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I stumbled across this forum via another finance website.

There's a lot of misinformation in the ER forum so I thought I'd hang around for a while and give you some answers from the horse's (chicken's) mouth.

Advice (even if it is good) is rarely heeded if the source is not credible so I'll give you a bit of my background. Forgive me if I am vague in parts but I value my anonymity. If you require proof, I will try to provide it if it does not reveal my identity. With that said, here it is.

UK-qualified chartered accountant (big-6 firm)
8 years in equity research (sector based), 5 at a bulge bracket (in a #1 II-ranked team) and 3 at a boutique.
Currently an analyst at a hedge fund.

Decent questions will be answered honestly and to the best of my knowledge, stupid questions will be treated with the contempt that they deserve, and insults will be ignored.

I don't know how long it will take for me to get bored - it depends on the kind of questions that get asked - but I'll commit to a month at a minimum and then take it from there.

Yours faithfully,
The inscrutable chicken

Comments (85)

Jul 12, 2007

Is ER a common path to take in becoming a money manager of some kind? What is the pay like when you first start and as you move up through the ranks? Is the work any fun? It seems like it may be a little slow paced for me? Thanks for you help.

Jul 12, 2007

Is ER a common path to take in becoming a money manager of some kind?

Yes - it is a well trodden path (and sometimes it goes the other way as well). If you aspire to manage money then you should look at buyside ER as you will be better positioned to learn to make investment decisions and you should have the opportunity to transfer if your employer recognises your skills.

The rest of my answer relates to the sell-side because that is my background.

What is the pay like when you first start and as you move up through the ranks?

It's been a while for me and I'm not current on starting packages so you should search the posts from other juniors for the actual numbers. Total comp (salary plus bonus) will be capped until you get to VP or equivalent level.
After that, it is theoretically unlimited but basically determined by the commission that you bring in (or can at least be linked to you). The basic salaries do go up but the difference is made up in bonus.
You can see then that the three key components are;
1) How much trading does your house do?
2) How big is your sector relative to the wider market? (derivative - is there higher trading levels in your sector eg tech or media)
3) How high up are you in your team? (the team head will take disproportionate reward because they have better links to the commission).

Is the work any fun?

This is the first stupid question but I'll go easy on you.
I will say that you certainly have more flexibility and responsibility as a junior in research than in IBD. For one thing, junior analysts don't have to make coffee (that's what secretaries are for).

It seems like it may be a little slow paced for me?

The pace is what you make it. There are times when you have to be more contemplative and that could be mistaken for being slow.
You won't be short of work though.

Thanks for you help.

You're welcome. Hope it was useful.

Jul 12, 2007

inscrutable,

Do IBD analysts often come to you for support when attempting to value a private company or finding comps?

If you did play a support role during an IBD deal, how did your responsibilities change on a day-to-day basis?

Also, aside from first-person communication, what was your main resource for info. Did you use Bloomberg often? Capital IQ (I think thats newer).

Thanks for your help

Jul 12, 2007

inscrutable,

Do IBD analysts often come to you for support when attempting to value a private company or finding comps?

The boutique that I moved to did not have an IBD division so not a problem there.
When I was in BB, I used to deal with IBD a lot.
Valuing a private company or comps is something that any junior IB worth his/her salt should be able to do themselves. They would sometimes ask for what my comps table would be (which may differ from consensus) but I just added a couple of the juniors to my distribution list and I was never asked again.

If you did play a support role during an IBD deal, how did your responsibilities change on a day-to-day basis?

I entered the industry when the conflict of interest had already emerged as a wider issue and I was only ever "taken over the wall" a handful of times. I still had a lot of interaction with IBD though where it was never made clear what the agenda was.
In general, dealing with IBD is both gratifying and frustrating at the same time. On the one hand, it's nice to be acknowledged as the expert in something (even if you are not) but it's also not nice to know that you're not directly rewarded for your insights. I figured that a bigger overall bonus pool meant a bigger bonus for me so I was alright with it.
I was always nice to IBD (character flaw?) so they were always nice to me. However, they would probably be nice to me even if I treated them like crap because I had something that they wanted.

Also, aside from first-person communication, what was your main resource for info. Did you use Bloomberg often? Capital IQ (I think thats newer).

Believe it or not, first-person communication ranks pretty low on my list of available resource. It's nice to be able to rattle off the list of CEOs and CFOs that will take your phone calls - an accounting colleague of mine went to work for a company that I covered. He only met his CEO twice while I had the guy on speed-dial.
I'm not sure about the US but in Europe most analysts use Reuters - I did at BB. When I moved to the boutique, I switched to Bloomberg and I now have both. Despite the clunky interface, I find bberg easier to use but Reuters better for newsflow.
Depending on the kind of analyst that you want to be (fundamental v newsflow driven) will determine which one you prefer. I've never used Capital IQ so I can't say how useful it would be.
You would also probably subscribe to industry trade journals or websites.
There is also a hell of a lot available for free on the internet - you just have to separate the wheat from the chaff.

Thanks for your help

You're welcome.

Jul 12, 2007

If aspiring to manage money at a long only or other fundamentally based hedge fund, does it matter what industry/sector you get into as a sell-side analyst? ie - are certain industries more beneficial in preparing you for the buy-side?

Jul 12, 2007

If aspiring to manage money at a long only or other fundamentally based hedge fund, does it matter what industry/sector you get into as a sell-side analyst? ie - are certain industries more beneficial in preparing you for the buy-side?

If you aspire to manage money, why not go into asset management rather than sell-side? Sell-side is not a better jumping off platform than being a buy-sider.

No long-only money manager that I know of only invests in one sector. A lot of hedge funds have discrete pods that are sector specific but those jobs are hard to get.

In general, I would avoid the financials as they have different accounting rules and drivers. Everything else is unit price x number of units = revenue, less costs = profit.

Jul 12, 2007

How did you move from being a qualified accountant to ER?

Jul 13, 2007

How did you move from being a qualified accountant to ER?

I fell into research by accident (I also fell into accountancy but thataEU(tm)s another story).Although I enjoyed my three years, I knew that I didnaEU(tm)t want to pursue accounting as a career. Come qualification, I had decided that I definitely wanted to be an investment banker and approached recruitment consultants with that in mind.

One of them arranged an open evening with a smaller aEU" but very well regarded aEU" investment bank that combined IB and equity research. At that point, I had no idea what equity research was or that it existed as a real job that paid money and everything. Because I had expressed an interest in IB, the recruiter had set up a one-on-one chat with one of the IB partners. Having heard the presentations on both IBD and research earlier in the evening, I then spent most of my one-on-one talking about equity research. Needless to say I didnaEU(tm)t get invited back for a proper interview (what can I say? I was young and naA-ve).

The evening had, however, unearthed a latent passion for research and analysis. By the way, I think aEUoeequity analysisaEU is a much more appropriate description of the job than aEUoeequity researchaEU aEU" academics do research. At this point, I will throw in the best piece of careers advice that anyone will ever give you aEU" [b]follow your passion[/b]. I tell this to kids (and adults!) who are impressed by how much I make and what car I drive. They are more impressionable than you guys because you know what is potentially out there. If anything, this advice is more important for you than it is for them because you are at a pivotal point in your professional life and you are more easily led down the wrong path. I have been giving this advice for years and recently found out that Warren Buffett also advocates it. It doesnaEU(tm)t matter whether I came up with it first or him (and the odds are firmly stacked in his favour) but the fact that the greatest investor in the world has said it means you should really sit up and take notice. I digress but IaEU(tm)ll go into more detail another time if anyone wants.

The recruitment consultants then set about getting me interviews in equity research and I eventually got a job in a valuation group within BB. This was around the time when the banks were embracing EVA methodology and they all wanted a piece of the action so it was pretty easy for an accountant to wangle his way in. From there, it was pretty straightforward to move internally into a sector team (good analysts do move to different houses to maximize value aEU" you only get market value when you move aEU" so openings are frequent).

I have been described as aEUoestockbroking goldaEU. This is not a comment on my analytical ability (although the fact that smart people trade on my advice does say that IaEU(tm)m not too shabby). Rather, I am an unusual ethnicity (for the city), have a distinctive appearance (manufactured but to my personal taste), and have a regional accent that you would not associate with either of them aEU" in short, I am memorable. This will not make up for the quality of your work but in a situation where an investor has just had six analyst meetings he will most likely remember the advice from the Glaswegian Pakistani girl with the enormous bosom (I am none of those things but it highlights the point).

Jul 13, 2007

Hi inscrutable

Thank you for your time here. Would you say that previous academic research experience will someone get a position in ER? I have some healthcare-related publications and heading to a top MBA program this year. Will I be able to leverage my publications towards an ER position in a healthcare group?

My final question was concerning the level of vertical progression in ER. Is it quick? Does it top out fast? Post-MBA, one enters ER as an analyst? or associate? and then what?

Thank you once again.

Jul 13, 2007

Hi inscrutable

Thank you for your time here. Would you say that previous academic research experience will someone get a position in ER?

Yes, or at least it can't hurt. If you were to ask me whether you should undertake academic research to improve your chances then I would say no but you have already done the work, it is a sunk cost, and there is no incremental effort on your part so use it. Just make sure that it is work that you are proud of. I am embarrassed by my undergrad dissertation and the only reason I keep a hard copy at home is to remind me to be humble.

I have some healthcare-related publications and heading to a top MBA program this year. Will I be able to leverage my publications towards an ER position in a healthcare group?

As above but since you haven't done your MBA yet you have to work out the opportunity cost of your MBA compared to spending the time on the job.

My final question was concerning the level of vertical progression in ER. Is it quick? Does it top out fast?

I covered part of this in a previous post but I'll add to it here.
The two factors that over-ride everything are how good you are and how "hot" your area is but I would say very good by most people's standard. Probably quadrupling over the first five years - more if you're good, less if you're average (but I have no interest in giving advice to anyone that just wants to be a "journeyman analyst" - and there are a lot of those about).

Post-MBA, one enters ER as an analyst? or associate? and then what?

I would have thought probably an associate. With your industry experience you may even make VP but you shouldn't take that for granted.

Just to clarify the hierarchy because different banks have different titles and sometimes the same name will describe different positions at different banks. I will use the generic ones but they were different at the BB I was at. From junior to senior;
Analyst - entry level. This is on a training contract and you're not guaranteed a permanent job after this but more often than not you will go on. Grunt work but there'll be a lot of interesting things to do. If you have the time, there's also scope for initiative (and I would argue it's neccessary for long-term career success).
Associate - typically after 2 years of being an analyst but can be 3. A bit more responsibility, possibly coverage of some smaller companies (but you're name won't be the first on the cover).
Vice President - 2-3 years after being an associate. Primary coverage of names that matter (from a commission point of view). Sales and marketing responsibilities.
Director - anything from 2 to 6 years. I've no idea how this is formulated and I suspect it's used to keep people that may be planning to jump ship. You are not a director in the legal sense. From VP upwards there is no theoretical cap on your earnings (below VP there is a range and your performance v your peers will determine where in the range you come) so I think it's all down to title envy.
Managing Director - undetermined, might never happen. Congratulations! You have scaled the heights that mere mortals can only dream of! It's a real shame then that it's a white elephant. I think it's an excuse for the bank to pay out more of your bonus in stock. You also get to sit in more boring firm meetings to decide corporate strategy (oh, and you get to vote on who should be promoted to VP and Director levels if that floats your boat).

Thank you once again.

You are welcome. Hope this helps.

Jul 13, 2007

the_inscrutable, excellent information thus far, thank you for taking the time.

I'm a newly minted life science PhD and have been offered an ER position that I wanted to get some opinions on in terms of advantages/disadvantages it may provide. The position is best described as a "roaming" associate working across the healthcare team, not specific to a certain subsector (pharma, biotech, med devices, etc). Apparently, I would work with the analysts in groups equally with the goal of working towards synergy building across the healthcare team. I had never heard of such a position, but have been told its becoming more common, usually among groups covering healthcare since biotech and pharma are so interrelated.

Would such a position (with perhaps more breadth than depth than a traditional associate role) be uniquely advantageous or disadvantageous in any way? ie, in terms of skills developed, attractiveness for future job moves? any thing else... thanks again

Jul 13, 2007
AAR:

the_inscrutable, excellent information thus far, thank you for taking the time.

I'm a newly minted life science PhD and have been offered an ER position that I wanted to get some opinions on in terms of advantages/disadvantages it may provide. The position is best described as a "roaming" associate working across the healthcare team, not specific to a certain subsector (pharma, biotech, med devices, etc). Apparently, I would work with the analysts in groups equally with the goal of working towards synergy building across the healthcare team. I had never heard of such a position, but have been told its becoming more common, usually among groups covering healthcare since biotech and pharma are so interrelated.

Would such a position (with perhaps more breadth than depth than a traditional associate role) be uniquely advantageous or disadvantageous in any way? ie, in terms of skills developed, attractiveness for future job moves? any thing else... thanks again

Firstly, congratulations on your PhD!

I would personally avoid this aEUoeopportunityaEU unless itaEU(tm)s the only offer that you have or there is explicit scope for stock responsibility at a later stage. This is because you will see an asymmetric impact on job satisfaction v potential pay. ie this role might offer a slight improvement in job satisfaction (and it may even be negative if you are jack of all trades, master of none) but you will almost certainly take a dive in remuneration.

In the early years you will be range bound but this will not be the case later on. It helps if you think of the market for analysts to be like the market for any other product aEU" demand and supply rules!

What determines how much your employer will pay you in the medium/long-term? It has to be economic for them to employ you or it is not worth doing so how much commission can you bring in? Unfortunately because someone else is the lead analyst within each of the sub-sectors they get first dibs on the comm.

Even if you do justify some of the comm., your employer only needs to pay you enough to ensure that you donaEU(tm)t move elsewhere aEU" and thereaEU(tm)s not many places you could go and do the same thing (and if you were going for a sector analyst role youaEU(tm)d be at a disadvantage v other existing sector analysts).

IaEU(tm)ve been critical here because it is relative to a standard equity research role. You will still be better paid than 99.9% of the world and that money will buy you a very comfortable life so donaEU(tm)t sweat it too much.

Jul 13, 2007

great stuff, thanks. A follow for you if you'll indulge me further.

Assuming this roaming healthcare associate job is followed after a couple of years by a more traditional VP-level position, what should I consider when choosing a subsector (biotech, pharma, devices) to focus in? Is one subsector better than the others in terms of career upside? pay? opportunities to jump to buy-side, etc?

Jul 13, 2007
AAR:

great stuff, thanks. A follow for you if you'll indulge me further.

Assuming this roaming healthcare associate job is followed after a couple of years by a more traditional VP-level position, what should I consider when choosing a subsector (biotech, pharma, devices) to focus in? Is one subsector better than the others in terms of career upside? pay? opportunities to jump to buy-side, etc?

An easy one. Go with the one that you know the most about - you will enjoy it the most.
In terms of pay, as a general rule the bigger the market cap of your sector the better it will be. A friend of mine is a top 3 ranked devices analyst but I was paid a lot more than her (and I am currently unranked) because my sector was much larger than hers - she's not poor though.

Jul 13, 2007

Hi the_inscrutable -- I think it is a very noble cause that you are so generous in dispensing your knowledge on sell-side research. (in fact, as a regular poster on analystforum.com, I know we could use your insights there).

Just curious, how do you have so much time to post so elaborately on this board? I mean, I'm at a top bulge bracket shop (unlike some of the pretenders and posers on this board like you pointed out) and it's not like I'm doing work all the time...but what you're doing just seems like an incredibly time consuming endeavor, and I personally would never have time fo rsomething like that. Just curious what compelled you to be so generous about posting here (and again, I mean this in the most positive fashion)

Jul 13, 2007
numi:

Hi the_inscrutable -- I think it is a very noble cause that you are so generous in dispensing your knowledge on sell-side research. (in fact, as a regular poster on analystforum.com, I know we could use your insights there).

Just curious, how do you have so much time to post so elaborately on this board? I mean, I'm at a top bulge bracket shop (unlike some of the pretenders and posers on this board like you pointed out) and it's not like I'm doing work all the time...but what you're doing just seems like an incredibly time consuming endeavor, and I personally would never have time fo rsomething like that. Just curious what compelled you to be so generous about posting here (and again, I mean this in the most positive fashion)

I was not expecting this so early on but this is the smartest question posed so far aEU" the situation thus far looks strange as you have pointed out. As I pointed out in another post, the single most importing thing to consider in analysis is motivation. An experienced equity analyst offering free advice to junior or wannabe equity analysts apparently in return for nothing? WhataEU(tm)s the catch? WhataEU(tm)s his motivation?

Before I give you the answer, why donaEU(tm)t a few of you have a crack at analyzing my motivation? Marks out of ten will be awarded and you will be assessed on (in no particular order) logic, originality, suspicion, and forecasting. Anyone getting 10 out of 10 can have my job. 9 out of 10 and you will get a personal letter of recommendation from myself to anyone that you want (caution aEU" will probably carry little weight to anyone that does not know me).

ps my full board name is the_inscrutable_chicken but the forum cuts it off
pps I don't have CFA so I'm not sure what value I would add on analystforum.com

Jul 13, 2007

the_inscruitable_chicken wrote: "I was not expecting this so early on but this is the smartest question posed so far aEU" the situation thus far looks strange as you have pointed out. As I pointed out in another post, the single most importing thing to consider in analysis is motivation. An experienced equity analyst offering free advice to junior or wannabe equity analysts apparently in return for nothing? WhataEU(tm)s the catch? WhataEU(tm)s his motivation?

Before I give you the answer, why donaEU(tm)t a few of you have a crack at analyzing my motivation? Marks out of ten will be awarded and you will be assessed on (in no particular order) logic, originality, suspicion, and forecasting. Anyone getting 10 out of 10 can have my job. 9 out of 10 and you will get a personal letter of recommendation from myself to anyone that you want (caution aEU" will probably carry little weight to anyone that does not know me).

ps my full board name is the_inscrutable_chicken but the forum cuts it off
pps I don't have CFA so I'm not sure what value I would add on analystforum.com
"

well, i've been doing the same thing as you on analystforum for a while (also don't have CFA charter but have extensive experience in sell side research) and it's because i enjoy teaching people and sharing whatever knowledge i have, while also engaging in intelligent discourse with people that care to learn or think intellectually about relevant issues in research and investing. i mean, as research analysts, i suppose it's only our nature to think critically and analyze everything, while also focusing our efforts on those things that are most likely to create or add value.

so, that's my reason. what's yours?

Jul 13, 2007

i mean, as research analysts, i suppose it's only our nature to think critically and analyze everything, while also focusing our efforts on those things that are most likely to create or add value.

This is what 99% of sell-side analysts think their job is - but it's not. Discuss.

ps I like the way you phrased your answer (for the benefit of everyone else, this is a common trick of the sell-side - probe the client for their position and try and fit your view to theirs). You also get marks for credibility of story. Unfortunately you lose marks for false consensus. Overall I give you 6 out of 10.

Jul 13, 2007

if 99% of analysts think one way and you think another, i don't feel instantly compelled to defend my response (as well as consensus) without at least hearing an appropriate rebuttal from you. but thanks for noting that the rest of us are "wrong" -- it's about as logical as my rating your thesis as a negative number on a scale of 1 to 10, as it were.

Jul 14, 2007
numi:

if 99% of analysts think one way and you think another, i don't feel instantly compelled to defend my response (as well as consensus) without at least hearing an appropriate rebuttal from you. but thanks for noting that the rest of us are "wrong" -- it's about as logical as my rating your thesis as a negative number on a scale of 1 to 10, as it were.

I could play games here and we could end up going back and forth so I'll just come out and say it. What you described was the role of the buy-side analyst. The job of a sell-side analyst is to get people to buy and sell stocks.
You can be a successful sell-side analyst even if you don't realise this - but it is what it is.

Jul 14, 2007
the_inscrutable_chicken:
numi:

if 99% of analysts think one way and you think another, i don't feel instantly compelled to defend my response (as well as consensus) without at least hearing an appropriate rebuttal from you. but thanks for noting that the rest of us are "wrong" -- it's about as logical as my rating your thesis as a negative number on a scale of 1 to 10, as it were.

I could play games here and we could end up going back and forth so I'll just come out and say it. What you described was the role of the buy-side analyst. The job of a sell-side analyst is to get people to buy and sell stocks.
You can be a successful sell-side analyst even if you don't realise this - but it is what it is.

OK, I'll agree with that.

Jul 13, 2007

You're looking to hire a junior and you want a whippersnapper to stand out with his questions.

Jul 14, 2007
islandergold:

You're looking to hire a junior and you want a whippersnapper to stand out with his questions.

PA4444:

You are looking....primarily

No, and there are easier and more effective ways to find a junior.

Jul 13, 2007

You are looking....primarily

Jul 13, 2007

Alright, finally get to fire at a senior

  1. Give me some pay guidance. I'm very good at ER but worried I won't make the big bucks corp financiers make - I'm about the cash now that I'm truly happy at work - any guidance (you should know a thing or two about expecting some kind of guidance) - and GBP is fine as I work in London.
  2. How has spitzer changed your life? I work at a top boutique and our work is linked more to salesman and traders whereas there was a lot more IBD influence at a integrated - does this change the bonus structure or mean the death of ER in terms of making cash?
  3. What do you think of Fowler leaving Merrills? Sign that finally people are realizing these BB's top ranked analysts don't do an ounce of research?
Jul 14, 2007

Alright, finally get to fire at a senior

  1. Give me some pay guidance. I'm very good at ER but worried I won't make the big bucks corp financiers make - I'm about the cash now that I'm truly happy at work - any guidance (you should know a thing or two about expecting some kind of guidance) - and GBP is fine as I work in London.

Why are you worried about what somebody else makes? Even now in the early stages of your professional life you are making more money than most of the country. You are happy at work - that is what matters.

2. How has spitzer changed your life? I work at a top boutique and our work is linked more to salesman and traders whereas there was a lot more IBD influence at a integrated - does this change the bonus structure or mean the death of ER in terms of making cash?

I cannot really say how Spitzer has changed my life. The regulations were there beforehand but it was a period in the cycle when it was very lucrative for people to break them so they did.
Equity research analysts were paid well before the IBD scandals, they will be paid well after.

3. What do you think of Fowler leaving Merrills? Sign that finally people are realizing these BB's top ranked analysts don't do an ounce of research?

He was just the one that got caught and I don't feel particularly sorry for him. When you hear US analysts talking about earnings being "a penny ahead" or "a penny light", what do you think? There are a couple of sectors where it is possible to forecast revenue pretty accurately but for most of them you'd have to be pretty damn good (or lucky) to get within 1%. By the time this filters down to the earnings line, how likely is it that you'll get within a penny?

Jul 13, 2007

oh wait, one more,

What are the exit options? I've heard moving to the buy-side in a long only fund - can you move to other types of funds? What about PE? A guy I know got recruited to move to a prop desk -is that common?

Jul 14, 2007
ratul:

oh wait, one more,
What are the exit options? I've heard moving to the buy-side in a long only fund - can you move to other types of funds? What about PE? A guy I know got recruited to move to a prop desk -is that common?

Firstly, you have to ask yourself why you want to exit (presumably having worked so hard to get in in the first place). If you move somewhere else, what will be different about that job that will make you happier? If it's about the money, how much is enough? What do you want to buy? A ferrari? A boat? A bigger house? An island?

To answer your question, from sell-side equity research I know people that have moved to long-only buyside, hedge funds (including me), prop desks (happens a lot at one place I know) and IBD. I don't know anybody that has moved to private equity but I'm sure it has happened.

Jul 14, 2007
the_inscrutable_chicken:
ratul:

oh wait, one more,
What are the exit options? I've heard moving to the buy-side in a long only fund - can you move to other types of funds? What about PE? A guy I know got recruited to move to a prop desk -is that common?

Firstly, you have to ask yourself why you want to exit (presumably having worked so hard to get in in the first place). If you move somewhere else, what will be different about that job that will make you happier? If it's about the money, how much is enough? What do you want to buy? A ferrari? A boat? A bigger house? An island?

To answer your question, from sell-side equity research I know people that have moved to long-only buyside, hedge funds (including me), prop desks (happens a lot at one place I know) and IBD. I don't know anybody that has moved to private equity but I'm sure it has happened.

The reason I asked is b/c it alludes to my first question - money. I'm VERY happy on the sell-side right now and I think I'm very good at what I do, but I'm now about money. Since I can't really get any guidance (and yes, I know it's about market cap and other things - assume large mrkt cap for now) on my upside, it makes me think I should explore other options that fully reward me for my skills - and I know that sounds silly, but I would like a ferrari and a boat and I want to find out how to best do that in the context of ER - so if that is on the buyside or at a prop desk, I would like to know, b/c I can't ask anyone at work as it's tacky and there aren't any websites I know of that give me guidance.

If you can't give guidance, then how about this - is it possible to own a ferrari in sell-side ER with a large market cap and considering you're good. I believe I definitely have the skills, but it is these vapid material questions that no one likes to respond to.

And thanks for taking the time to answer - good stuff all around and very informative.

Jul 14, 2007

I will refer back to my answer on your own thread.

What is it that makes you good at your job? Are you a great stock picker? Are your forecasts spot on? Are you very convincing in your presentation? Are you very aggressive in closing the deal?

Once you've worked that out, you then think about what job would best suit your skills. If your forecasts are great but your stock-picking is not then you won't last very long on a prop desk.

As a general rule, the better that you can link yourself to the revenue then the better you will be paid. A second general rule is of risk/reward - the more you risk, the greater the potential reward.

Yes, you can have a ferrari and a boat in equity research (or a sizeable castle in Scotland like one analyst I know has) - if you're good enough.

Jul 16, 2007
the_inscrutable_chicken:

I will refer back to my answer on your own thread.

What is it that makes you good at your job? Are you a great stock picker? Are your forecasts spot on? Are you very convincing in your presentation? Are you very aggressive in closing the deal?

Once you've worked that out, you then think about what job would best suit your skills. If your forecasts are great but your stock-picking is not then you won't last very long on a prop desk.

As a general rule, the better that you can link yourself to the revenue then the better you will be paid. A second general rule is of risk/reward - the more you risk, the greater the potential reward.

Yes, you can have a ferrari and a boat in equity research (or a sizeable castle in Scotland like one analyst I know has) - if you're good enough.

I guess I'm pretty good at stock-picking, but I'm very good at getting info that no one else gets through my search skills and I'm also incredibly convincing. (I used to be a debating champion - but that's beside the point)

I'm a very good writer for the most part and I enjoy that aspect of research, but part of me figures I would be quite good at sales or an a prop desk. I like research a lot, but I'm really looking to make an insane amount of money - I am part of the me generation, so I guess it makes sense.

But thanks for clearing a lot of this stuff up - People were calling ER a dead desk, and I'm glad that a senior has confirmed my presumptions about the industry.

Jul 14, 2007

These questions may seem basic from your point of view, but I've been wondering about a few things.

How often are you client facing or talking to clients? Generally what type of clients are you talking to?

Can you give a very general breakdown of what you do everyday ie, 2hrs reviewing the markets, 4 hrs researching your companies, etc.

Jul 15, 2007

How often are you client facing or talking to clients?

If the question is how long before I can start talking to clients then the answer is probably after a year or two. You might be thrown "stray" clients - ones that don't particularly matter to your company to practice on.

At the point that you are an established analyst it will depend on what's happening in your sector - if there's a lot of newsflow then you might speak to some clients (particularly hedge funds and prop desks daily).
When you write a research note, you'll also ring around all of your clients to alert them to it. You will also go out and market your research face to face. How often depends upon the analyst but they will usually try to work in a trip around II time.

Generally what type of clients are you talking to?

Institutional (long only, hedge funds, prop desks), no retail.

Can you give a very general breakdown of what you do everyday ie, 2hrs reviewing the markets, 4 hrs researching your companies, etc.

It's very difficult to say as it varies from day to day and also from analyst to analyst.
The only thing that I did religiously was to check the news every morning (sorry, I know that won't sound particularly helpful).

To give you some guidance, here is how I see a "textbook analyst" spending their time (I've got some bad habits that I wouldn't want to pass on)
2-4 hours - scanning morning news, morning shout (aka squawk box aka hoot & holler), client calls.
6-8 hours - collating information, devising investment theses, writing research.
1 hours - coffee, lunch, making fun of your colleagues.

Jul 14, 2007

Hey The inscrutable chicken,

My question is more about breaking into the industry. I'm assuming the time when you changed your career path from Accountancy to 'Equity Analysis' it was fairly uncommon to do this? These days I have heard alot of people going to a Big 4 Accountancy firm then trying to break into Banking after attaining their ACA/CA etc. So, do you think it is still common for people to enter banking the way you did or has this process been 'done to death'?

Secondly, I truly value your advice on doing whatever your passion is. I agree with you that you should do whatever interests you most, rather than doing something for the money, although this is much easier said than done! But what would you suggest to someone who knows that Banking is right for them, but not sure which division? Obviously, internships are a way of providing insight, but is there anything else you reccomend? To give you a better idea, I am due to commence university here in the UK this September. Thanks for everything so far, much appreciated!

Jul 15, 2007

My question is more about breaking into the industry. I'm assuming the time when you changed your career path from Accountancy to 'Equity Analysis' it was fairly uncommon to do this? These days I have heard alot of people going to a Big 4 Accountancy firm then trying to break into Banking after attaining their ACA/CA etc. So, do you think it is still common for people to enter banking the way you did or has this process been 'done to death'?

I don't think it was that unusual when I did it. Accounting has always been viewed as excellent all-round basic business training so I don't see why the banks would not want to hire from there.

Secondly, I truly value your advice on doing whatever your passion is. I agree with you that you should do whatever interests you most, rather than doing something for the money, although this is much easier said than done! But what would you suggest to someone who knows that Banking is right for them, but not sure which division? Obviously, internships are a way of providing insight, but is there anything else you reccomend? To give you a better idea, I am due to commence university here in the UK this September. Thanks for everything so far, much appreciated!

There are hundreds of functions within an investment bank so I can't go into the specifics of each one. Internships are great because you get to see it for yourself and form your own opinions. However, you'll only be able to do a limited number of them.
Why not try asking people out to lunch? Make it clear that you are not after a job from them but that you are interested in picking their brain. You will get a lot of people saying no but you might get someone that says yes.

Jul 14, 2007

I will take a shot at why your doing this, prolly will be way wrong but who knows.

You basically answered the question with your first post, by saying there is alot of misinformation out there. After your many years of success and doing what you love you want to give back to others hoping to be where you are one day. You prolly were confused along time ago and faced many of the same choices as people who use this forum do today, as seen by your telling of your experience in accounting. Also long time ago you prolly had the choice to goto trading/corpfin etc, but in the end you ended up in research. Which was the best spot for you. So you want to make sure some youngster does not make the same mistakes to go another path if "research is the right one for them". Lastly you want to show that ER should be an option for those superstars coming out of top schools.

Onto my questions, I had 2 interviews last feburary for ER summer internships which I did not land. Both interviews were some of my toughest, as one interviewer literally grilled me to death to know, why I choose "x" and if I follow the market daily. The other guy said I knew my stuff from a qualitative level but could not connect with the "numbers", he like'd how I chose stocks and my knowledge but said I lack the overall package.

So I am wondering, if I want to get into this after undergrad, is there any real good books out there on ER Models/Theories, what can i do besides reading the paper everyday?

Jul 15, 2007
adehbone:

I will take a shot at why your doing this, prolly will be way wrong but who knows.

You basically answered the question with your first post, by saying there is alot of misinformation out there. After your many years of success and doing what you love you want to give back to others hoping to be where you are one day. You prolly were confused along time ago and faced many of the same choices as people who use this forum do today, as seen by your telling of your experience in accounting. Also long time ago you prolly had the choice to goto trading/corpfin etc, but in the end you ended up in research. Which was the best spot for you. So you want to make sure some youngster does not make the same mistakes to go another path if "research is the right one for them". Lastly you want to show that ER should be an option for those superstars coming out of top schools.

A good answer, similar to the previous one from numi but using the information available to justify your comments. False consensus not applied but a bit limited in creativity. You get 7 out of 10.

Onto my questions, I had 2 interviews last feburary for ER summer internships which I did not land. Both interviews were some of my toughest, as one interviewer literally grilled me to death to know, why I choose "x" and if I follow the market daily. The other guy said I knew my stuff from a qualitative level but could not connect with the "numbers", he like'd how I chose stocks and my knowledge but said I lack the overall package.

So I am wondering, if I want to get into this after undergrad, is there any real good books out there on ER Models/Theories, what can i do besides reading the paper everyday?

I sometimes wonder whether the competition for summer internships is greater than it is for full-time positions! If I were looking for a summer intern, I would make sure that they are polite, presentable, reasonably smart and had big hands (for the coffee run).

To answer your question, I would read up on valuation (anything by Damodaran) and try to get hold of some research reports. You won't be able to get hold of anything very recent but they are out there (try looking on company or regulator websites).

Jul 16, 2007

How many undergraduate summer interns do bulge bracket banks normally take in London to Equity Research? The reason I ask is that there is a lot of talk that it's almost impossible to get in.

Jul 16, 2007

Insane money, eh? Work your way up the research ladder, bring in $4m of comm that can be attributed to you and youaEU(tm)ll pull in $500k to $1m a year for the rest of your career. Sock a fair bit of it away in investments, watch it compound up and youaEU(tm)ll be set in a few years to do whatever the hell you like.

CanaEU(tm)t bear to wait that long? Want that Ferrari today? Then join the prop desk. You get to play with somebody elseaEU(tm)s money and keep a slice of the profits. Be warned though, the market can remain irrational longer than you can remain liquid in this situation. On 31 December 2003, you could be convinced that the Sainsbury share price will double and youaEU(tm)d be right aEU" on a 4 year view. In the meantime, you would have lost 20% and been fired.

The risk-reward ratio is still in your favour because of reward asymmetry on a prop desk (make big profits and win big for yourself, make losses and donaEU(tm)t lose out financially yourself) but it wonaEU(tm)t be much consolation when you are pounding the pavement for another job (where they wonaEU(tm)t mind why you lost your last job).

Jul 21, 2007

You used to work on the sell side and work now on the buy side. Why did you make the move? Do you see better career prospects on the buy side? Are there anything you miss from the sell side? Do you want to manage money some day? How long would it take for you to manage for example a small part of a fund?

Jul 23, 2007

You used to work on the sell side and work now on the buy side. Why did you make the move?

I certainly had not achieved everything that is possible on the sell-side but I had achieved everything that I wanted to (that was practicable).
If you cover the same companies for too long, you become somewhat jaded and either become too cynical or too favourable to the companies that you know well.

Do you see better career prospects on the buy side?

The rewards could ultimately be much higher on the buy-side than on the sell-side but it's not a particularly meaningful question. On the buy-side, you might go on to run the department/division/company. On the sell-side, you might go on to run the department/division/company.

Are there anything you miss from the sell side?

I do miss the instant gratification of the sell-side sometimes - it is a much more dynamic place. If you are the axe (perceived to be the best informed or most insightful analyst) on a company and some major piece of news comes in then the phone doesn't stop ringing.

Do you want to manage money some day? How long would it take for you to manage for example a small part of a fund?

You can be an analyst and manage money at the same time. This could be because it is a sector-specific fund (or a book on a prop desk) or it could be because the firm wants you to keep up your analytical skills.

At most buyside places the "goal" of the analysts is to manage money and I'm not sure why that is other than financial reward.

Jul 21, 2007

This "challenge" is awesome! Something different on this Forum, where all the topics are (about) the same... so here goes my analysis step-by-step:

Step 1: 3 possible motivational areas to start with: tangible, intangible, other.

Step 2: Tangible excluded as you won't have any material benefits from posting on this Forum. Hence focus on intangible.

Step 3: Within intangible area I'd analyse 2 motivational groups: professional motivational factors and personal ones.

Step 3A: Possible professional motivation can be being noticed (i.e. stand out from the crowd) and be offered some great job or even get some media recognition. However:

this Forum seems to be "junior" (not many seniors/Partners here),
haven't heard about any media representatives here,
Forum is anonymous,
and you indicated clearly that you value your privacy,
so I exclude this motivation as well.

Step 3B: Personal reasons I can think about: ego boost, teaching nature, boredom, loneliness, other.

Step 3B(1): Ego boost - search for recognition. Factors to consider:

you have already worked there, where many dream about (BB bank, #1 team, hedge fund),
you are around 34yrs (21 at graduation + 3 big6 + 8 in ER + say 2 in HF) and have money & position others envy you,
you don't envy others ("Why are you worried about what somebody else makes?" line you wrote to Monkey suggests that your life is not about envying others),
you have already had a lot of recognition ("stockbroking gold" and even the fact that you want to write recommendation letter means that you must be well respected in relevant circles).
So all in all I exclude ego boost as your motivation.

Step 3B(2): Teaching nature - excluded based on Monkey's try.

Step 3B(3): You are bored and are looking for entertainment. Factors:

you are ca. 34yrs and already have achieved a lot. What else is there that turns you on? Money you already have, position & prestige also...
you seem to be however very down to earth (logical, humble, polite, with attention to details - no spelling mistakes etc.)
Tough to judge, but my gut feeling tells me it's not the motivation.

Step 3B(4): You are lonely and in this way you kill the time. Factors:

you write posts at late hours (assuming you're in the UK) and also on Saturday and Sunday, and you reply to posts almost immediately,
you don't need to work on weekends as you are already "after" this stage of the career
So maybe (unless you have family) this is your way to kill the time? But again (gut feeling) I wouldn't bet on this one.

Step 3B(5): Other - life reflection. Having gone successfully through traumatic experience (although of course I don't wish you any!) like disease/accident/etc, you realised how lucky you are and how great life is. As a payback you have decided to do some community service and one way to do this can be to educate others. Hence your posts on this Forum.

Because all others reasons I have already excluded (apart from Step 4) I keep this motivation as a possible one).

Step 4: The last motivational area I can think about is Others aEU" and I mean by it that you don't have really any motivation. You just stumbled across this Forum, got excited with it (as it happens with new things) and got even more excited once you decided to trick us (competition for motivation while there is no any motivation).

So my finalists are steps 3B(5) and 4. Because, based on your posts, you seem to be very ethical guy, I exclude step 4. What leaves me with Step 3B(5): Other - life reflection.

Even if I'm wrong, it was fun! ;-)

P.S. I suspect that there is also some kind of hint in your nick. So I googled it, but my search didn't bring any conclusions (apart from the fact that you are faithful reader of Going Private, you post on Gizmondo and you like James Enck ;-)

Jul 23, 2007

... creepy a bit?

Jul 23, 2007
suburbanfarmboy:

... creepy a bit?

Only a bit?

Jul 23, 2007

I won't quote your post because it would get too long.

Firstly, congratulations on being the first to do any basic research (Google). Others may have used it too but if you don't say that you did then you can't get any credit for it! I am still a faithful reader of Going Private but, sadly, Jimmy Enck has moved onto pastures new so I have to settle for sending him abusive bloomberg messages.

Your post is very well structured, makes good use of the information available, and follows through logically - apart from step 3B(3) where you assumed that a down to earth person cannot be bored and looking for entertainment. I suspect that you already had your gut feeling and was stuggling for a reason to exclude it?

It didn't quite fill the bill in terms of the marking criteria that I laid out so I can't give you a 10 (although by putting my job on the line I'd effectively ruled that out anyway), but I can give you a 9. If you are looking for a job in research then I would be happy to write a letter of recommendation for you.

Jul 23, 2007

Well... I didn't want to sound like a freak ;-). I just found the 'challenge' cool. Nevertheless, I'm happy with 9 points ;-).

The inscrutable chicken - can I PM you?

Jul 23, 2007

The inscrutable chicken - can I PM you?

Of course you can.

Jul 23, 2007

inscrutable chicken -

I have an upcoming interview and modeling test with an equity research team.

What is the best way to prepare for something like this? I have strong accouting skills, but just want to make sure I can translate this during the modeling test.

Any advice on preparation?

Jul 23, 2007

inscrutable chicken -

I have an upcoming interview and modeling test with an equity research team.

What is the best way to prepare for something like this? I have strong accouting skills, but just want to make sure I can translate this during the modeling test.

Modeling does not really have anything to do with accounting - it's more about showing credibility in your forecasting methodology. Your accounting skills should be tested separately and should look at your understanding of how accounts can be manipulated and spotting issues to be investigated.

Models in equity research should be simpler than they are in IBD (and I would argue that even those ones should not be as complicated as they are) for two main reasons; IBD gets access to more information to factor in, and their models are more likely to be project specific and therefore don't need to be maintained for extended periods.

I don't think there is any reason for a model to be bigger than 2MB (and preferably less than 1MB) but that is personal opinion. In fact, I think that most models that I have seen are over-complicated, unweildy, and have poor structure. I know of one junior analyst whose job was pretty much to maintain the model on one particular company - I would have fired the guy and bought another porsche....

A couple of questions to ask yourself if you want to critique you models (for suitability for equity research);
1) How long does it take to roll forward your model? (to take into account the latest published information) If it takes you a day and you're maintaining 10 models then that is 40 days a year that you aren't getting back.
2) How easy would it be for someone unfamiliar with your model to extract useful information? Clients often want to see your model to make sure that you haven't used unreasonable assumptions to get to your forecasts.

Any advice on preparation?

It's hard to give specific advice without knowing more about your circumstances. This leads to the generic "be polite and respectful, demonstrate willingness to learn, blah, blah, blah".

At the very least, you should be well prepped on the major goings on in that industry (and you should show an interest in that sector anyway).

If you have friends in the industry, try to get hold of some research reports - doesn't matter if they are slightly older - to get an idea of their style.

Jul 25, 2007

Hey inscrutable,

Had my bonus meeting today. I'm unofficially ranked as the #1 analyst for my year. Bonus was the top, but I was a bit disappointed. They gave me a higher than expected base bump but my bonus was WAY too inline with my peers, and I absolutely destroyed them. A senior salesman told me the other day I am better than my boss in some areas already. Is this reason to be angry, or should I give them until the next half to shape up? They know I can leave but I think it was standard procedure to give every first year close to the same amount with little variation. That annoys me quite a bit. And considering I'm getting calls from headhunters at all the top shops, it annoys me even further.

Jul 26, 2007

Hey inscrutable,

Had my bonus meeting today. I'm unofficially ranked as the #1 analyst for my year. Bonus was the top, but I was a bit disappointed. They gave me a higher than expected base bump but my bonus was WAY too inline with my peers, and I absolutely destroyed them. A senior salesman told me the other day I am better than my boss in some areas already. Is this reason to be angry, or should I give them until the next half to shape up? They know I can leave but I think it was standard procedure to give every first year close to the same amount with little variation. That annoys me quite a bit. And considering I'm getting calls from headhunters at all the top shops, it annoys me even further.

The only thing that matters money-wise is total comp (base + bonus) so you should consider whether you are happy with that.

I've mentioned previously that the first 2-3 years the comp will be pretty range bound. You may have been very good relative to your peer group but unless you were directly responsible for a large chunk of revenue (that is also potentially repeatable) then you will go into this range.

I was similarly lauded in my first two years - I set up the template for our daily newletter that was subsequently adopted by several other teams. 7 years on and they are all still using it. I also presented a tool that I created to the entire department (you will know what a big deal this is) and both of these meant I was at the top of the range. I don't tell you this to boast - because there was no revenue linked I was not able to break out.

How much more would it take to have made you happy? If it was an extra $20k, only half of that would make it into your pocket after tax. $10k might sound like a lot at this stage in your career (and for many people it is more than they make in a year) but I guarantee you that in a few years time it will be nothing more than a rounding error.

In the meantime, do you think that you will learn and develop more by staying where you are now or by moving? You know you get on with your current boss but what do you know about the other analysts? You may have chatted to them at analyst presentations (assuming that you've been allowed out) but that is no indication of what they are like to work for.

One final thing, beware headhunters bearing gifts.
They never give the name of the place that is looking over the phone - only a generic description (eg bulge bracket or large European bank building their business in the US, etc.)
They will not have targetted you specifically but you fit the profile of the job description they have. Even if you don't, they want to get some more background information about you in case something suitable does come up.
If you do get an interview, you will be up against a bunch of other candidates and unreasonable compensation demands will put you out of the running. Until you are in a position to demonstrate your ability to add to the top/bottom line, your negotiating position will be weak - this is true for every job in every industry.

Jul 26, 2007

hmm, fair enough - I did calm down after speaking to my peers. I'm at the top of the range, but unless I start generating revenue, there's little I can do. I basically decided today to start informal coverage on a company we don't cover but would like to.

I do work well with my boss and I could be talking to clients within a year based on some projections, which I think would really accelerate the process.

Thanks, your insight, as always, is very useful.

Another completely random question - someone pointed this out to me the other day. Since banks are divesting from research, yet demand is ramping up b/c of hedge funds, do you think there will be a lack of analysts in a few years? I mean, at my bank, we take on so few interns, and graduate hires are quite limited - will this be an issue in the future?

Jul 26, 2007

Client contact is key and you won't forget in a hurry the first time that you get mentioned in the broker review or have your name tagged to a trade.

In answer to your question, I think no - but that is just my opinion. I have no special insights into this and your opinion on this matter is just as valid as mine. Can you explain in a bit more detail what you think the bigger issues are with research and what the implications might be. Do that and you might answer your own question with a bit more conviction.

Aug 4, 2007

First of all, lucasNL, good analysis. Notice that inscrutable chicken did not explicitly object to your reasoning and rational bases.

Inscrutable chicken

I am starting my second year in economic consulting while preparing to write the CFA lvl II exam next year. I want to give ER a shot after passing lvl II CFA. By that time, I'd probably have 3 yrs of consulting experience + two lvls of CFA. Do you think I can enter as an associate with that credential or do they only warrant me a starting position? Thanks for your informative posts.

Aug 4, 2007

It depends on whether you were part of a specific industry while you have been a consultant. If so, then you could claim to have strong insights into a particular sector that justifies an associate position.

Even if you go in at a lower level, your unusual background should allow you to get ahead earlier if you start proving yourself.

Most banks now insist that new juniors take CFA so your level II will definitely be viewed favourably.

Sep 19, 2008

i am a chartered accountant from pakistan and passed two levels of cfa. i wana land in a finance position in london or ny in equity research and finally into portfolio management, all that to earn lot bigger bucks than i can do in pakistan and gain top experience in this feild which obviously i cant in pakistan. my experience ( all the articleship one which is just abt to end) is composed of 1.5 years in audit, and 2 years in providinf consulting to a pakistni bank where i leaned abt the operational managent of the bank a lot and little abt its strategic management.
i know my experience might not be very worthwile for london. but i do want to land a good ER job there. Plz advise me what should i do.

Nov 14, 2008
afz:

i am a chartered accountant from pakistan and passed two levels of cfa. i wana land in a finance position in london or ny in equity research and finally into portfolio management, all that to earn lot bigger bucks than i can do in pakistan and gain top experience in this feild which obviously i cant in pakistan. my experience ( all the articleship one which is just abt to end) is composed of 1.5 years in audit, and 2 years in providinf consulting to a pakistni bank where i leaned abt the operational managent of the bank a lot and little abt its strategic management.
i know my experience might not be very worthwile for london. but i do want to land a good ER job there. Plz advise me what should i do.

I'm sorry but there is little within what you wrote that would make you stand out as a candidate right now. Do you have residency rights in either the UK or US because, if not, it is unlikely that any firm would consider sponsoring you at the moment.

On the bright side, you should consider equity research in the pakistani market (if they ever bother to open it up again). The characteristics of equity are pretty much the same wherever the opportunities are.

Good luck.

Sep 24, 2008

I have an interview coming up with Robert Baird for ER. How well regarded is the firm in the industry? Are the hedge fund exit opportunities there for a boutique such as Baird or does that come more from a bulge, whatever that may be defined as today?
Thanks for your insight.

Nov 14, 2008
youngmoney:

I have an interview coming up with Robert Baird for ER. How well regarded is the firm in the industry? Are the hedge fund exit opportunities there for a boutique such as Baird or does that come more from a bulge, whatever that may be defined as today?
Thanks for your insight.

They have a good reputation.

If you are good, the opportunities to join a hedge fund will be the same there as from any other place. Having said that, I am extremely bearish on the hedge fund industry over the next 1-5 years and expect over half of the current ones to close down.

Good luck with your interview.

Oct 26, 2008

Inscrutable, if you are still following this thread, what do you think about sell-side research given BoA and Barclay's acquisitions of ML and LB respectively. Do they hands down have the best research groups in the majority of areas, or do you think there will be a surge of top research analysts leaving?

Nov 14, 2008
big unit:

Inscrutable, if you are still following this thread, what do you think about sell-side research given BoA and Barclay's acquisitions of ML and LB respectively. Do they hands down have the best research groups in the majority of areas, or do you think there will be a surge of top research analysts leaving?

I'm not sure what you're questions are getting at here? If it is whether they will be the "top research houses" to join then my answer is simple - people make the franchise, not the other way around. You will not become a top rated analyst from osmosis. Join a team who's analysts you respect and you believe you will learn the most from and then make your own mark.

Oct 29, 2008

This guy most likely has left quite a long time ago. It was only a limited time offer and he was good on his word.

Nov 7, 2008

What do you think of quantitative research at firms like D.E. Shaw?

http://www.deadstock.ca/ Your closet will never be the same again.

Nov 14, 2008
Soy:

What do you think of quantitative research at firms like D.E. Shaw?

Everybody is aiming for the holy grail of alpha generation. If you have a method of looking at the market that works for you then great - but make sure that you don't mistake luck for skill.

My chosen market is equities. I like it because it's generally very liquid and emotional as well as intellectual. My chosen style is fundamental analysis because it's what makes sense to me and I'm good at it. A small skinny guy is better suited to aikido than sumo. What are you suited to?

Nov 13, 2008

only one year late.

Maybe the chicken will reappear some magical day.....

Nov 14, 2008

...did you kids miss me?

I'd forgotten about this site and then a private message got forwarded to my email so thought I'd pop in. Nice to see that this is rated as a "popular thread" even after all this time.

Wow! This site has changed a lot - must have taken a lot of hard work so well done. It may be wasted effort the way the world is going as financial services careers are going to be much less desirable going forward but it does mean those that do pursue it are that much more committed.

Don't know if I'll have much time to answer questions but ask them anyway and I'll see what I can do.

Nov 17, 2008
  1. How often do ER analysts change the companies they cover? Can they change whenever they want to? What are some reasons why an analyst would drop coverage on a company?
  2. When preparing for ER interviews, would you suggest focusing on one industry and attempting to become a quasi-expert, or focusing on the entire stock universe in an attempt to know a little bit about everything?
  3. Do you like the idea of creating research reports for companies I follow and then sending it out to analysts in a cold email in an attempt to get an informational interview, or would this just be annoying?

Thanks!

Nov 19, 2008
Bowser:

1. How often do ER analysts change the companies they cover? Can they change whenever they want to? What are some reasons why an analyst would drop coverage on a company?

Not that often and usually only if the analyst changes sectors. Sometimes the decision is taken to end coverage if the company becomes too small and the commissions/advisory fees don't justify continuing, although the marginal "cost" of maintaining coverage is very low so this is rare also. One other situation where coverage would be dropped is if the bank is involved in a deal and then coverage would be suspended - not the same as dropping coverage but if it never gets picked up again then it amounts to the same thing.

Bowser:

2. When preparing for ER interviews, would you suggest focusing on one industry and attempting to become a quasi-expert, or focusing on the entire stock universe in an attempt to know a little bit about everything?

You will most likely be interviewing for a specific sector (unless you are going for an economic/market strategy role) so you would want to focus on the sector in question.
You may not be able to get an interview for the sector that you want so you should try and know a little about a lot of areas and then cram when you do get an interview.
It goes without saying that the sector you are interviewing for is the only one that you want to do...

Bowser:

3. Do you like the idea of creating research reports for companies I follow and then sending it out to analysts in a cold email in an attempt to get an informational interview, or would this just be annoying?

No, don't do that - it won't get you anywhere. It might come in handy as a talking point if you bring some of your own work to an interview though. If you do do that, keep it brief and don't try to be too smart with it.

Bowser:

Thanks!

You're welcome. Good luck!

Nov 17, 2008

Nice to see you active on the board again. To give you a brief background I am fortunate enough to have a FT offer in ER at a BB starting next July. I have three questions that I would like to hear your opinion on:

1) Given the volatility in the market do you see a sustained resurgence in ER?

2) Also given the extreme cost cutting mode that firms are in do you see this as an excuse for firms to cut their research departments entirely as most have the opinion that ER is a cost center?

3) Is ER a viable career in the long run? During this past summer I hear from some of the 1st/2nd years that you can basically only become a covering analyst by either your boss retiring or you moving to another firm.

Nov 19, 2008
bearing:

Nice to see you active on the board again. To give you a brief background I am fortunate enough to have a FT offer in ER at a BB starting next July. I have three questions that I would like to hear your opinion on:

Congratulations! Good luck with it.

bearing:

1) Given the volatility in the market do you see a sustained resurgence in ER?

Depends on what you mean by "resurgence". The pay for sell-side research is unlikely to be as good as it has been again for many years (not an issue in the early years) - trading volumes are down and will continue to go down with the deleveraging and closing of hedge funds and lower stock prices = lower commission per trade. And this will not be compensated for by deal flow, which is also down heavily.

Having said that, is there any ability more important in the financial world than being able to separate the winners from the losers (in any asset class)? If you're good at equity research, you're going to be in work.

bearing:

2) Also given the extreme cost cutting mode that firms are in do you see this as an excuse for firms to cut their research departments entirely as most have the opinion that ER is a cost center?

It will happen (and has done in the past) but cutting the entire department is effectively getting out of equities altogether. You can get by with a skeleton crew but if you don't have any value-add then I might as well trade with a computer at 3bps.

bearing:

3) Is ER a viable career in the long run? During this past summer I hear from some of the 1st/2nd years that you can basically only become a covering analyst by either your boss retiring or you moving to another firm.

Yes it is. The structure you describe is becoming more common now (and was always common in the US banks) as banks slim down teams.

Stay if you can get good career progression, move on if you can't. My first boss in research is still there eight years after I joined, five years after I became his rival, and two years after becoming his client. I've no regrets.

Nov 18, 2008

Thanks the_inscrutable for your input.

Do you know anything about Morningstar? I heard that they are very good, I just wanted to get some insight about them.. in terms of their comps and culture

Nov 19, 2008
nas2008:

Thanks the_inscrutable for your input.

Do you know anything about Morningstar? I heard that they are very good, I just wanted to get some insight about them.. in terms of their comps and culture

I don't know much about them apart from they seem very retail-oriented so can't say anything about comp or culture.

What little I have seen of their research has not impressed me (caveat - I'm not easily impressed). It has been more reportage on events than interesting insights or investment themes. This may just be because I haven't seen much of it though.

Nov 24, 2008

oh yes, thank god you are back.

Ok, here is my situation - I've been working in ER for two years and I've started to not enjoy my company - I like equity research, in fact, I really enjoy it. I like writing and I like the analysis, but my company is top-heavy, so does a lot to discourage juniors from progressing.

Do you have any suggestions? They have let me write notes, which I am doing, but do you think in the next year it would be a good time to move (yes, I have discussed with them and they have sluffed me off)

A senior guy told me that it is sometimes wise to move every three years - I think that might be the plan and I think I'd easily wait it out until later '09, or until the recession peaks (if it does peak at that level).

Nov 25, 2008
ratul:

oh yes, thank god you are back.

No need to thank god. The market is boring me so I look for distractions.

ratul:

Ok, here is my situation - I've been working in ER for two years and I've started to not enjoy my company - I like equity research, in fact, I really enjoy it. I like writing and I like the analysis, but my company is top-heavy, so does a lot to discourage juniors from progressing.

Do you have any suggestions? They have let me write notes, which I am doing, but do you think in the next year it would be a good time to move (yes, I have discussed with them and they have sluffed me off)

A senior guy told me that it is sometimes wise to move every three years - I think that might be the plan and I think I'd easily wait it out until later '09, or until the recession peaks (if it does peak at that level).

Yes, it is often a good idea to move once you have some experience.

Firstly, if this is your first job you will be considered "home-grown". That means that your team seniors and the salesforce knew you when you knew nothing (and everyone has to start somewhere) so it's an uphill struggle to get recognition.

Secondly, moving allows you to negotiate a better package - whether that be stock coverage or financial rewards.

Having said that, the market is in turmoil and there's not necessarily going to be somewhere good for you to go to in the near-term. With a couple of years under your belt, you are still cheap enough to keep and too knowledgeable to spare if there are mass redundancies.

A third option would be to join another team internally where you might get more recognition. This does happen, and more often than you might think. I don't know if you have mentioned what sector you cover but if it is an out of favour one , like housebuilders or autos, you are probably looking already anyway. Have a think about which other sectors might be similar to your own - eg autos => industrials/cap goods, chemicals => miners, etc. - and make sure that it is a sector with large enough market cap and trading turnover to justify having an extra analyst.

Good luck!

Nov 26, 2008

Hmm, ok - so what does one do in the mean time? Basically I can write three notes and occupy myself with this nonsense until I effectively have to move, but '09 looks weak. An internal move is unlikely given the dynamics of the office - they like me in my sector and see me as a 'rising star' - albeit one they want to contain due to my senior.

Anyway, I figure I'll focus on the CFA, do my job and hold onto it while getting all the training I can, and then move in '09/10 when things are better and I'm experienced enough to take more clients and improve stock coverage.

Market cap is decent and I think I'll just wait it out until I can negotiate a better offer and have some better leverage - does that sound reasonable to you?

Anyway, are you outperforming this year? Have you moved to cash?

Nov 26, 2008
ratul:

Hmm, ok - so what does one do in the mean time?

In what meantime? I laid out the options of moving externally or moving internally - the timing of which is up to you.

ratul:

Basically I can write three notes and occupy myself with this nonsense until I effectively have to move, but '09 looks weak.

Not sure what "nonsense" you are referring to, or why you feel you will be forced to move. Stay or go - the decision is in your hands and you have to weigh up the merits of each choice.

ratul:

An internal move is unlikely given the dynamics of the office - they like me in my sector and see me as a 'rising star' - albeit one they want to contain due to my senior.

As I said in my previous response, internal moves happen often. These are not poor performers - these are usually ambitious people that want to take on more responsibility. One young 2nd year analyst I know saw what was starting to happen in the Internet space just over a decade ago and asked for coverage. Within two years, he was the top ranked analyst in the sector and the youngest VP in the department.

ratul:

Anyway, I figure I'll focus on the CFA, do my job and hold onto it while getting all the training I can, and then move in '09/10 when things are better and I'm experienced enough to take more clients and improve stock coverage.

More training is better than less training, and more client exposure is better than less. If your team does not cover every stock in the sector, why don't you offer to pick up coverage of some of the ones left out? Even if they are relative small caps, lead coverage will be valuable experience - and not something that would be denied to a rising star.

ratul:

Market cap is decent and I think I'll just wait it out until I can negotiate a better offer and have some better leverage - does that sound reasonable to you?

That would be my default choice - two years in would generally be too soon to be thinking of moving. I have laid out the alternatives only because previous correspondence indicates you have an impatient streak.

ratul:

Anyway, are you outperforming this year? Have you moved to cash?

We're up double digits this year, thanks for asking. Would have been more but my PM has been overly cautious (partly mandate-led).

We have not, and will not, move to cash. It's fine if you have to liquidate in anticipation of redemptions but it's the asset-allocator's job to decide how much cash to hold. Anyone moving to cash as a "defensive" measure is effectively saying they don't have confidence in making money in this market - I can understand them doing it to preserve franchise value but investors should be asking for a discount on fees as a result.

Nov 27, 2008

Ok, thanks for the response

Clearly the situation is not as binary - I would leave now but the market is weak and alternatives are not exciting. In the meantime, I will pick up lead coverage on the mid-caps and then move, but put 100% into it because otherwise I will be bored. The lead analyst coverage is important I agree - but it's clear my progression will be limited to mid-caps due to the dynamic with my boss.

Congrats on being up double digits - few who can say that.

Nov 28, 2008
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