Comments (47)

Feb 11, 2013

ER talks to S&T constantly. S&T wants details, selling points, and comps from ER, ER wants to know what's going on with their stocks/peers/clients.

Because S&T is trading, they can hit ER with data on crosses and news, because ER is so deep in the stories, they can make calls to S&T clients to give them data/opinions/assesments of their coverage universe.

Feb 11, 2013

I thought it was sales job to get selling points and traders just execute the orders as they come in?

Feb 11, 2013
jonmorris:

I thought it was sales job to get selling points and traders just execute the orders as they come in?

Execution traders yes, prop traders no. Sales traders often place their own trades. And some sales (and marketing) folks have their underwriting/trades done by a third party completely. If it's buyside research, then they're neck deep in helping figure out how to structure trades, or at least on speed dial.

IBD doesn't talk to research freely because then ER will turn around to S&T saying "Holy fucking hell yeah broski, buy/sell/whatever that shit before it goes public, you owe me drinks, kthxbai" and that pisses off the government (and basically everyone not in the loop). They can talk to S&T because it's all public information. The stuff that's NOT published is arguably more important a lot of the time, because if you need 'color' on something and you need it right away, who you gonna call? Ghostbusters?

No. You call ER.

ER is basicaly an information source that's also batting for the bank however/wherever possible, and you get access to research as an institutional buyer as a bonus for taking S&T business to that bank. Everyone else has to pay. Usually. On top of that, they can connect you to other sources of information. It's stuff most people can do, but it's ALL they do and therefore they tend to get very good at it and know who to talk to and where to go while everyone else is occupied with other functions.

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Feb 11, 2013

Hell no. Clients need more data man, we are constantly talking about everything. Traders can see what's happening as close to real time as is possible, sales are supposed to know everything about their client's positions, and ER should know everything about their focus names.

Ideal situation, trader sees some action on a name, maybe suspected iceberg, tells ER and Sales, sales looks to ER, is there a reason someone is dumping? give me three reasons my client should buy this. ER gives the goods, sales hammers the phone. Once they convince a client to get in, the trader and client might talk the actual execution, what price, how much to show, do they call the seller to find out if it is an iceberg, how much is availible etc. and maybe crank a block trade. Go back to Management strategy in first or second year: Strategy, Tactics, Execution - ER, Sales, Trading respectively.

Feb 11, 2013
overpaid_overworked:

Strategy, Tactics, Execution - ER, Sales, Trading respectively.

Well, that sums it up nicely, I wrote this down so I keep this in mind

Feb 11, 2013

Damn, hate it when someone puts in a better comment than mine while I'm typing.

Feb 11, 2013
overpaid_overworked:

Damn, hate it when someone puts in a better comment than mine while I'm typing.

....maybe, I went back and edited because I sounded like a grumpy ogre :D

Feb 11, 2013

So is it fair to say that the only time trading wants to talk to ER is when the stock is getting hammered or people are piling in? i.e. when there is a need for information right there and then to explain sudden movement?

Feb 12, 2013
jonmorris:

So is it fair to say that the only time trading wants to talk to ER is when the stock is getting hammered or people are piling in?

No.

Think about it. They're an on hand, interactive encyclopedia with connectivity throughout a sector. Why would you wait until shit hits the fan to take advantage of that?

Feb 11, 2013

Trading doesn't want to have to pick up the phone and call ER, that typically means that something is happening and they want answers as to why. They'd prefer that ER gets them the information before they see it on the screen, because no one likes telling a client they don't know why something is happening. That said, we all work with imperfect information, nobody knows everything that is going on, so communication back and forth between S&T and ER is the key to making money, largely by minimizing clusterfucks.

Feb 11, 2013

but doesn't ER only find out why something is blowing up after the fact, also?
I mean if a large holder just decides to rotate out of a stock and into something else, and the stock is down as a result, how could ER know about that?

Feb 11, 2013

Could be that a PM ("Portfolio Manager") was talking to the ER Analyst about upcoming events and that drives the PM to make a trade.

Great example, in 2012, Ithaca Energy was subject to takeover offers, stock runs up to $3.50 on the news. We get calls from clients that we put into the stock at $2.00 and lower. Based on our review, the sale price couldn't exceed ~$3.75, but if the deal fell through, stock goes back to $2.00. They call the desk and start selling, we see huge volume on the stock.....but, being the couteous ER folks that we are, we told the desk that we were making that call to all the clients, boom big trading for our shop. Fallout, deal dies, stock drops to $1.70ish, we put a bunch of clients back into the name at a lower price. They made money, we made money, everyone is happy.

Another example, I read foreign language newspapers every morning to try and find stuff that other people don't know about yet, we see news in a Chinese paper, inform our desk and clients hours before the competition, now we are the iceberg order, selling our stock before the market gets the bad news. Again, our clients love us.

Back to the strategy comparision, ER found the news/made the call to sell these stocks, Sales gets the clients to agree to sell these stocks, Trading gets the best price they can for our clients. Anyone on the chain fucks up, it's no good. Either we don't get the data and nothing happens, or sales sits on it and nothing happens, or trading fucks up the sales but asking too much, too little or showing too much, our clients don't make as much money. It's a team effort, but when it work's it's a beauty.

Feb 11, 2013

those are good examples thanks.
i guess if it is for some other reason, you just don't know what's going

Feb 11, 2013

Sure, it goes all ways. Could be that we get side swiped and have no idea that something hit the market. Sometimes we get calls from the desk asking why a stock is going up or down and we just don't know and can't figure it out, those are bad days. Sometimes two sales people will have independant clients that want to both buy or both sell or buy and sell, it's on the trader to see the movements, line up the cross if it's there, or use the larger position to try and get better leverage for both trades. We can't trade for one client at the disadvantage of another, but if we can advantage them both equally, it's on. Sometimes, because we talk to clients on the stocks, there might be a big trade on if we can find more buyers, re: taking down a big block, sales might call us to see who we've spoken to recently that might want a piece. It's fun.

Feb 11, 2013

do you mind me asking where you are? BB? MM? Boutique?

Feb 12, 2013

I'm at a boutique with heavy focus on resources.

I'll agree with UFOinsider, we know all our companies under coverage well, and have a ton of data/info on other companies in our universe, our revenues as a firm are best when there is a constant and two directional communitation between S&T and ER.

Feb 12, 2013

so what's an example of a conversation between ER and Trading if there's nothing happening on a particular stock or sector?

Feb 12, 2013
jonmorris:

so what's an example of a conversation between ER and Trading if there's nothing happening on a particular stock or sector?

Trader: Dude, you totally hooked it up last week, let's get sushi and drinks later
ER: Sure, but I'm wise to you having them make me a wasabi roll again...
Trader: Ok ok ok, but that was funny, you gotta admit
ER: It was terrible
Trader: Hey, at least I didn't have 50 pizzas delivered to you
ER: This is true
Trader: Ok cool, see you laters
ER: Ok. BTW, I'm sending you some updated projections, let me know what you think
.....5 mins later.....
Trader: wow, that's good stuff, thanks. There hasn't been much going on, this gives me an idea
ER: Glad to help.
Trader: How long do you think this trend will last?
ER: Hard to say, probably another few weeks, but may carry into next month.
Trader: Saweet, I'm on it.
ER: ALSO....this will probably flatten out quickly, so you might want to trade out a bit early and lock it in. It might not, but that's what I'm seeing. If you want to push your luck I don't really have a feel yet for a longer time horizon.
Trader: k

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Feb 12, 2013

Trading: What are the upcoming catalysts here, when's it going to move?
ER: (Best guess on what's going to happen)
Trading: That's too far away, this is dead money until then, what's a good pair trade for this or is it worth writing calls till the next event?

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Feb 12, 2013

ok, nice, thanks

Feb 12, 2013

Actual conversation I had:
Trading: hey, what are you guys projecting for production from xxx-N in 2012?
Me: You mean the report we put out this morning, like 20 minutes ago, and talked about on the morning call?
Trading: yeah that one.
Me: Have you got a copy of the report?
Trading: In my hand.
Me: Go to the big chart at the bottom of page one, look under the column 2012E.
Trading: So 15,000 boe/d?
Me: Yup, anything else?
Trading: 'Click'

Feb 12, 2013

what if the ER guy comes across something material, non-public?
If he tells trading, is that considered 'tipping'?

Feb 12, 2013

Mosaic theory, learn it, love it, it will be your friend.

We don't ever want to get offside with data, it gets us restricted from publishing, makes me very edgy when someone calls to ask questions about that story.

Feb 12, 2013

Ok, so how does the conversation go, let's say an insider has just given you something big that is material non-public. What are you doing about it...

Feb 12, 2013

Sit on it. Request they make the intel public as soon as reasonibly possible. Couple reasons, you can end your career pretty quickly if you get caught insider trading or leading your firm to do so. Secondly, if you're restricted, but your competition is spreading that shit, you're losing money to them by playing fair. Worst was getting a call from a client if we knew anything about this rumor ofa takeover which we knew to be fact. Can't say anything and it puts you in a hard spot, don't want to lie either.

I know the joke is that 'insider trading is like peeing in the pool, sounds gross but everyone does it', and the reality is that you likely won't get caught, but the math works against you. If you trade on inside information in quantities small enough that you can't get caught, there's no upside. If you trade on inside information in a meaningful way, re: enough to make serious money, you'll likely get caught. Yeah, there's lots of guys that do bad shit, then get hired by a firm that is happy to let them do that shit, but I think there are fewer of them than there are guys who've had a ruined career by getting offside.

We actaully don't like being privy to insider intel, but that's where mosaic theory comes in.

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Feb 20, 2013

Hey - Thanks for all your commentary, it's really useful.
Can I ask you something else? About research reports?
How do you know what to include in a report? It seems like you could include A LOT, how do you know - being new to a stock - what is pertinent? Don't you need a longer time horizon to fully 'get' a stock beyond the few weeks you have to do the initial write-up?
Or are expectations pretty low anyway? I mean, I guess you could talk about the industry, financials, history, management, strategy etc, but I'm assuming you can't get on the horn to the biggest holder and get his take on the stock to put into your report?

Feb 20, 2013

Where's your value add if you just pass along the intel from the biggest holder? Why should he trade the stock through you?

You've got a finite amount of space to put enough detail to make people care about your stories, typically, the front page of your report. In the initiation report you should cover everything, but a lot of guys sluff through and put in the bare minimum so as to just get the name under covereage. In a maintenance piece you need to say what happened, and how it impacted the value of the stock.

So, what are the key pieces of your investment thesis, what is the reason someone should buy this stock? Once you know the reason to buy it, you need enough data/information to support that thesis. Is the stock cheap, why? well, maybe it has $2.00 in cash and is trading at $3.00, with a 2013E CFPS of $1.00, boom, there's your fucking report. As a widget seller, did it sell 30% more widgets than expected, is this level of sales possible to maintain, boom. Event, Why it's important, Why they need to BUY/HOLD/SELL the stock.

For contrast, if I'm writing about a company that has a patent, and it's the value of the patent that matters, all I need to say about the rest of the company is that mangment is capable enough to not fuck up, and the company has enough resources to get it over the line, everything else is why the patent will increase the value of the stock, and nothing else really matters.

Also, while you may be new to a stock, it's not like you're new to the industry, you know what investors in your sector want to know, otherwise you're a shitty analyst.

Feb 20, 2013

So to play devil's advocate then. I'm assuming that not every stock has a perfect story that the whole market has somehow overlooked? So you might have a growth stock that is overvalued or whose management sucks or that has a shitty balance sheet. Or is too small or whatever the bear case is. How do you work that into a report? Do you just bury it somewhere? Does it even make the front page? And is it typically the associate doing all this without input from the analyst?

Feb 20, 2013

Interesting fact: Very few stocks have a perfect story, and that number has to be in the realm of approaching zero. While markets are far from perfect efficiency, they're still pretty good, so if a story is trading cheap, there is often a reason for it, even if it's just that it is out of favour. That can be a problem in it's own right, sometimes PMs won't hold a story because the market hates it, and sentiment can crush a bull story.

If you bury the bad news, the PMs will find out, then you're an asshole. We're all smart people, you can't hide much (read: anything), so if you get caught trying to hide it, you look dirty. When companies I cover try to hide bad news, or make their F/S hard to interpret so we don't see the bad news, I still find it, it just pisses me off because they're trying to lie to me. If, as an analyst, you lose your credibility with the PM's, your career is done, because no one will buy your stories, or through you.

As far as the work split, it varies. Some analysts want a associate that can do almost everythign with a little oversight, some want a hapless newbie to populate data tables. The problem with associates is that as they get experienced, they want to be promoted, so keeping a good associate can be problematic. Currently I'm writing a comment (fuckers released at 6:30, as I was getting ready to go home early) that I will send to the boss, he will either make changes or tell me to submit it.

Feb 20, 2013

So do most associates end up trying to get to the buy-side? Seeing as an analyst's tenure can be as long as he wants, there's nowhere else to go unless he wants PM somewhere?
Typical associate tenure is about 2-3 years right?

Feb 21, 2013

Some go to the buy side, some go to banking, some go to IR. I think the good associates tend to be 3-5 years, there are too many nuances to master in two years. A four year associate will be doing most of the writing and modeling (so would a two year, but the four year will be good), but will also be trying to get some names under coverage.

I personally favour the two associates to an analyst system. Have a senior and a junior so that one can train the other and you don't have downtime when your associate quits. You need a lot of revenue and a big coverage list to warrant this though. Best I knew of was an old guy with all the industry connections, 40 names under coverage and four associates. He did almost nothing but make money, and his associates got a ton of experience, downside was, they all knew that they couldn't be promoted. One of my buddies had a long talk with his analyst, "Buddy, I like you, and you're good at this, but you need to quit, you can't have my job, and we aren't going to pay you anymore, or promote you, sorry". Ok, maybe it was a short conversation.

Feb 21, 2013

So you could be a career Associate just putting in three years here, two years there etc.

Feb 21, 2013

No we don't speak to anyone. Ever. Especially S&T. It's because of the Berlin Wall.

Feb 21, 2013

There are guys out there that don't want to step up and become analysts. They are talented and capable, but would rather be associates, I know of a guy with >15 years as an assoc. Most firms would be loathe to take on a guy that has been an assoc at a few other shops and has too much experience, unless, the plan was to have that person initiate coverage shortly.

Feb 21, 2013

That's interesting. I can understand aspects of being a sell-side analyst might be unappealing to a more introverted type, but wouldn't these guys make solid buy-side analysts? At maybe a smaller shop?

Feb 22, 2013
jonmorris:

That's interesting. I can understand aspects of being a sell-side analyst might be unappealing to a more introverted type, but wouldn't these guys make solid buy-side analysts? At maybe a smaller shop?

It's funny how every question you ask starts off with some erronious premise.

Feb 22, 2013
UFOinsider:
jonmorris:

That's interesting. I can understand aspects of being a sell-side analyst might be unappealing to a more introverted type, but wouldn't these guys make solid buy-side analysts? At maybe a smaller shop?

It's funny how every question you ask starts off with some erronious premise.

Maybe I've found my calling? Dispelling myths in online chatrooms for university undergrads.

Feb 21, 2013

BUY side is a shitty game I think. Most of the effort is focused on acquiring assets under management, and so if you think it's purely introverted, you'll have a tough time getting assets to manage. If you manage money for small investors, you have to deal with a lot of small investors, it sucks. If you manage money for big investors, a) you're competing with everyfuckingone, and b) you have to convince them that you're a better stock picker, or stategist then they are, what's your value add to a huge pension fund run by former GS prop investment managers?

Feb 22, 2013

even for analysts?
I thought that was done by more of the senior folks at the firm.
Wouldn't a sell-side associate, who is good, but doesn't want to go on the road etc have much better earning potential at a hedge-fund?

Feb 22, 2013

I'm renaming you the "Minister of Propaganda"

jonmorris:

I thought

No, you obviously have no idea. If you have a question, ask that directly. I got annoyed with you and stopped posting, and now I'm telling you why. Where did you even get half of this crap? You've managed to do this:

overpaid_overworked:

You've managed to confuse me with your question.

How is some noob who pulls up this thread supposed to know what is what??

Feb 22, 2013
jonmorris:

What I meant was, if you're good and you're a bitch (Associate) on the S-SIde, why not be good and a bitch on the B-Side? Where if you know your shit, and you are coming up with good buy/sell ideas which generate solid returns? You're doing mostly the same thing as a S-Side job but your upside potential is much bigger because you can point to your own contribution to ROI?

No, you're not doing the same thing on the buyside. The knowledge base applies, but it's like leaving the military to become a mercenary: it's not for everyone

Feb 22, 2013

You've managed to confuse me with your question. If you're referring to analysts at a HF, yes, they don't do the asset gathering, they do the bitch work. The point I'm making is that regardless of what HF you're at, you'll need to spend time gathering assets.

Second point, not everyone wants to work at a HF. I've got no interest in manging money. I like buidling strategies, complete with pricing in long/short plus covers etc. but I don't want to manage money for a living. So if an associate doesn't want to be an analyst, or a hedgie, they still have options. Being an associate gives you a diverse set of talents: writing, speaking, modeling, and presenting.

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Feb 22, 2013

What I meant was, if you're good and you're a bitch (Associate) on the S-SIde, why not be good and a bitch on the B-Side? Where if you know your shit, and you are coming up with good buy/sell ideas which generate solid returns? You're doing mostly the same thing as a S-Side job but your upside potential is much bigger because you can point to your own contribution to ROI?

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Feb 22, 2013

Maybe, I don't know comp for B-Side Analysts. I know that a lot of folks are discouraged by comp for Sell Side Assocs. Great Assocs, at good firms, that had good - great years might pull $150, on the high end. I know that a lot of buy side guys work way fewer hours than I do, so there's that.

Feb 22, 2013
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Feb 22, 2013