Buy Side Newbie

Hi everyone. I'm a couple months (associate level) in at a boutique shop working directly under a PM(<500m port). Have already covered more than 50 companies since I started and definitely feeling the heat already, is my scope too big (according to James Valentine, hell yes)?

What are some of the key skills/knowledge I should master to better my exit opportunities apart from reading (I have mostly finished reading every investing book esp. value related you can think of) and doing what I do everyday like going through heaps of info and improvizing models?

And is embarking on CFA absolutely necessary for further progression (as my name sugggests, CFA material is largely irrelevant to me)?

Should I commit to the buy side path or stray over to sell side and then back to buy side?

Apologies for the long wall of text, any constructive response will be greatly appreciated. Thank you.

Comments (17)

Apr 18, 2018

Bump... In a similar situation

Apr 18, 2018

curious as well.... I cover around 10 credit companies and have been around for about 1.5 years..

May 4, 2018

Bumping this post, anyone keen to share their thoughts?

May 4, 2018

For what it's worth, all the analysts at my shop (~$2.5B), cover ~25-30 companies at a time and pitch enough ideas to have turnover around 25%/yr.

As far as CFA goes, in my experience, it sounds like just an expectation to have it at a lot of firms... A majority wasn't super relevant to me, but it was just an expectation/table stakes.

Also, this is just my opinion, but I don't think leaving to get sell side experience would be worthwhile at all. If you want to be in the buy side, I'd stay there.

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May 10, 2018

Is experience in a family office highly regarded in the equity research field? As compared to maybe someone from a BB?

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May 4, 2018

Curitous too

Best Response
May 5, 2018

If you've covered 50 companies in three months then covered is an optimistic verb :)

This is an industry being disrupted by low cost index funds. Most people over 40 cannot acknowledge it, but the value-add they presumed they were providing (reputed stock picking expertise, or in some cases actual stock picking expertise) is not actually what most investors want. They just wanted access to the market and index funds provide that.

The future of the buy-side is either actual stock picking skill, or a thematic approach (e.g. ESG) that works from a marketing perspective. The CFA furthers neither of these. It will die as a certification because its value has always been as a marketing tool to differentiate the access-oriented hacks from the "sophisticated" access-oriented.

Do you want to be a good/great investor? Then figure out your edge. Understand how your personality diverges or converges with the personality of the market. Are your analytical skills better? It's not the same for everyone.

But anyway, FUCK the CFA :)

I've said this many times but read about companies, understand industries, and build your knowledge from there. You have value to me if you demonstrate in depth knowledge of a single industry.

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May 10, 2018

I sense a general hate among the the ER community towards the CFA designation, but it doesn't seem to slow down the horde of people grinding towards that designation. For that matter, does the designation provide any tinge of value to your skillset?

No doubt having depth of knowledge in industries will help you generate alpha, but realistically, with the markets being so dynamic and having to keep yourself updated constantly, how many industries can one person adequately know? Where is the sweet spot between breadth and depth for buy side?

May 27, 2018

Yes I would say it does provide a tinge of value. It tells me that a 23 year old, or a whatever year old is pretty smart and definitely dedicated. If you were a high GPA student it doesn't add much because I figure that you are pretty smart.

I am just more impressed by actual company knowledge and I think that most in the industry are as well.

One person can cover the entire equity market. It's not easy but feasible and desirable. It is the apex of the profession. It is what makes the success of the long-term hedge funds and mutual funds. The key is having a PM who can predict the future. They have an understanding of secular trends and who may best positioned to capitalize.

The sweet spot is depth and breadth, but that isn't really an answer. So here's my answer. Do enough deep work in enough industries to get a good feel for the entire market. At this point depth becomes less important. You can delegate it. You understand industries. You understand the nuances thereof. Everything has its analogue and you use this to your advantage.

It will take a few years for even the best of us to get to this point.

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May 11, 2018

You know what they say about opinions... so here are my few cents.

  1. CFA doesn't hurt to have but it can hurt your ability to advance if it takes away from your work in the early years. If your a generalist it likely doesn't take away since you aren't specializing in a particular industry. I run two equity portfolios (AUM $250mm) and a have a team of two analysts. I don't have a CFA and after level one I saw no real value in it; I moved from industry (decade) to ER (4 yrs) then buyside. CFA would have impacted my ability to launch coverage in ER and manage on buyside. Colleague that manages several billion no CFA either and we both feel about the same. Good to have. Get it early. But don't let it get in the way. When I've interview analysts for roles I could care less about the CFA. It doesn't make anyone a better analyst (maybe a leg up of a couple months but with a good mentor you can leap past a text book), better stock picker or portfolio manager. But some jurisdictions in Canada seem to feel a CFA is needed to be a PM, and some funds may require it for senior roles if your don't have years of experience so consider that. As an aside that is hilarious since the CFA doesn't make anyone a superior analyst or PM.
  2. 50 companies. Like wso23 said, 50 companies covered in three months is optimistic. Coverage definitely has different meanings but for me it means you know the company well and have spent time discussing it with management and likely a few analysts after diving into financials and various filings. Sellside mindset says at least two weeks to get to know and model up a company. Buyside if you know the space extremely well a week plus a few days for analyst calls and management calls can do the trick. That doesn't even consider looking at timing and weighting but that's typically for the PM. I expect my analysts and I to know every company we own well, but between the three of us we should them all extremely well That is around 40-60 unique names. 50 new in three months that seems high but I run very concentrated sector portfolios with a core universe of around 200-300 names.
  3. Back to CFA... does it matter? Look around your shop. How many PMs have it? How many senior analysts have it? What are their background? If it's a shop that thinks the CFA is a glorious piece of paper then you will likely need it to advance. If not then your time might be better spent finding your niche and becoming the best damn analyst you can be. That's how you get noticed not by having a CFA and being able to calculate the cash flow for a company pension using GAAP. You get noticed by having great picks and being will to take a risk and make the pitch.
  4. Don't leave from buyside to sellside if you want to be in buyside longterm. Just don't do it! If you really want to learn about sell side just talk to an associate (not the lead analyst) at a conference and get to know how miserable their jobs might be and all the work they do. Ask for their models to learn how they model and seek out the best models to learn and duplicate or enhance. You can do the same on the buyside if you want but with the added benefit of trying understand why two stocks with the same total return could be weighted in the top and bottom of a portfolio. Sellside won't teach you that. I've never met a good analyst on the buyside that dreams of going to the sellside... and I don't think I've met an analyst or associate on the sellside that doesn't dream of going to the buyside or wish they made the move early in their careers when they had the chance.

Well that was a long post...

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May 23, 2018

Regarding the CFA, do you have an opinion on attempting the CFA during undergraduate? You mention getting the designation early, but not letting it get in the way. Thank you for your thoughts.

May 23, 2018

Sounds like some MBAs teach part of their curriculum to line up with level 1 and level 2 exams. Rather expensive prep course if you ask me but good idea to kill two birds with one stone. As for undergrad I guess if you have time but that depends on your course work and program (focusing on the degree and grades ought to be the priority above all else). Would likely help with level 1 and parts of level 2 (information might be fresh in your mind).

Curious if anyone has done this.

May 22, 2018

I'm not sure why you'd want to leave the buyside just to eventually come back.

My 2c on the CFA: if not having it is hindering your career progression/it's necessary at your firm to move up, then get it. Otherwise, I'm not sure it's worth it. I don't have it so take my thoughts worth accordingly.

Study quants and venture investors. Seriously.

Study Philip Tetlock and use what you learn to refine your process.

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May 25, 2018

Thank you for your thoughts. Studying for the CFA programs, assuming available time and energy, seems to be a common piece of advice

May 29, 2018
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