Equity Research - Interview Questions

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Positions in equity research are available for seasoned professionals and new hires. New hires out of school will start as research associates and move up the chain to a research analyst after gaining experience. Before any of this though, you must get the interview and show the interviewers you have what it takes. The best way to prepare for these interviews is to follow the markers, learn the common questions asked and practice tirelessly.

Equity Research Questions - Fit/Behavioral

As with most interviews you will most likely start out with the standard set of behavioral questions, some of which are listed below

  • Tell me about yourself/Walk me through your resume
  • Why equity research?
  • Why this firm?
  • Potential 5-year plan
  • Tell me about a time when... faced a challenge, worked on a team, etc.

Prepare a handful of anecdotes that you can use and mold to answer a variety of questions. Here's a good tip from @esbanker, a private equity analyst, of things to keep in mind when answering fit questions:

esbanker - Private Equity Analyst:

Some key words that should guide your examples for fit questions in Equity Research - analytical, detail oriented, excellent writing skills, strong verbal communication, at ease with financial modelling. Some people tend to think that Equity Research Analysts are mainly 'bookish', but i'd argue that teamwork still plays an important role, especially during earnings season. arguably the most important fit question is why do you want to do equity research as opposed to something more "prestigious" (IB) or "exciting" (S&T).

People generally suited for equity research role are those who are good writers, can follow a routine, interested in financial analysis and enjoy working independently in a quiet environment. Obviously you must be familiar with the work that an equity researcher would do such as building financial models, performing industry research, talking with management of companies they follow, and writing the reports.

Techincal Equity Research Questions

Unlike ib interviews, equity research technical questions tend to focus more on actual investing and figuring out your thought processes, but it's best to be prepared for everything.

  • Pitch me a stock
  • What do you think about X industry?
  • What's your investment philosophy?
  • If you had $X to invest, what would you do with it?
  • Why might a tech company have a higher PE than a grocery retailer?
  • Tell me when you would see a company with a high EV/EBITDA multiple but a low PE multiple.
  • What's beta?
  • Why would you unlever beta?
  • Enterprise value vs. equity value?
  • Can equity value be larger than enterprise value?
  • Know the major valuation methodologies
  • Why do some like Warren Buffett prefer EBIT multiples to EBITDA?
  • How is valuing a resource company (e.g. oil and gas) different from valuing a standard company?
  • What do you use for the discount rate in a DCF valuation?
  • How do you calculate the terminal value in a DCF valuation?
  • Market questions

Answers to most of these can be found online, but for things related to the market it's just a matter of staying up to date. Read the front cover of the WSJ journal and other sources like the FT, subscribe to newsletters you can get daily through email, and always be looking out for new investment ideas that you can bring up in an interview if needed.

Equity Research Associate Interview Questions - The Stock Pitch

The stock pitch is arguably the most important and most common question you will be asked. It would be best to have 2-4 stocks in mind that you can pitch, i.e. large cap, small cap, stock to short. Know things like the stocks P/E ratio, revenue, ebitda, net income, margins, products, competitive risks, areas of growth, company strengths (brand name, cash supply, management, etc.) Also know basic valuation metrics for the company like EV/EBITDA and have at least 3 solid points that will help support your argument.

Here's a sample stock pitch, courtesy of @esbanker, a private equity associate.

esbanker - Private Equity Associate:

Well, I've recently been following Copa Airlines, a Panamanian airline company, currently trading at $xx per share. Recently, the airline industry has been underperforming the markets for several reasons: compressed margins from the volatility in oil this year, increased competition from low-cost carriers, and overleverage by most airlines (think American or Air Canada).
While many airline companies are in desperate need of restructuring, Copa airlines has seen their revenues - now at $1.4 billion - grow at a robust 10% compounded over the last 5 years. Copa boasts EBITDA of approx. $350 MM, Net Income of around $240MM which translates to roughly 18%. Margins have remained stable over the last few years and are significantly greater than other airlines.
After running a basic DCF (5 year projections), Copa has an implied price per share of $xxx. In terms of comps, Copa is trading at an EV/EBITDAR of 7.7x which is slightly less than the industry median of 10.3 x, and a PE ratio of 12.9 x relative to an industry median of 14.1 x.
Copa has recently acquired Aero Colombia to gain significant exposure to the growing Colombian market (~xx% of market share), as well as provide quicker access to Brazilian airports. Air traffic in Panama is also expected to grow by xx% by 2014 due to infrastructure development and increased trade from the Panama canal expansion. Given Copa's strategic positioning in Latin America, its strong operating and financial performance of late, and its relatively cheap share price, I would strongly recommend to buy Copa Airlines.
(note, some of the numbers are out of date - this is from an early 2011 model)

Check out a video about the stock pitch below.

Also be sure to check out this thread on S&T interview questions created by @Gekko21: S&T Interview Questions. Most if not all the things in that guide can also be applied to a equity research interview in terms of types of questions and how to prepare.

Read More About Equity Research on WSO

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Comments (129)

Oct 31, 2011

A stock pitch written out? There are lots of stock newsletters out there that pitch ideas and stocks - get past the 'make a million dollars with this junk mining company' headline and they will generally pitch you the idea (if that's what you're looking for?). Google stock gumshoe, he tracks, follows, and makes assumptions about the companies those newsletters are pitching. You may want to research the firm you're interviewing to see what their slant on investments are. You don't necessarily have to mirror them, but if they are long term value guys, you probably don't want to pitch a stock idea based heavily on technical indicators.

Although I'm sure articulating and supporting your idea well is more important than the idea itself.

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Oct 31, 2011

some key words that should guide your examples for fit questions in ER: analytical, detail oriented, excellent writing skills, strong verbal communication, at ease with financial modelling. some people tend to think that equity research analysts are mainly 'bookish', but i'd argue that teamwork still plays an important role, especially during earnings season. arguably the most important fit question is why do you want to do equity research as opposed to something more "prestigious" (IB) or "exciting" (S&T).

as for as stock pitch goes, id recommend finding a business that you are really passionate about (hopefully it's something a little more interesting than brand names like google or apple). There is no exact formula for a pitch, just be logical.

Here's I went about it:

start by talking about the industry and one or two recent trends that are particularly interesting or worth noting.

then link those trends to the company you're pitching, explaining why the company is well positions.

talk a little bit about the operations and finances of the business, ie. market share, end market, key customers, revenue, margins, ebitda, working capital requirements, capex requirements. (don't have to go through all of them; pick 3-4 that are particularly strong; you just want to be able to give some specifics)

I would then transition into valuations: intrinsic first, then followed by relative valuation. for comps I would go with the basics: EV/Revenue, EV/EBITDA, PE, PEG, and lastly - if your feeling confident - Id throw in there an industry specific multiple; just be careful because if the interviewer knows his or her stuff you might have to go into more detail.

Comps helps you transition to how the company stacks up to others in the industry, and you can finish off with why it has a competitive advantage in both the short run and long run.

Finish off with an assessment: make your buy, hold, or sell opinion explicit. THIS IS KEY.

best of luck!

AUTHORED BY: Certified Private Equity Professional - 2nd Year Analyst - Learn more.
Nov 1, 2011

Hi esbanker and nate,

Thanks for the comments! These are great.

esbanker -- I actually just realized that I don't have a good answer for why Equity Research Analyst rather than IB or S&T. What is the best way to approach that topic?

nate -- thanks for the link! I've been looking at gumshoe, but it isn't quite what I am looking for. The stock pitches in those newsletters tend to use a lot of inflated rhetoric rather than solid facts and sound, logical reasons for buy/hold/sell. Gumshoe is analyzing those use letters to see if the information they present makes sense (typically not the case).

What I am looking for is a model answer to a stock pitch question. I.e. in an interview, when asked, "pitch me a stock to invest in" what would be the best way to answer that?

The format that esbanker gave is great start for an outline, but I am looking for a model answer where I can see how it is done and then I will find my own industry/company and emulate that model answer.

Any help would be appreciated

Thanks!

Nov 2, 2011

any help would be appreciated! Or a link to already written out sample stock pitch answers

Thank you!

Best Response
Nov 3, 2011

Say that you are interested in equity research because you are a very curious person who is really passionate about understanding the fundamental and macro drivers of a company. In terms of skills, say that you have to be in tune with the markets in ER (overlap with s&t, without all the high risks), but you gain the modeling and analytical skills of an investment banker. Not to mention that for the most part, the lifestyle (hours) are more palatable.

Sample of pitch me a stock (i'd say somethign along these lines - though I would probably fine tune it a bit).

Well, I've recently been following Copa Airlines, a Panamanian airline company, currently trading at $xx per share. Recently, the airline industry has been underperforming the markets for several reasons: compressed margins from the volatility in oil this year, increased competition from low-cost carriers, and overleverage by most airlines (think American or Air Canada).

While many airline companies are in desperate need of restructuring, Copa airlines has seen their revenues - now at $1.4 billion - grow at a robust 10% compounded over the last 5 years. Copa boasts EBITDA of approx. $350 MM, Net Income of around $240MM which translates to roughly 18%. Margins have remained stable over the last few years and are significantly greater than other airlines.

After running a basic DCF (5 year projections), Copa has an implied price per share of $xxx. In terms of comps, Copa is trading at an EV/EBITDAR of 7.7x which is slightly less than the industry median of 10.3 x, and a PE ratio of 12.9 x relative to an industry median of 14.1 x.

Copa has recently acquired Aero Colombia to gain significant exposure to the growing Colombian market (~xx% of market share), as well as provide quicker access to Brazilian airports. Air traffic in Panama is also expected to grow by xx% by 2014 due to infrastructure development and increased trade from the Panama canal expansion. Given Copa's strategic positioning in Latin America, its strong operating and financial performance of late, and its relatively cheap share price, I would strongly recommend to buy Copa Airlines.

(note, some of the numbers are out of date - this is from an early 2011 model)

hope this is somewhat helpful

AUTHORED BY: Certified Private Equity Professional - 2nd Year Analyst - Learn more.
    • 5
Nov 7, 2011

Hi all,

Thank you so much for the help!

This is really great. Now, I am still a newbie when it comes to equity research. Do you have any suggestions of books or guides that I could read in order to understand equity research a little more? Ideally this would be in simple/layman's terms as I haven't had any prior banking experience and I am fairly lost.

Essentially, a "equity research 101 for dummies" type of book would be extremely helpful if something like that exists.

I found this one book, but it relates directly to the interview. What do you think?
http://www.amazon.com/How-Get-Equity-Research-Anal...
However, it still doesn't explain the industry to me in enough detail so that I can feel as though I am getting a better grasp on the topic.

Essentially, how is S&T different from equity research? What exactly would I be doing on a day to day basis? Am I more concerned with internal dynamics of a company or macro economic market factors? Who's money are we investing? What are mutual funds? etc etc. Lots of really basic (and I'll admit, probably very laughable questions for most of you). But I'm trying to learn as much as I can quickly.

Thanks! And my apologies if I am being incredibly annoying with my basic questions. I'm trying to read guides or books that will help me understand what equity research is, so that I am no longer as lost.

Nov 7, 2011

You can think of the research department as the think tank of an investment bank. In BB's there are usually several divisons: the macro analysts, the equity analysts, the fixed income analysts.

I can speak mostly for equity research, where I started my career in finance. My team was comprised of 3 more people: an associate, a junior analyst, and a senior analyst (note that in research an analyst has seniority over an associate). You usually cover a "universe" of stocks within an industry (ie, aerospace and defense, construction and engineering, automobiles, technology, telecommunications, etc).

your work will consist of getting acquainted with the industry and the companies you cover. get ready to pour over 10-ks and 10-qs. there is quite a bit of financial modeling (tho this will realistically be about 30% or less of what you do overall). lots of focus on the operating model. investment bankers usually have the luxury of using equity research reports for growth projections. but in equity research you have to do tops-down or bottoms-up analysis to come up with these projections from scratch. you run valuations just like in IB, but the metric of choice for analysts is EPS since this is what ostensibly makes a stock move up or down in the markets. your main output is research notes, which could be industry-specific, trend-specific, or (most often) company-specific. these research notes make it to the S&T so that they can add color to their decisions. other investment firms pay quite a bit of money to gain access to these notes.

hours are not bad, usually 7 to 7, but it depends on the team. during earning season (when companies report earnings every quarter), things get a lot more hectic as you have to listen in on earning calls, revamp your models, and publish several notes in a constricted amount of time. had to stay in past midnight a few times.

personally, i hated my team, but i did gain an strong framework for analyzing companies. i don't really know what you mean by "what are mutual funds?" or, more specifically, how that relates to equity research.

pm me if you have more specific questions (i am happy to send you a sample equity research report so that you familiarize yourself).

AUTHORED BY: Certified Private Equity Professional - 2nd Year Analyst - Learn more.
    • 3
Nov 7, 2011

I would not do it.

Nov 7, 2011

I would only do it if you are dead confident you know the stock. Otherwise, the interviewer knows way more than you about that stock, and will drill you hard on it. If you can't defend your position, it's gonna be bad.

That said, if you are interviewing for a specific sector, you should be able to talk about names in that sector and being able to talk about it well is a big plus.

Nov 7, 2011

I had an interview and turned out the firm I picked to talk about was under the ERA sector. Needless to say I was dead wrong. I looked like a fool and was not made an offer.

Nov 7, 2011

thanks for the advice guys.

Nov 7, 2011

bump about a stock pitch for SA interviews.

Nov 7, 2011

I would avoid a short term recommendation. They're looking for your ability to analyze and value a company, not day trade a stock. I would say your time horizon should be 6 months at minimum, perhaps a year or longer. You want to discuss what makes the company great, why they are poised for growth, etc.

Bad: Buy company A because their earnings come out tomorrow.
Bad: Buy company A because the technical indicators on the chart say so.

Good: Buy company A because they are a leader in their market, have a revolutionary new product coming to market, own a defensible competitive advantage, and I think they are going to crush earnings expectations over the next several quarters due to X, Y and Z. You need to back all this up.

  • Capt K
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Nov 7, 2011

Basically, read some equity research reports. Clearly, they want to see if you can think like they do. The types of things commonly mentioned in published equity research are probably the types of things you should focus on in your pitch.

  • Capt K
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Nov 7, 2011

All great advice, thanks!

Nov 7, 2011

Tech Interview guide gives some guidance to answering that question...

AUTHORED BY: Certified Asset Management Professional - Assistant Portfolio Manager - Learn more.
Nov 7, 2011

ah yes it does have some, thanks

Nov 7, 2011

none...anybody know of any?

Nov 7, 2011

Some of the trading forums have areas where traders discuss equities and the like....

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Nov 7, 2011

If you have unsuccessfully searched you for this you are being lazy or you are incredibly bad at it. WhiteHat did a pretty amazing write up on this site of Fossil I believe. Find that and do your best to emulate it and you should be golden.

This to all my hatin' folks seeing me getting guac right now..

    • 1
Nov 7, 2011

There is no silver bullet solution to analyzing an asset; and considering your general question, my two cents would be:

There are two ways to value a "stock"--absolute and relative valuation...

Absolute is basically valuing an asset through projecting and discounting the future cash flows to arrive at a present value. At the end of the day, this method is obviously contingent on various assumptions pertaining to the company, industry (life-cycles), economy, etc. Some toolbag at bag might start throwing around acronyms like "DCF"--discounted cash flow is the rudimentary way to discount a stream of CF...

Relative value is taking an comparing it to a comparable company or industry--"similar assets should have a similar value" might be a good way to think about it.. P/E, P/B and other financial statement ratios will allow you to compare the ratio 'relative' to a similar asset... Brocade Communications has a P/E of 13.04 and Juniper Networks is at 56.7.... from this elementary and vanilla approach, you could assume that Brocade is cheaper/undervalue (or just a piece of crap, which it is) relative to Juniper..

Have a great Holiday

AUTHORED BY: Certified Equity Research Professional - 1st Year Associate - Learn more.
    • 1
Nov 7, 2011

Thanks for the helpful advice SFTechUES & Cruncharoo, I apologise for the noob question, but I am at the beginning of my familiarization with the company valuation process...As far as iRX is concerned: is it hard for you to be a bit more socially acceptable? your the equivalent of a fart right now :)

    • 2
Nov 7, 2011

Get yourself very familiar with accounting to understand how each line of IS, BS, CF is related and what drives its. Not the simple shit like oh Change in cash from CFS is added to start of BS Cash, but like how inventory turnover affects WC, etc.

Nov 7, 2011

I'm guessing this is for a starting level internship/job and not on a personal investing level?

I'm just curious as to how you even got this position if you have no previous background to even basic investing/accounting.

Anyhow, I'll try my best to help you. I'm an analyst intern at a hedge fund so I have to deal with this every day.

First off, any particular industry you are looking at? Every industry works differently so certain ways you evaluate a company in a certain industry won't necessarily work in another industry.

Ex. A bio-pharmaceutical company, especially a small one, has little to no revenue and earnings. Does this make the company shit? No, because all these companies are focused on research and development. You have to look at their pipeline (the drugs they are testing) and chance of stock dilution in the future.

However, revenue and earnings are critical for companies in consumer retail. That's what they run on. They don't do research and development. So ratios like P/E, P/CF, P/S would be useful in this sense.

So Step 1: Look at the economy and narrow down your search to a particular industry and research the correct way to evaluate them.

Next, start narrowing down your search to several comparable companies in that industry. Start looking through some finance websites and see what's on the news. Which stocks are hot? Which ones are getting publicity (good or bad)? Which stocks are being talked about frequently? Keep in mind that you do not want to make an investment decision based on what you see and hear alone, but it does give you a better idea where to start. You can then start filtering through stocks for the ratios you prefer and start doing some research.

So Step 2: Narrow down to several comparable companies.

Okay, let's say at this point you have finally decided which company you want to do the analyzation on. Let's name this company Whiggets Inc. who is a major player in the automotive industry (Think Chevy, Toyota, Honda size).

Now here comes the hard work. There are many, many different things you have to look into to perform a thorough analysis. Since you in equity research, I am assuming you have to do more of an in-depth analysis than what I have to do (where I work, it's better to spend a week analyzing 10 stocks and being 50% sure of them rather than analyzing 1 stock for a week and being 99% sure of it).

However, I can suggest what you want to research to be thorough:

1. Financial Data (Data from income statements, balance sheets, cash flow)
2. Recent Headline News (Anything that puts the stock in the spotlight)
3. Absolute Valuations (DCF, etc.)
4. Comparable Valuation (Compare your company to other companies in the industry through the ratios mentioned earlier.
5. Catalysts (This is something that will happen that will give positive attention to your stock and boost its price. Ex. A bio-pharmaceutical company announces its final phase of testing for its groundbreaking drug is a success.)
6. Management and Infrastructure (Insider buying/selling, do they have a good track record, any lawsuits, any plans to improve the company, etc.)
7. Future Crisises (Does the company have a lot of debt that they cannot pay, they lose funding from an outside firm, quarterly earnings report is expected to be sour, a competitor has just announced a major breakthrough, etc.)

As of right now, I can't think of anymore from the top of my head but this should be sufficient to make an acceptable equity report/investment thesis, provided you do due diligence while researching and you research the correct stuff.

So Step 3:Start analyzing your company thoroughly.

Next, once you have all the data/valuations and other research material, format it into something that is presentable. I'm not sure what your firm expects, but mine prefers to have more charts and tables than paragraphs and paragraphs of bland statements portraying the company's status.

So Step 4: Format it presentably.

Finally, after you have basically finished your report, it's time to take a position on the stock. Is it a buy/hold/sell? Do you want to go long/short? Is it a short-term profit stock or does it have sustainable value for the long-term?

These conclusions are arrived at by evaluating your research. At this point of the process, it shouldn't be too hard to pick a position on the stock. You don't necessarily have to be RIGHT, but they prefer you to take a position rather than take no position (it doesn't help anyone if at the end of your report you don't state what YOU would do. That's like making a lot of noise but then having nothing good to show for it. That's just how my boss tells it. Yours could be different, idk).

So Step 5: Pick a position.

TO RECAP:
Step One: Narrow Down to an Industry
Step Two: Pick Several Comparable Companies
Step Three: Pick The "Best" One and Analyze
Step Four: Format ReportPresentably.
Step Five: State Your Position.

Obviously you have your work cut out for you as you are doing equity research without having ANY prior knowledge about any of this, which is probably freaking overwhelming, but we've all been rookies once. Hope this helps and try not to butcher it too much (Stating Ford is going to collapse because of some hearsay you read on a message board that was actually written by some troll.)

~GrandJury

AUTHORED BY: Certified Investment Banking Professional - 2nd Year Analyst - Learn more.
    • 1
Nov 7, 2011

Thanks a lot GrandJury for the detailed response. I am currently studying Finance and did not yet have any courses dealing with company valuation (next term I'll have though). Also, I didn't took the time to study it myself apart from now :P. I am intending to apply for equity research positions in the future and would like to prepare for the interview/position in advance.

Also, except from Blomberg/Reuters to which I do not have continuous access, what are your suggestions for the best alternative market data providers?

Nov 7, 2011
FellowMonkey:

Thanks a lot GrandJury for the detailed response. I am currently studying Finance and did not yet have any courses dealing with company valuation (next term I'll have though). Also, I didn't took the time to study it myself apart from now :P. I am intending to apply for equity research positions in the future and would like to prepare for the interview/position in advance.

Also, except from Blomberg/Reuters to which I do not have continuous access, what are your suggestions for the best alternative market data providers?

Ah. I see. Since you're actually just preparing for an interview, use what I put in my post as a starting guide to expand your knowledge. Build on what I told you because it is positive you'll be asked questions pertaining to the research of equity and all that jazz in the interview.

WSJ, NASDAQ, Yahoo Finance, Finviz are some. It's really not that hard to find reliable sources you prefer. Just google the stock symbol and plenty of websites will show up. You'll have to sift through the sites that are clearly not worth your time but there are plenty of solid sites out there.

AUTHORED BY: Certified Investment Banking Professional - 2nd Year Analyst - Learn more.
Nov 7, 2011

Also you can use google.com/finance/ as it will have relevant news for each stock symbol you look up or ones that you have in your 'portfolio' in a feed

This to all my hatin' folks seeing me getting guac right now..

Nov 7, 2011

Have the similar questions, thanks for your replies.

Nov 7, 2011

Here's a website I came across with some in-depth questions to ask yourself when analyzing a company

http://equity-research.com/how-to-analyze-a-stock/

Nov 7, 2011

Well as a macro guy myself here's a few things to consider:

One could argue that x stock in a particular region is undervalued. Why? Well, it has various subsides from its government, it could be insured by the aforementioned government, or the country is in a recession and one would expect the cycle to shift and consumer spending to be up the up and up, so anyway let's go over some pertinent examples:

Vinici. An old French construction company, currently with a massive cash flow and undervalued due to the current economic credit crunch, but with fundamentals coming back and the company being a key driver in its sector, one would expect it to be a fine firm to buy into.

Another could be Allianz, an insurance company befuddled by bad growth in its region. But if Europe even grows by 1% in the year, the insurance company is looking to turn 10% growth from its low.

Or how about American stocks with Chinese exposure? There are plenty of those out there...

So on and so on.

Nov 7, 2011

Honestly, I think you should be picking the actual stock on your own. Getting tips on how to answer, what to look for in the stock, what is expected by the interviewer, and how questions are asked is one thing. But it is YOUR interview and if you really deserve the IM spot you would have enough passion for investing to have your own genuine answer for a particular stock.

Not trying to be obnoxious, so sorry if it seems that way. But I would hate to think I am the only person who believes that you should pick the stock on your own, do the work, and just be smart enough to implement tips from others.

Don't ask for actual stocks from others because that is not what the job is. The job would involve YOU working, not you coming onto WSO everyday to get some stock suggestions so you can then give them to your colleagues and/or bosses.

    • 1
Nov 7, 2011

.

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Nov 7, 2011

considering that value investors only come up with 1 good idea a year... your better off searching the presentations put out by big investor. that guy ackman tends to put out a couple of public investment pitches...

Nov 7, 2011

Yes

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Nov 7, 2011

Why wouldn't it be?

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Nov 7, 2011

Yes, but be able to discuss the economics and the main things you should know about investing in said country - are any major accounting practice differences, is the government stable, what are the staples of that country's economy, is there currency risk and can/should you hedge it, etc.

if you like it then you shoulda put a banana on it

Nov 7, 2011

Not all OTC stocks are penny stocks, per se. But I'd imagine you have to be pretty damn sure of what you're saying to consider it. And even then, it doesn't really connect with what they do, since no sell-side analyst is ever going to cover such a stock.

AUTHORED BY: Certified Investment Banking Professional - 1st Year Analyst - Learn more.
Nov 7, 2011

I'd actually be impressed if a kid pitched a penny stock. But make sure you know EVERYTHING inside and out. ANd be prepared to answer the obvious:

- Why are they a pink sheet?
- Why should I buy them versus apple?
- Can I drop $10 mil in this thing without just destroying the bid-ask

Nov 7, 2011

Here is you upside and downside from pitching a penny stock

1. Upside is it is unique and different from everyone else
2. They will unlikely know the story so you can get away with knowing less about the company
3. If it is related to the space you are interviewing for then you are okay but if it is not you'll look at bit "off"

Downside.
1. They won't know if you're making things up
2. They could think you are a young "immature person" out of the gate if you're pitching a random 0.0001 cent stock

Overall if forced to choose though it is likely better to choose a well known stock in the space (Defining penny stock by actually being sub $1.00 stock price, no volume etc etc and not something that is an ADR share and is really actually a large company.

With that said choose a relatively well known company to pitch to an Analyst or group because of the following reasons.

1. If you choose a company they at least "kind of" or do "know" they can see how much work you've put in to learning the story. If you do your homework you get brownie points for 1) knowing the story well 2) being able to talk about fundamental analysis 3) being well versed for a young person in the room.
2. You can "tilt" the interview, if you know the analyst is outperform on "value based" stocks versus "growth stocks" you simply pitch him a deep valuation based stock
3. Large companies have high trading volume, this is important because large Equity Research platforms ... do not cover penny stocks.... You run the risk of them thinking you don't understand equity research as they would never initiate coverage on the company.

So overall there are your puts in takes, if you really think you got it locked up go for it.

Finally the below was left on a separate thread to explain a stock pitch (Please Ignore if not of Interest) 1) story of stock, 2) why you think community doesnt have it right 3) talk some fundamentals.

"I am pitching Apple at these levels because I believe the investment community is undervaluing the release of a possible iWatch, iTV and even an iPhone Mini. Every three years the company tends to release a new major product line (iPad 3 years ago, iPhone 6 years ago) so I would not be surprised to see a new major line up act as a kicker to the stock in CY13. The bears are certainly going to point to the recent disappointing guide and softer than expected Dec-qtr results, however with three possible products coming out and a ~$300 price point ex-cash the company can buy back all of its shares with 6 years of flat free cash flow. With that said i'd be long the stock at these levels"

    • 1
Nov 7, 2011

Double post

Nov 7, 2011
WallStreetPlayboys:

3. Large companies have high trading volume, this is important because large Equity Research platforms ... do not cover penny stocks.... You run the risk of them thinking you don't understand equity research as they would never initiate coverage on the company. "

This to me is the deal breaker. They would question whether you understand the business and might doubt you are a good fit.

I would talk about a stock with a broad secular theme so you don't get bogged down in the technicals more than necessary. It's more about showing you can have an intelligent discussion and are truly interested than being "right".

Funny story, the day I got my offer for ER the stock I pitched in every interview reported after the close and get absolutely smoked. Missed earnings, lowered guidance, down 20% the next day. My portfolio took a big hit but I was still laughing my ass off.

Nov 7, 2011

I wouldn't do it personally. The risk of not being taken seriously isn't worth the possibility of differentiating yourself.

AUTHORED BY: Certified Equity Research Professional - 1st Year Analyst - Learn more.
Nov 7, 2011

Thanks for the insight!

Nov 7, 2011

if you could talk about a stock like this article http://www.wallstreetoasis.com/blog/apple-news-noi...
i think you are in good shape.

AUTHORED BY: Certified Asset Management Professional - 1st Year Associate - Learn more.
Nov 7, 2011

All that is historical info., you need a forward looking stance with catalysts you think can happen within 18 months.

AUTHORED BY: Certified Private Equity Professional - 2nd Year Associate - Learn more.
Nov 7, 2011

I been on a few equity research interviews before landing my currently gig. I always interviewed with two pitches in mind. I discussed the landscape of the company, the market, revenue drivers and a price tag. I would try to pitch the stock under 5 minutes max. I always left a research report, I wrote on my own with my interviewer.

Nov 7, 2011

You don't need to do a ton of memorizing. I think the only figures you really need to know are....revenue, ebitda, net income, P/E ratio, dividend yield, and market cap. And even then you won't be listing those off, you'll just be using them as evidence to support your argument. And don't memorize them, just use rough figures. "Revenue is around 8 billion / year right now and showing growth in the early teens" is fine. P/E ratio just use the nearest whole number..same with dividend yield, market cap you can round to the nearest billion, or maybe even nearest 10 billion for larger companies.

Basically what I did during my interviews was I started by telling a story. My example was always SLM. SLM traditionally has relied on FFELP loans as its main source of income, but in 2010 a law was passed that.........as a result, SLM is transitioning to the private loan market.....I think the markets are overstating the detriments of no longer being able to issue FFELP because SLM's current portfolio makes up 80% of their revenue and is set to amortize over the next 20 years......further, I think the market is underestimating the growth opportunity in the private market, as SLM is only trading at 8x earnings, whereas most companies in this market trade at 12x earnings, and SLM's strong dividend of 3%+ support the stock etc etc etc.

AUTHORED BY: Certified Private Equity Professional - 1st Year Associate - Learn more.
Nov 7, 2011

Normal.

AUTHORED BY: Certified Investment Banking Professional - 1st Year Analyst - Learn more.
Nov 7, 2011

yeah

AUTHORED BY: Certified Equity Research Professional - 1st Year Associate - Learn more.
Nov 7, 2011

From my past experience interviewing for ER positions, you will most definitely be asked to pitch a stock for a buy (maybe for a sell also). This is probably the most important part of your interview so put your hearing ears on.

High level - pick a stock that you have some knowledge of. Since know the gaming sector well, i will pick a gaming company to illustrate. Let's say it is MGM. Take the following top-down approach.

Basically you should begin by discussing the overall U.S economy and the stock market and how both have fared YTD and where you see them going. For example, you will say that historically all bull markets that make it through to the sixth year typically go up by 20%. We are in a sixth year and so far have been flat YTD so we should springboard from Q2 through year end. Keep your guard on here as they will throw something like "quantitative tightening" at you to poke holes in your thesis.

Then focus on the sector. In this case gaming is a cyclical business so if the economy improves then this sector should fare well as well.

Then you will have to make a bull case for the stock. Basically you need to know how the valuation looks like as of current (p/e multiple vs historical etc..) and come up with a target price. Let's say the stock currently trades at $25 and can go up to $35 in a year. You should be able to bridge the two prices via your bull thesis. For example, you will say that due to multiple expansion (due to Las Vegas convention market improving) you see the stock price going up by $5. Another $5 will be due to improvement in asset utilization (compare the Rev/empl for this company to a lean competitor) and mention the opportunity for improvement. Finally the last $5 will be due to new properties coming on board (name them).

One thing these analysts get a hard-on for is if you mention the downside risks to the stock. Take an opportunity to mention something like "if MGM cannot penetrate the Japanese market then investor sentiment can cause the stock to be undervalued for a short period of time."

All in your pitch should not last more than 5 minutes. Take the first minute to introduce the company and why you chose it, 3 minutes to substantiate your case, and one minute to conclude.

Since you seem new to the business they will ask for a 3 statement model and a writing sample. Hate to say this but if you don't know how to put together a 3 statement model you are out of luck unless you can cram. Shoot me a message and i can point you to a website.

CFA Charterholder

    • 1
Nov 7, 2011

Hi,

Great response. Quick question: do you think it's necessary to build a DCF model for a stock pitch for an entry level ER position? Thanks!!!

AUTHORED BY: Certified Equity Research Professional - 1st Year Associate - Learn more.
Nov 7, 2011

Wow, that was very helpful. Thanks a lot. Also sending a PM.

Nov 7, 2011

Exactly what CFA said. Start with the top-down approach of the economy, fed, ceo of the firm your recommending, the firms value proposition, financials, competitors, price, technical analysis - the whole 9 yards. You will be good, and practice in front of teachers or your family friends.

    • 1
Nov 7, 2011

do apple im sure they've never heard that one

AUTHORED BY: Certified Investment Banking Professional - 1st Year Associate - Learn more.
Nov 7, 2011

I'll give you the typical consultant's answer - it depends. Some interviewers/analysts will like it, others will think it's BS. It makes more sense if it plays to your strengths and background (e.g. if you are trying to switch to ER from consulting).

Nov 7, 2011

I think it would be fine (maybe even great as many focus on rather more easily observable points like cheap valuation + some sort of vague understanding of sector direction).

If you do what you laid out above + hit on other key points (valuation + catalysts etc.) atleast in simplistic fashion, then it should be fine.

AUTHORED BY: Certified Hedge Fund Professional - 2nd Year Analyst - Learn more.
Nov 7, 2011

I can in no way tell you "everything", but I can provide some tips as I just recently went through the process of ER interviews.

  1. Have a good sense of the market environment and current economic trends (have an opinion on things such as the Brexit, Monetary Policy, etc.) and how they can affect certain sectors/the overall equity market.
  2. Make certain to have not just one, but multiple stock pitches prepared. You will more than likely have to pitch a stock or two. If possible, find out who you will be interviewing with and do not pitch a stock that they cover. It is acceptable to write some notes on a notebook/padfolio to help guide you.
  3. Brush up on your financial ratios and financial statement analysis.
  4. Like any interview, make sure that you can answer the typical questions: Why ER, Why this firm, Why are you qualified?

Hope this helps a bit.

    • 1
Nov 7, 2011

I've been in ER at boutique and bulge bracket firms and have interviewed associates at both. The key things they'll look to assess you on are:

Analytical skills - comfort level analyzing financial statements, experience looking at key financial ratios, ability to absorb lots of information, figure out what's important, and draw conclusions

Communication (written & oral) skills - can you make logical and persuasive arguments? What experience do you have doing this? Are you comfortable having and defending your opinion?

Relevant Skills (modelling, research, valuation experience)- have you picked stocks before? what stocks do you like and why? How resourceful are you in finding information and developing sources of information? Can you get stuff done without a lot of guidance

Fit - Research is very flat. The relationship between the Analyst and Associate(s) is key. You just have to hit it off. Can't prepare for this.

Here's a summary of some of the responsibilities, terms, etc you should know http://bit.ly/gXYks
Gotta Mentor
www.GottaMentor.com
Connect to the Advice & People
You Need to Achieve Your Career Goals

AUTHORED BY: Certified Investment Banking Professional - Managing Director - Learn more.
Nov 7, 2011

Thanks Former MD! That post was DENSE, every word has a shit ton information to it.

I will be looking at that website to help guide me on this. Basically, I HAVE to perform well on this interview. This is probably one of the last big opportunities I have to break into a meaningful finance position. If i get the job I can do it and do it fucking well, so I am doing as much research as possible to help myself out.

Thanks again.

Nov 7, 2011

Go team!

Nov 7, 2011
swagon:

Go team!

LOL WUT?

I am also thinking of rereading my CFA L1 book (sitting in December) and more specifically the Equities/Financial Reporting Analysis sections.

Any other advice? I feel like FormerMD pretty much left no room for anyone else to say anything!

What is the lifestyle like being in ER? I have looked through the other threads but most seem a little outdated. I am not afraid of working 90 hour weeks and going in on the weekend, in fact I would prefer to have a job that rides me.

Nov 7, 2011

What is the lifestyle like being in ER?

The lifestyle is definitely better than IB. Plan on being there 1.5-2 hours before the market opens, and 2 hours after close. During earnings season the hours are much longer at you wait for companies to report earnings, listen to their analyst calls, update your models, and write research notes for the next morning.

If you're covering a news-heavy sector, you will often get blind-sided with unexpected news from your companies or that affects your companies that you need to very quickly process and quantify (for stock & model impact).

Gotta Mentor
www.GottaMentor.com
Connect to the Advice & People
You Need to Achieve Your Career Goals

AUTHORED BY: Certified Investment Banking Professional - Managing Director - Learn more.
Nov 7, 2011

Sector that I will (hopefully, everyone pray) working in is Transportation with a focus on Auto Manufacturers, this seems to be getting a lot of news lately.

Also, I got the call from the recruiter yesterday that they were considering me for the interview/position. Is this a good sign that she reached out to call me? Also, I have not heard anything today, should I be worried? Finally, they said that there will be no relocation reimbursement and I will have to fund my trip to the interview location should I make it past the 1st round (telephone).

I am very nervous/anxious/excited for this possibility. I am really worried now that I havent heard anything in 24 hours, any insight on the normal cycle time would also be GREATLY appreciated.

Thanks FormerMD for all of your help!

Nov 7, 2011

I don't think they would expect in-depth levels of knowledge about the industry (unless your background is in it) but would definitely expect you to know the basics of the sector & a little more about the stock you are pitching (i.e. you will look dumb if you pitch Disney but don't know when they are planning to roll out their new streaming service)

Also, I would definitely have a long & short ready for that specific industry, but probably not a stock they cover. Its a good way for them to see how interested you are in the stock market & their sector. I have been asked for a short pitch only once in my interviews, but if you don't have it ready, it might take you by surprise.

    • 1
Nov 7, 2011

I would say you should be knowledgeable about the major trends in the sector you're interviewing for and have an opinion about them and the possible direction things will go, but I don't think its necessary to have your stock pitches be in the same sector. This could backfire because it will be harder to sound smart considering the interviewer knows the sector backwards and forwards and could easily stump you with questions. The purpose of the pitch is to test your ability to present a coherent and logical idea in a concise manner while being knowledgeable enough to handle follow-up questions, not necessarily to test you on the industry. That being said, you should be able to answer why you want to cover that particular sector, or at least why you would be good at it/how your experience prepared you. Have both a long and short prepared just in case.

AUTHORED BY: Certified Equity Research Professional - 2nd Year Associate - Learn more.
    • 2
Nov 7, 2011

I came from big four into ER. I pitched a large cap and small cap in my interview. Pitching a short is great, but not essential, as it's a lot harder than a big. Again you don't need in depth knowledge, but you need to have a conviction and identify good critical factors.

    • 1
Nov 7, 2011

Thanks for your response. How detailed were your stock pitches? I usually give a basic intro to the company (a relatively unknown small cap), a few reasons why I like the company and then the valuation. I'm not sure if its better to keep it relatively brief and provide more details in follow up questions or provide an ample amount of detail in the original pitch.

Nov 7, 2011

CeilingAvenue, shame nobody has responded. Maybe one of these topics will help:

  • Prepping for a REIT Analyst ER Interview? Next week I have a 90-minute set of phone interviews for an equity research position as a REIT ... real estate industry for about three years now. How can I best prep to nail this interview? What ... questions should I expect? ER reit ...
  • Wall ST Prep or BISW for equity research associate interview? First round fit phone interview next week for a MM ER gig, should be OK. From what I learned about ... ER interview so far is I will have to write an update note and possibly do a three-statement model. ... I researched both WSP and BISW and feel like only accounting basic and the 3-statement model are relevant to my ...
  • Question about boutique IBs and ER Equity Research ...
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  • William Blair Equity Research Interview Hi all, I have an interview for an ER position with William Blair. Any advice on prep for the ... interview? Technical aspect: I heard BIWS materials were helpful here. Any other suggestions? Fit: I read ...
  • Equity Research Intern Interview on Monday... a great discussion on ER interviews. interview Equity Research ... What should I expect? It's a boutique shop in the southern region, and I'm curious what ...
  • Credit Suisse Equity Research (interview prep) S&T, not research... How to prep for this interview? Fit/qualities/type of person that does this- what ... Interviewing for an ER SA position... I've gotten tips on how to prepare for this interview ... to CS? Is their ER good? Thank you in advance! ...
  • Interview for Evercore S&T ER Sales Summer analyst 2018 Please Help I just got a interview for Evercore ISI equity research sales, can someone shed some light on it. ... What should I expect at the interview? Equity Research Equity Sales sales and trade s&t Evercore ...
  • More suggestions...

Maybe one of our professional members will share their wisdom: @BaaketLeon @BarryG @Fdvalle

If those topics were completely useless, don't blame me, blame my programmers...

Nov 7, 2011

Hey Adrian-Wong1, I'm here to break the silence...any of these links help you?:

  • Fidelity- Equity Research Internship- Final Round Internship Equity Research Final Round equity ... direction to save time. I have a final round with Fidelity next week for a summer internship in equity ... research in London. This is my first ever interview for a buy-side role. At each of my BB interviews ...
  • BB Equity Research Final Round Questions Is there anyone who has interviewed with a BB Equity Research for SA position in the past. Please ...
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  • So many 1st round interviews...so many dings even just IB, I'm gunning for fldps and 3rd tier consulting jobs, and equity/ FI research. IB ... dinged me immediately too though. How many first rounds did it take for you guys before you finally ... landed a job? I'm thinking it takes about 100 first rounds before there is a statistical chance for ...
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  • Equity Research- Interview Questions Equity Research Interview Questions Positions in equity research are available for seasoned ... writing the reports. Equity Research Questions- Technical Unlike ib interviews, equity research technical ... also be applied to a equity research interview in terms of types of qu
  • Susquehanna International Group (SIG) Equity Research Associate First Round Intervire brainteasers, probability and stock pitch? ANy take on this? Thank you! Equity Research SIG ... Hi, I will be having an upcoming phone interview with an HR for this position. I would love to ...
  • Presented a 50 page stock writeup at a final round interivew- no response at all? a recent situation has got me peeved. I made the final round interviews at a large mutual fund company ... I certainly understand that many first round interviews in person or over the phone don't go ... 5 weeks ago after several successful earlier rounds. For the final round, I was given a month to work on ...
  • More suggestions...

Calling relevant professionals! @Lafanador01 @Puntambekar @vmejia

If those topics were completely useless, don't blame me, blame my programmers...

Nov 7, 2011

They'll interview everyone before they make a decision and they'll delay letting you know that your rejected until offer person has signed.

Therefore, you really have no clue until you hit about the 4 week mark probably (but later the worse obv).

AUTHORED BY: Certified Hedge Fund Professional - 1st Year Analyst - Learn more.
Nov 7, 2011

Just got a response from a thank you email that I sent to one of the associates that interviewed me last week. Said in the middle of earnings season but to reach out for any questions.

Good sign I guess? Should I follow up with any insightful questions or just stay put and wait?

Nov 7, 2011
Long Sendrax:

Just got a response from a thank you email that I sent to one of the associates that interviewed me last week. Said in the middle of earnings season but to reach out for any questions.

Good sign I guess? Should I follow up with any insightful questions or just stay put and wait?

That's fair. My networking game has been put on hold for the time being cus of earnings season, so you should expect to hear back from them whenever they have some free time. If you want to coordinate your e-mails so they have the best chance of seeing em quickly, look at an earnings calendar and pick a day when none of their companies report.

Nov 7, 2011

Just revisiting this item here. Time to follow up on this interview? It has been a week and a half. They did say they were finishing up earnings season but they also said to feel free to send them questions. Is it a good time to send a question? If so should I be direct and ask an associate where they are in the hiring process?

Nov 7, 2011
Long Sendrax:

Just revisiting this item here. Time to follow up on this interview? It has been a week and a half. They did say they were finishing up earnings season but they also said to feel free to send them questions. Is it a good time to send a question? If so should I be direct and ask an associate where they are in the hiring process?

Go for it

Nov 7, 2011

Whats the position?

The purest form of giving is anonymous to anonymous..

Nov 7, 2011
StryfeDSP:
Long Sendrax:

Just revisiting this item here. Time to follow up on this interview? It has been a week and a half. They did say they were finishing up earnings season but they also said to feel free to send them questions. Is it a good time to send a question? If so should I be direct and ask an associate where they are in the hiring process?

Go for it

Should I go through HR or ask the associate who said to feel free to ask him questions? I am sure the associate will be asked his feedback but he is not the decision maker.

Also, I am had a first round interview with another ER shop. Should I include that in the note? I don't want to come off as too aggressive.

Thanks in advance. Hoping to handle this situation as best as I can.

Nov 7, 2011
Long Sendrax:
StryfeDSP:
Long Sendrax:

Just revisiting this item here. Time to follow up on this interview? It has been a week and a half. They did say they were finishing up earnings season but they also said to feel free to send them questions. Is it a good time to send a question? If so should I be direct and ask an associate where they are in the hiring process?

Go for it

Should I go through HR or ask the associate who said to feel free to ask him questions? I am sure the associate will be asked his feedback but he is not the decision maker.

Also, I am had a first round interview with another ER shop. Should I include that in the note? I don't want to come off as too aggressive.

Thanks in advance. Hoping to handle this situation as best as I can.

Talk to the associate. Waiting a week and a half to follow up on your interview isn't aggressive, it's pretty passive.

Nov 7, 2011

Thanks a lot. Do you have any advice to a person that finds it hard to have a casual conversation with an industry professional?

Nov 7, 2011

Just normal small talk. Complain about how awful this winter was, ask them their opinion on the last GoT's episode, what are there plans for Easter, best ways to find an apartment in NYC, etc. From there you can go into the usual stuff about about their career and finance in general. If you know they have been in finance for awhile ask them war stories about the financial crisis and what it was like to work under such duress. That always kills about half an hour.

AUTHORED BY: Certified Equity Research Professional - Vice President - Learn more.
    • 1
Nov 7, 2011

Thanks. I always hesitate about engaging in a casual conversation like I would with other people. This is because they usually have very limited time for me and any irrelevant questions are a waste of their time. Maybe I should learn to find the opportunity to go casual a little bit during the conversations.

Nov 7, 2011

Great post. Thanks for this.

You need to understand that a good firm, a profitable firm, and an attractive stock investment can be 3 unrelated things. -Epicurean Dealmaker

Nov 7, 2011

For research, are the interview questions similar to those for IBD? Which focus on valuation methods?

Nov 7, 2011

Same fit questions. You'll probably be asked valuation questions during your pitch on how you arrived at your price objective.

AUTHORED BY: Certified Equity Research Professional - Vice President - Learn more.
Nov 7, 2011

Don't forget to use the word "color" often. It's critical.

Nov 7, 2011
Miser:

Don't forget to use the word "color" often. It's critical.

If I ever ran a group/division/company, my first order of business would be to ban that word.

"Get more color on this report."
"Get more color on this new client."
"Can you get some more color on this calculation?"
"Can you get more color on the color of this colorful presentation?"

AUTHORED BY: Certified Research Professional - 3rd+ Year Associate - Learn more.
Nov 7, 2011

As an associate in research you only have 3 clients (in order)...your analyst; your trader; sales

AUTHORED BY: Certified Equity Research Professional - 1st Year Associate - Learn more.
Nov 7, 2011

That generally is true but for internal communications I cc every one in the same email so it they get it at the same time and then I give them a call or visit the floor if it's truly material.

AUTHORED BY: Certified Equity Research Professional - Vice President - Learn more.
Nov 7, 2011

Just nitpicking but even if trading desk is top client (commissions) they are different ways of getting paid - i.e. some analysts go