Equity Research - Getting Started

Yeah, that was my next step if I can't find the reports online. Thanks for the suggestion, I'll reach out to my team and see what I can get.

...and then realise that 1) it will always exist 2) it can be one of the most lucrative careers if applied correctly.

u can alway go in to IB and PE... cuz u have tons of industry knowledge.. and u ahve done number of valuations.

correct me if i am wrong...

I know that equity research will always exist, but I do not know if it is necessarily true that it must exist in NYC for example. A majority of it could hypothetically be outsourced, like IT work.

Cash, Rules, Everything, Around, Me C.R.E.A.M. Get the money Dollar, dollar bill y'all

then you don't know what equity research is.

1) the point about outsourcing is plain stupid. in fact outsourcing is an extremely good thing in ER as basically bitch work (model maintenance, data intensive work etc.) is sent to india leaving more time and energy for prop analysis/idea generation and client contact. you have to understand what the value add is in sellside er. analyst duties in banking are much more easily outsourced.

2) most bankers are recruited straight out of school (ugrad/mba) while a lot people join er after experience in different industries (industry knowledge is crucial). sellside er is probably the most obvious stepping stone to finance, so there's a lot of competition from guys trying to break in from outside. it's meaningless to talk about which position is harder to get. in this market everything is hard...i know guys with all three levels of cfa starting right now in the most junior positions in er.

"1) Is ER being outsourced to the point where it would be stupid to pursue opportunities in it?"

no...there will always be equity research in the united states, simply because it's impractical to be covering u.s. stocks in other parts of the world. importantly, what actually matters most to a lot of buy-side firms is (1) idea generation and (2) access to senior management teams. i know this maybe hard for someone outside the industry to understand, but a lot of the big hedge funds and asset management firms will follow the stocks just as intently as the sell-side, so they don't care as much about industry notes and earnings reports and stuff. however, the best sell-side analysts are the ones that provide access to management teams and that also are very good with originating new ideas.

"2) How competitive is it to get into ER out of undergrad? Particularly from a non-target?(I've heard everything from that its no harder than ops to just as hard as IBD because smaller ER analyst class)"

i interviewed for both banking and resesarch jobs and ended up getting offers in both. i ended up working in equity research for 2.5 years and decided to go that route since, at that time, i felt i was more interested in public markets and investing in stocks. i'd say on average, the strength of resumes for undergrad IB hiring was stronger than that for research, but this was probably due to a number of factors including that more people wanted banking and fewer spots were available for ER (there is definitely less recruiting on the research side). at the end of the day, though, there are definitely people in research that really know their stuff, and some people who got jobs but really had no idea what they're getting themselves into -- and this isn't so different than banking. so at the end of the day, i'd say it's somewhat harder to get a banking job but it's no walk in the park to get a research job either. i was able to get research and banking offers from BB's and went the research route.

however, as soon as i realized that the type of work wasn't exactly what i wanted to do, and that i was more interested in transactions and private investing, i went all-out in terms of private equity recruiting. it's much harder to get into PE from research than banking, but not impossible. i think the reason that it's harder to get into PE from research than banking is for a number of reasons: (1) most people in PE came from banking, so it's more of a "known entity" when they hire people of similar backgrounds; (2) banking analysts are available in larger classes, whereas the research classes are smaller and less regimented; and (3) banking analysts have experiences working on transactional models which is something that's very important to PE.

that being said, i still think research skills and industry knowledge that you gain in ER are very relevant to diligencing potential investments in private equity, and that was something i discussed a lot. potential employers understood that i didn't come from banking, but i knew how to build basic LBO and M&A models and i guess i did sufficiently well on model tests and case studies. at the end i decided to sign on with a $3-6 billion MM buyout firm, which is where i'm at now.

anyway i hope these perspectives are helpful. i think i'm clearly the exception rather than the norm as most people in ER tend to go to Asset Management or hedge funds, but it's not impossible if you're determined to make the move.

i hope this helps

if you're curious to learn more about equity research and everything pertaining to it, you should go to www.analystforum.com, check General Discussion, and do a search for "numi research" or "numi ER". i've written hundreds of posts relating to all aspects of equity research, whether it's related to the industry as a whole, what people do day-to-day, how to interview, what good research analysts do, etc...so hopefully you'll find some good advice there.

finally, if you're further interested in how i moved to private equity, i wrote a fairly detailed post here --> http://www.analystforum.com/phorums/read.php?1,657261,page=1

i started writing on analystforum several years ago and only recently joined WSO when i switched into private equity, but i do think that you gain a lot of interesting insights and responsibilities in research and i can certainly say that many of my experiences in research were transferable to PE. however i also think PE is the type of job where you basically have to draw upon all the finance and business skills you've ever developed, no matter what field you came from, since the type of work you do tends to be so varied and all-encompassing...but that's also why i've found PE to be so interesting.

thanks for great posts numi

Cash, Rules, Everything, Around, Me C.R.E.A.M. Get the money Dollar, dollar bill y'all

damn i thought this thread was about the TV show

although you've switched emphasis (from sellside to buyside), do you not consider the work that you do to be equity/capital research?

John Mack, could you please elaborate?

my point to the OP is that only considering equity research (as it is traditionally viewed) is very short-sighted and misses the point.

Within ER, you learnt how to research and identify industry trends, strengths and weaknesses of a company, and how to value it - the technical side of the job. You also learnt how to construct interesting and pursuasive arguments to convince investors to follow your advice - the "soft skills" side.

What you do now is really not a million miles away from what you did before. Sure, you may not have the hassle of updating quarterly models and publishing maintenance research - but you are essentially identifying assets that you think are cheap or expensive.

It doesn't matter what label you want to put on it - if you can do this well, you will always be well paid.

John Mack - what you're saying is definitely true. The knowledge that you gain in equity research is very transferable to other fields. In equity research, your role is to look at a wide array of qualitative and quantitative information, and your job is to distill it all the way down to determining (1) how much a business is worth, and (2) why investors should or shouldn't buy it. To that end, I've found that the analytical skills I developed in research, many of which you mentioned in your post, have come in very handily in private equity, especially when it comes to vetting potential buyout opportunities. In addition, because equity research teams tend to have one or two associates at most, junior personnel are typically pretty involved with meeting and speaking with company management teams, and knowing how to evaluate and grade managements is of course very important on the private equity side.

To your other point about good researchers always being able to get paid, I also agree. It's true that the sell-side business model has evolved quite a bit since the Global Settlement, but (1) people are always going to need investment advice, and (2) employers are always looking for someone that has the skills to put a price on potential investment ideas.

As far as why bankers tend to be more sought-after for private equity firms, I do think a lot of it is because of the modeling experience as well as the familiarity with the deal process. However, in my brief experience in PE based on the two months I've been here so far, I've found that the associates that came from banking tend to be more process- and detail-driven whereas people from an equity research background are more apt to thinking about "bigger picture" issues regarding businesses, which is what research analysts do every day on the sell-side (i.e. think about broader industry and company trends).

At the end of the day, I think both banking and research backgrounds are useful in private equity -- maybe banking more so than research -- but if you position your skill set in the proper fashion, I do think research backgrounds can be similarly transferable. As you implied, private equity is basically applying the same knowledge you had when looking at public investments towards private investments.

Is it better to start as a research analyst in the sell-side or in the buys-side (as in Asset Management)in terms of exit ops and compensation?

funkytommy, use the search function...

your post was very insightful thanks alot numi.

great post

Can anyone suggest good readings to learn more about ER?

cfa analyst forum numi ? Really bugging me that I've seen your name somewhere else...

@ tentop http://www.wallstreetoasis.com/forums/howdy-special-offer-limited-time-…

Learning Potential: Don't kid yourself, you do not get to do THAT much actual analysis as you might think. As a junior person, you spend a lot of time doing "analysis", i.e. reading reports, crunching numbers, building models, etc, but you don't often get the final say as to what that analysis means. Since your senior analyst already usually has a set of opinions and views on the particular industry or companies, your analysis usually works to back that up.

The work is sometimes stimulating, alot of times it's not. A good deal of time is taken up by earnings reports, which happens 4 times a year, pretty much the same routine each reporting period. That gets really boring.

The only stimulating aspects are the "special" reports written once in a while. This is either an initiation report, quarterly industry report, or a special report on a company in coverage. These projects require more work, more thought, and usually are a bit more interesting.

The rest of your time is spent satisfying client requests (so yes, you do have to keep checking ppts and worrying about formatting), talking to sales and trading about your industry and companies. Reports also take time to format and etc.

Still, ER is a nice balance between IBD and S&T in terms of hours and type of work done.

Prestige: Depends on bank, some banks really push research function, others don't. In any case, you won't be respected as much as S&T and IB regardless, since you don't generate revenues. Any revenues generated are under the S&T P&L, since trades are placed through S&T.

Exit Ops: Not all hedge funds are quant-based funds, there are value funds and fundamental funds. Portfolio management is another common place people go to, some have done a 3rd year in IB or S&T.

To be honest, I have a quite a different experience with my time in ER.

I think this might have a lot to do with what team you're on.

In terms of work stimulation, it can be pretty interesting b/c you're constantly reacting to news flow and you are always rewarded for your creativity.

Furthermore, where I work, research is an incredibly important function and salesman and traders depend on us quite a bit. Ultimately, ER is the backbone of most banks, despite going through a tough phase post spitzer which really hurt the respect of ER in the industry. But, to be honest, the rule changes have been quite useful and we're much better at what we do. Frankly, the number of hedge funds that are depending on quality research is increasing by the day

I also don't agree with the revenue generation. It is our ideas that generate revenue and our work that is just copied and pasted by salesman to make trades. I have definitely generated revenue b/c I am very much able to convince someone on the buy side to invest or divest in stock a. To suggest ER isn't revenue generating is like saying the manufacturers of GAP clothing aren't the revenue generators but rather the saleswoman who helps you try on your shit.

For me, I already have my name on all the reports already which is rare and my opinion is being sought after by a lot of senior salesman and traders.

My exit opps so far have been prop trading, working at a hedge fund and moving up to hedge fund manager and porfolio management. My buddy just move to do high yield bonds and many senior ERs sometimes move to corporate finance.

Anyway, I have a very different experience. But I'm on a top team where ER is an incredibly important function and where I have a lot of say - so your experience will definitely depend on what bank you go to.

Wow, that's some perspective ratul. I wonder whether your great experience is a result of which bank you're at, or just because you're a standout analyst.

I understand what you mean by ER being an important part of profits, but in a way the people who actually close the deals get more credit. There seems to be a connection with bonuses here, but if you're a star, I guess you can strike gold whatever you do.

But looking at freeloader's post, I wonder how representative ratul's experience has been of ER in general. How does the average guy do? (Keep in mind that I have no idea how good I'd be at any of this stuff, so I'll assume I'm average for now.)

bump

1. ER is the start of a standard career path that usually ends in being a Portfolio Manager on the buy side. Yes, people can get good ER jobs out of undergrad, but it's a very different job to recruit for. You can find a ton on these forums about it, but basically ER classes are smaller than IB, but there is also less interest in ER than IB.

2. I think a lot of schools lump ER guys in with IB guys for MBA admission purposes. They can both be considered high quality work experience, but the difficult part is that business schools really look for career progression, which is difficult to demonstrate in ER. In IB you do an analyst stint for a few years, then go associate or go to the buy side. In ER you have to be an associate for longer than 2-3 years to become an Analyst (hierarchy is reverse; IB goes analyst>>associate, ER goes associate>>analyst), so demonstrating career progression is more difficult. Other exit opps are mainly focused around portfolio management, where you'll become an analyst on the buy side and eventually try to become a PM. VC or PE are definitely possible, but it's kinda an uphill battle because you don't have the transaction experience the former investment bankers have. Definitely easier to use the MBA as transition to PE or VC versus going straight from ER. Other exit opportunities are in corporate finance, such as Investor Relations or Treasury for a F500.

3. Pretty selective, mainly because there aren't many positions. I'd say more selective than S&T, but less selective than IBD.

4. The usual suspects, the BB's. Institutional Investor does a ranking every year, the most recent one has JPMorgan, Morgan Stanley, then I think Bank of America then Credit Suisse. In terms of number of companies followed, it's a bit different. You see firms like RBC, Raymond James, Stifel Nicolaus, Bank of America near the top.

Do you think, for somebody who didn't go straight into ER out of UG, it might be worth going back for an MBA just for a "fresh slate", or some internship opps? I'm doing business analysis for an oil firm but would kill to do research on upstream O&G. Also live in a non-financial center (calgary AB) so not sure how that plays into things.

I'm going to tell you nicely. Please use the search function before you get flamed for a post like this. Nothing you asked is new so look for it. Especially if you are considering doing RESEARCH....might as well get use to it now.

1) Company needs but very few houses nowadays have publishing FI research. Lifestyle highly dependent on senior analyst. Base for first year around 70k street wide. Bonuses a crap shoot pass 4 years. 2) yes, as an associate myself I travel like 10% - 15% of the time while my analyst is like 50% 3) no, You just have to have proven track record with clients and internally. I know a 33 year old director who started off as an analyst at 23. Only has BS, no CFA or MBA. Don't know anyone who moved from ER to IBD. Have 1 friend who did do ER to PE megafund though. 4) You have to ask them themselves but generic answer: lifestyle, culture, less hours, more entrepreneurial, flat structure, investment rather then transaction oriented, etc.

10-k, 10-q, earnings transcripts, press releases, industry reports, blogs, product reviews, data-based research ,etc.

Time spent varies by industry covered

WSO and Dealbreaker (25% of the time during between earnings seasons).

Bloomberg chat

1) Read not just about the industry but about some of the large companies within that industry. For example telecoms. You could search Google, WSJ, FT, Bloomberg, Reuters etc. for news on the telecoms industry, and then look for news on some of the big global (or whatever location you're looking at) players i.e. AT&T, Vodafone, Deutsche Telekom etc. to see what they are doing and what they are focussing on.

Also try and find some key new technology which is being developed and which you think could have a big impact in the future. To use my telecoms example you could talk about smartphone adoption rates in developing markets, expanding 4G coverage, latest trends towards how phones are used, how you think revenues will be generated (i.e. will it be data, telephone calls, messages etc.)

2) Usually you can find most things or at least a reference to things if you search for every conceivable permutation of how the question could be phrased. I understand it's tough without having a dedicated team you can just call up to find data for you, but even they get their information from somewhere. There are often industry specific websites which provide information and reports on everything within the sector. This is probably the hardest one to do as you are right, sometimes the data is simply not there or you cannot access it. One thing I would suggest is look for investor columns on the given companies or sectors. These should not be taken as investment advice, but can sometimes contain nuggets of information (be sure to source check though! Contact the authors if necessary!).

3) Print them out. Stuff is 100x harder to read on screen than it is on paper I find. Also if you print stuff out you can highlight it and feel more important with a big stack of papers. I would read the Annual Reports (not just 10-Ks) for the management statement so you get a feel for where the company is going. Obviously go through the financials and any accompanying footnotes with a fine tooth comb. Always assume that there is something bad to find and make it your mission to find it.

4) Speak to the floor managers to see what their opinion is on the process. The senior management will always say stuff is fine, its the low-middle employees who really know what's going on. Checking for cleanliness is a good idea. Also observe the canteen during lunch if possible to see if the workers are happy as happy workers are usually better ones. Before you go, write down a list of the various points you want to investigate, dont just go in thinking "right, better find some stuff out!".

Hope this helped a bit.

Paper costs about 1 cent a page. Don't feel bad in the slightest. A full annual report probably only costs about $1.50-$2 to print on a proper laserjet. Plus, the smell of freshly printed warm annual reports is a necessity for productivity.

Research tends to be more on an as needed basis, so yes, it is harder than banking. But im sure if you express interest to the recruiter they'll give you a hand.

I've heard ER research is less prestige whore based than IB. However, at BB's where you went to school will always be a factor.

In general there are less spots available in ER

my SA class had like 5-7 kids in ER, and they were just grouped into the overall global markets program. it's a MUCH smaller number as others have said, so that's probably why you haven't seen as many postings.

Have good writing skills...and be creative and able to sell. Believe it or not, equity research is as much of a sales/marketing job as is a fundamental research gig

Agree with that guy ^

Also, I was wondering what college you go to and how you like the accounting internship.

Get proficient in reading financial statements and see the links between them. Writing skills are crucial. Sales skills will be useful at the later stage of career in ER.

Do you use any brokerages for your self trading? I can usually pull up some reports on my online brokerage