector does your analyst cover? Is it something you're interested in, if not are there ways you can move around, or are you stuck?

Whats your next move, I'm assuming you're trying to eventually get to a buyside role? If you want to stay on the sell side, how long does it typically take for you to take on an analyst position?

What happened to the associate who was there before you / Have any associates recently left, where did they go?

Thanks for putting this thread together.

Nov 6, 2012

Is oopa gangnam style your favorite song?

Nov 7, 2012
tiger2012:
erwannabe:
resipsa:

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

I mean, modeling is a very broad topic. However, if you are hoping to break into ER at the entry-level, you will have to understand how to build revenue models. I would say that's pretty much the only thing that is constant across the field. Otherwise, every company will require different modeling techniques. For example, if you are modeling a tech company, you will probably be modeling supplier/retailer prices and the economics of that relationship (most likely will have an entire model based just on that, which will flow back into your financial statement projections - eventually to get a DCF). If you are modeling a movie studio, you will probably look at the revenue streams of individual movies, production costs, overhead, etc., (again, you will probably have another separate model for this, which will flow back into your income statement).

All in all, I would say, understand the accounting and how to build revenue models down pat - this should prepare you for most things. Everything else will require training once you get the job.

Who DCF's? DCFs are the most piss in the wind way of valuing a company. I have yet to interact with any analyst that uses DCFs other than a last resort sanity check on valuation. I have yet to meet anyone who can accurately estimate growth out 5-10 years.

Most sell-side research focuses on earnings forecasts and then slapping on a RV comp based EV/EBITDA or P/E ratio on it.

We occasionally use DCF if a business or segment is undergoing a significant investment cycle that is going to dramatically increase earnings over the next few years. That won't be captured by just slapping a multiple on next year's earnings or ebitda. It's never the primary tool or determinant of value, but it is something we look at sometimes.

Nov 8, 2012
rjroberts1:

We occasionally use DCF if a business or segment is undergoing a significant investment cycle that is going to dramatically increase earnings over the next few years. That won't be captured by just slapping a multiple on next year's earnings or ebitda. It's never the primary tool or determinant of value, but it is something we look at sometimes.

Slapping a multiple on next year's earnings? If that multiple is higher or lower based on future growth prospects, is it just sort of implied that you did the math for years 3 through 10 in your head?

Nov 10, 2012
rjroberts1:
tiger2012:
erwannabe:
resipsa:

What are the modeling techniques you use most often and what best prepared you for that? I'm an analyst at a securities consulting firm hoping to break into ER.

I mean, modeling is a very broad topic. However, if you are hoping to break into ER at the entry-level, you will have to understand how to build revenue models. I would say that's pretty much the only thing that is constant across the field. Otherwise, every company will require different modeling techniques. For example, if you are modeling a tech company, you will probably be modeling supplier/retailer prices and the economics of that relationship (most likely will have an entire model based just on that, which will flow back into your financial statement projections - eventually to get a DCF). If you are modeling a movie studio, you will probably look at the revenue streams of individual movies, production costs, overhead, etc., (again, you will probably have another separate model for this, which will flow back into your income statement).

All in all, I would say, understand the accounting and how to build revenue models down pat - this should prepare you for most things. Everything else will require training once you get the job.

Who DCF's? DCFs are the most piss in the wind way of valuing a company. I have yet to interact with any analyst that uses DCFs other than a last resort sanity check on valuation. I have yet to meet anyone who can accurately estimate growth out 5-10 years.

Most sell-side research focuses on earnings forecasts and then slapping on a RV comp based EV/EBITDA or P/E ratio on it.

We occasionally use DCF if a business or segment is undergoing a significant investment cycle that is going to dramatically increase earnings over the next few years. That won't be captured by just slapping a multiple on next year's earnings or ebitda. It's never the primary tool or determinant of value, but it is something we look at sometimes.

Different strokes for different folks. I'm a consumer/retail guy. Earnings build pretty much the same way unless you're looking at a company like NFLX where they need certain subscription #s to really get earnings going. Of course thats probably venturing into TMT land depending on where you draw your lines.

But I defintely can see more of a merit in E&C or idustrials, capital goods, etc.

Nov 7, 2012

jook is delicious

Nov 14, 2012

What would your advice be to people trying to make the switch from other careers?

Nov 22, 2012
  1. What kind of modeling would you say is expected in a modeling test? i.e. would an LBO or Merger model be there or more of a DCF?
  2. How many stock pitches would you say are necessary for an interview?
  3. Where can I find existing models to play with and tweak/update so I can be better prepared for it in an interview? I've created my own from scratch but I'd like to see others so I can get comfortable with changing them around.

Thanks.

Nov 24, 2012
Comment

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

Nov 25, 2012