Life of a Sell-Side Analyst: Finding Your Style (Value-Add)

I'm a sell-side analyst at a solid mid-market shop. I've been in my current senior analyst role for a relatively short time (<5 years) and wanted to share some thoughts over the next few months for those interested in ER.

One of the most important things I learned as I moved up was "find your value add" early, refine it and refine some more, then start to add and refine other potential value adds. By value-add I mean what makes the buy-side want to talk to you on a regular basis, thus helping you drive votes and get your shop paid. Each personality and background is unique in the value add/style that best fits.

  1. The Conduit - The Conduit is a politician. An excellent communicator on the phone or face-to-face, the Conduit is a marketing machine and hits clients with a barrage of emails, voicemail blasts, and phone calls everyday. To drive this level of interaction, The Conduit also produces an insane amount of (mostly superficial) product. Because his product is superficial, the Conduit relies on the conversations he has with clients to drive value to other clients. It is a volume game. Because The Conduit talks to so many clients he is an excellent barometer for what the rest of the Street is thinking. Clients thus want to talk to him and pay him. The Conduit is often one of the most successful types of sell-side analysts because of the number of clients he talks to.
  2. The Industry Guy - The Industry Guy is an expert. He has contacts ("checks") across the industry which provide a deeper level of insight into what is actually going on. The Industry Guy also understands the dynamics of the industry incredibly well and may have a level of technical knowledge that helps him/her "deep dive" with clients. The Industry Guy can provide immense value for clients on two fronts: 1) Checks and field level information flow, and 2) Ramping clients on a space. The Industry Guy has an edge on the rest of his competitors once he builds out other skill sets, and is immensely valuable because of that.
  3. The Model Junkie. The Model Junkie nails Apple's estimates every quarter. He builds in-depth bottom's up models that are copied across the buy-side and sell-side. His value is in his models (people will pay for them) and in his thoughts on how events will move the model from a bottom's up perspective. The Model Junkie is usually less successful because he spends too much time modeling, and not enough time talking to clients. However, for a certain set of clients he will get the firm paid.
  4. The Trend-Spotter. High level. Low productivity. Contradicts consensus. The Trend-Spotter is adept at finding inflection points that go against consensus views. Think "Short RIMM" in 2009. He often only gets one trend right. But it doesn't matter if it is a multi-year secular shift. Clients will pay big bucks if he gets them on-board and gets it right.

Ideally you are good at all four. This is unusual and will get you paid a fuck-load of money. Most are a combination of the above, with strength skewing to one or two out of the four.

Am I missing any? Which style fits you?

Comments (7)

Oct 16, 2012

Interesting. Thanks.

Oct 17, 2012

Great framework!

Mar 22, 2014

Good Stuff! I think being an industry guy and trend spotter is especially valuable if you want to jump to buyside in future?

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Mar 23, 2014

I imagine your value add will build upon itself over time. Say, you start out as an industry guy, which in turn helps you model better/ spot trends. Once your specialized knowledge builds you can market it by transitioning to the politician framework. You don't necessarily need to pigeon-hole yourself into one value-add framework, it just takes time. Would you agree?

"If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy."

-- Warren Buffett

Mar 23, 2014

Great post... completely agree.

Would maybe add as a 5) There are some analysts who are nowhere in II/Extel but are v well paid because they are popular internally, i.e. with the sales force. They may be only top 10 ranked externally but are much more popular internally than ranked analysts because they spend more time with sales and less time with clients. So they score well in the internal review systems even if they're very average analysts.

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Mar 23, 2014

Yes, this is definitely the case. For those not in ER, analysts usually get paid based on a mix of four factors: 1) votes (getting tougher to measure, because not many buy-side shops vote specifically for analysts anymore - big Boston funds do though), 2) sales rank, 3) corporate access (non-deal roadshows, conference attendance, etc.), 4) other. Other varies from firm to firm and can be "potential" (for younger analysts), new/expanded coverage, or other firm specific factors.

Mar 28, 2014
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