Navigating The Floor: A S&T Analyst's Guide
I decided to write this as quarantine sucks and because I felt inspired by Johnny Cashflow 's post as to what brings me back to WSO. Plus, strangely enough, I'm seeing more S&T focused posts than ever before. However, while there are more posts, I feel like most of the discussion revolves around "Is S&T dying/dead?" and people asking how best to prep for interviews. The IBers can draw on perhaps the two best posts in the entire universe of WSO as guides:
Folks looking to join S&T, however, have no such guide. Regardless of what branch of finance you will be going into, the above are amazing tutorials on how to conduct yourself at the junior level and I'd urge everyone to start from those. In terms of S&T, I've tried to organize this as best I could and always bear in mind that what I say here simply reflects my opinion, what I've found to be best practice or both during my short experience. Having said that I would love for the more senior folks to chime in and add their own opinions. This is by no means an exhaustive guide but hopefully, it can be useful to some of you and we can add feedback as the discussion grows, I just figured that it was time to give back to a community that has helped steer my own career.
Interviews: How to Prepare
I'm going to focus on cash S&T here.
You need to have a view on macro: What's going on policy-wise? What does the increase in the Defense budget mean for stocks? How is the market going to take an incumbent President being re-elected vs a challenger? What is the Fed funds rate? How many cuts/hikes are we expecting this year? Why?
You should know the rough levels/prices of all the major indices: DOW, SP500, STOXX, NKY/HANGSENG/CSI. This is obviously dependent on whether you are interviewing for US/Europe/Asia. I don't mean right down to the cent but if I ask you whether "Index A is closer to its maximum or minimum in the last year" I expect you to have a rough idea
Know where Oil is trading at and the general trend there. Again, I'd like to know where the current values are vis a vis the general trend->are we expecting a bounce or a drop?
Major exchange ratios: EURUSD, GBPUSD, USDJPY and USDYUAN
Basic Derivative knowledge: Black Scholes, explain spreads, swaps things along these lines unless you're going specifically for a derivatives desk
Be caught up on the latest news. Even just to make general conversation.
Know basic Bloomberg functions. One question I've had asked was "how would you go about looking for new clients on BBG?" Knowing functions such as HDS and IP will be very helpful. Also it makes my life easier when I ask you to retrieve data or build graphs on BBG, nothing so far has pained me more than having to hold an intern's hand through basic BBG crap like finding Dividend Yields (seriously)
Stock pitches: Generally I would say 3 Longs and 3 Shorts which might seem like a lot but if you're there for a super day where you meet 5-6 people you'll be alright that way. I think it's also always good to have some choice and not always pitch the same thing to 5 different people. It could be a great pick but if we ask each other and it turns out that you explained the same pitch to all of us, it might make it look as though that's all you know. The way I would go and pitch my stock is the following and plan on having enough info to talk about it for +-10mins with another 10mins of questions:
- Company name and ticker
- Very brief company description, eg "the company operates in the life science equipment sector"
- Current price and your target price, with percentage upside or downside (obviously this depends on whether or not this is a long or a short)
- Explain to me what the business model is and how it fits in with the current macro scenario. Basically what I mean here is are we in a scenario that aides/penalizes value/growth/quality/high dividend stocks?
- What is this company's competitive advantage. Here if you can actually distinguish it from peers it very much helps in showing that you understand the industry well vs just this single company. No one will fault you if don't mention some obscure peer but if you can, do mention the different revenue streams among major competitors
- Basic financials, top- and bottom-line growth over the next 3 years. Revenue split, do they pay a dividend, how were their last set of earnings/how do you expect the next ones to be (especially important if we are in the middle of earnings season)
- Valuation vs peers. So, I have understood that this company is good (or bad) but why is it worth buying/selling NOW? Is it expensive/cheap vs peers? Is there regulatory change approaching? Change in management? Is there a new focus in their business plan? You get the gist, this is your punchline
- You should also mention the risks to your base case at the end as it lets people know that you are aware that there can in fact be a downside scenario. This also is the number one question you are going to be asked anyway because people will want to see how you stand by your convictions. On this, never appears to be pig-headed. Yes, your idea is good but no, people don't HAVE to follow your advice and you definitely should not take it as insulting if you experience some pushback, especially on the risks. I always found it to be best to answer like this: "yes, while I agree that that is a possible outcome I also find that the downsides are outweighed by the potential upside of a/b/c". I will say though that some interviewers/clients take things sometimes too far in pushing back but remember to remain calm, acknowledge the criticism and try to steer them back to your base case
- Pitching a stock that falls under your desk's coverage. This is S&T, not research, so you'll never have the issue of being afraid of being torn apart on a stock by the analyst who actually covers it but still, If you are interviewing for a specialist role in terms of industry sector or country coverage yes do pitch a pertinent idea because if I'm an industrials specialist sales and you're interviewing for my desk and you pitch me a bank you're going to look daft. Nonetheless, if you're interviewing for like a rates desk or a more complex desk than cash equities do still prepare a stock pitch. Most people you will meet are sensible enough to realize that as a college kid you probably aren't going to know anything meaningful about those products so they're better off asking you something, like a stock pitch, where they can actually understand your line of thinking about a certain topic.
Internships: On the Job
I wrote a post commenting on this so I'm gonna rework that in here. The general gist of an S&T internship is that there is very little valuable, tangible stuff that we can ask you to do to judge the quality of your work. While you'll never be wasting your time (sorry guys) aligning logos on PPT, you'll find that a lot of your internship will be along the lines of "sit here, don't touch this or talk too much but if you do speak, make sure it's something smart". I honestly think S&T internships are the hardest because there is so little we can have you do, as you need FINRA/FCA certification to trade and speak to clients, that means every time you open your mouth you need to make an actual contribution. It is very much quality over quantity here.
Having said that, I've seen my desk give the following tasks to interns:
Basic stock/sector-specific research, sometimes trying to recreate a research report by one of the analysts to figure out how you go about collecting data
"This is today's trade idea, build me three graphs for a sales desk comment and explain them to me"
Building a basic model with our projected earnings for a certain company so we can compare them with the actual numbers immediately when they are released
Sometimes one of the seniors will make you pitch him a certain company as a long or short (sometimes against whatever our ER's recommendation is) to see how you'd go about it independently. Sometimes this is a weekly exercise
While nailing the admittedly simple tasks you will be given is important, what is perhaps more important is showing that you understand the NATURE of the job, which is to say attention to detail, soft skills and the adaptability to be able to juggle more than one task at once. It is incredibly simple to draw a line between the kids who possess fantastic technical expertise, but who you know right away will never be put in front of a client, and those who might not be as proficient in terms of the industry/product but just "belong".
As concerns "Desk Mannerisms" I'd say the following are good rules of thumb:
If you're an intern on your first day at a desk (or rotation) ALWAYS ask the desk what time they want you there in the morning. I don't care what HR says, you ask the desk-head first and go by what he/she says. If appropriate you can then mention to him/her that HR "says I should come in at 8" if they ask. If your desk says "be here at 6:30", be there at 6:30. Forget what HR told you at orientation. It is better to be reprimanded by HR than by the desk.
Be all hands on deck/head on a swivel before market open and until 1:30 hours after that, repeat when market close approaches. And by that I mean don't go bother people/ask questions, just sit there, take notes on what you hear/see and pay attention.
Socializing: During the middle of the day definitely try to bond a bit with people. Just be likable, talk sports, weekend/vacation plans (obvi don't tell everyone you're going to get housed with the boys) and general chit chat. The biggest thing is asking people if they can explain a little about their product over coffee. If you're lucky the seniors will take the initiative on this but it looks better if you do it. At the end, when your desk/division asks people for comments on whether you should get an offer or not you'll want people to remember you.
Stay up to date on your Research Division: If you feel like you've socialized enough and/or there's nothing to do then read whatever the latest pertinent research is.
If someone tells you that you need to do something, 95% of the times they mean you need to do it NOW. I realize this seems silly to emphasize but things on the floor are hectic and as a new guy you really need to put your best foot forward. If you're asked to call the analyst and ask something you do it now. If you need to call a client you do it now. Always make sure that you're at least reactive if you can't be proactive.
Lastly, always be a decent human being to your colleagues, especially those in BO and MO, you'll be needing their help quite often and guess what, when personnel is stretched they'll prioritize your stuff because they like you.
I hope these tips will serve you well during your internship and will hopefully help when transitioning to full time, at which point it all becomes about client interaction:
Personally I always try to get to know and spend time more with people closer to my age as chances are they'll actually give you the time of day and it'll be easier to get to know them. Plus, it's just more enjoyable
While I did just say that I find it more enjoyable to be around people my age, one of the best things that's ever happened to me was finding a sort of buyside mentor figure. Its hard, and it wont happen from one day to the next, but you really need to try and find someone with experience that can take you under their wing in terms of explaining his ideas to you, what he/she looks for in a company, how they view the macro and someone you can bounce ideas off of. The more you-re around clients the more natural this will come. You can also do this with people from different desks, always good to keep your internal mobility options open and if you did come from a rotational program there's no reason to not routinely catch up with other folks you've met at the bank.
I feel like for the most part you can be good at this job as long as you remember things like "What stocks does this client care about/did we see flows on these/what companies did he see at the conference/what did we talk about last time etc" without being a stock picking genius. And this is good, because when you're just starting out it is easier to be attentive to clients- needs than it is to come up with amazing investment ideas. This again all ties into the idea of attention to detail
Know who you're talking to: Always, always, always, know who you're talking to. Are they a PM, a research analyst or a trader? Your answer should be tailored to your audience. If it's a trader he/she prob cares about what is happening "right now" (eg, why did the stock go from +3% to -1% in the last 10 minutes) or if you're seeing any flows in the name. An analyst or a PM is probably more concerned with your take on the latest company research or a long term view. Doesn't hurt to ask your boss anyway, it shows you want to approach things in the best possible way.
S&T is also very much about HOW you say things: Something doesn't "suck" and the company management doesn't have "piss-poor presentation skills". Instead they are "not well suited for the current climate" and the management "failed to accurately convey their Business Plan". Similarly, if you're pitching an idea that goes against your research department's recommendation (pitching a long on one of their Underperforms), I would always mention this to a client. It shows that you are aware and that you still can think on your own. Also, the way to explain these types of situations is to put it as "I think the basic premise is correct but I would overweight these factors instead". At the end of the day, you have more flexibility in terms of timing than your research analysts have so you can make use of this.
If you're in touch with a trader about a trade you're doing for them NEVER EVER GO OVER HIS HEAD TO HIS PM. Let me give you a good example of this: Lets say you are buying 100k shares of ABC with a limit price of 10. You get half the order done and then ABC starts trading outside of your limit. You wait 5 minutes, realize the price isn't coming back down and since you have the PM on speed dial you decide to take the opportunity to ring him and ask if he wants to drop the limit and finish the order. Now, you think you're being clever by showing the PM you care about his order but what you're really doing is upsetting the chain of command. If you get an order from a trader, you talk to the trader about it, NOT the PM. The general rule is Sales talks to the PM, Trader talks to Buyside Trader. If you're a Sales-Trader then you can sort of skirt the line, but its always best to check who has a relationship with who. Everyone makes this mistake, even Sales MDs. They think that because they're tight with a PM they can ignore the traders, by doing so everyone gets upset about not being on the same page (insert DJ Khaled "Congratulations, you just played yourself" Meme). You get the idea, if you're in touch with a trader, go to them first, this also applies with trade booking/acknowledgement problems.
Where Do I See The Sector Going/Considerations You Should Be Making Before Jumping Into S&T
Lots of discussion about this these days. Is S&T at risk? sure, are the headwinds it faces stronger than those facing IB/ER and the rest of finance? I'm not entirely sure about that. I'm not trying to write a whole spiel as to why i think that is but rather how you should think about it.
I've said it before and i'll say it again: Programming is overkill for most S&T positions. VBA isn't programming and I guess that can be somewhat helpful but I wouldn't put all my eggs in that basket if you're trying to get a job. Frankly, unless you're on some Exotic desk, no one's going to care
Languages are far more important I think. If you're in Europe you basically have to have knowledge of a second fluent language to even be considered. In the US this is by far a less stringent requirement, yet knowing Spanish (LATAM) or an Asian language will undoubtedly be useful. I don't think European languages in the US are that useful because your EU equities desk in the NYC offices will be super concentrated so it is unlikely that they realistically need French/Italian/German speakers. I think this is also why programming is emerging more in the US than in Europe. Firms simply need another metric by which to cut the massive stack of CVs they get flooded with. In Europe, asking a 19 year old to know at least 2 languages fluently, have great grades, technical expertise AND know how to code is a bit much.
On the Back of the last point. I'd say S&T is more qualitative in Europe than in the US. This is because knowledge of a second language also implies you know the workings of that country much better than an outsider. This means you know how left/right leaning the different newspapers are and what face value to give articles, you know how the different watchdogs operate and what regulation is like. The US all speaks one language, one set of rules, reporting requirements are much more stringent and things are far more institutionalized. In Europe, its not like that yet and Asia is even further away from US standards.
Let's be real, IB and ER have better exit opps these days. Why? for the same reason everyone always mentions, the breadth of your work teaches you skills that are more transferable to other parts of finance. So yes, IB will be paid slightly better than you and you probably won't be a modelling wiz but do you really care? I mean salaries are for the most part standardized into your associate years. And if they aren't, are you seriously going to complain about making 20k less than someone your same age who is working 120 hours vs your 60/70 hours and gets called into the office on weekends? I don't know about you guys but part of the point of being in a high paying job for me is having time to enjoy my salary. Plus, even at a junior level in S&T you actually get to pitch your own ideas, that won't happen anytime soon in IB.
At the end of the day though, I simply cannot see how you would ever replace the relationship aspect of the business. Trading will probably keep on getting automated but we'll reach a point where you simply can't keep cutting down. Ok sure, ETFs are replacing active investors but lets see ETFs handle a bear market first. I'm very much convinced this is all part of a cycle anyway: ETFs have replaced the underperforming Actives, the market will eventually become saturated with these until inefficiencies will begin to emerge and Active investors will make a comeback. I could also see Sales turning into some type of advisory role, covering more than one product. Either way, if you're not just after the money I think you'll find that S&T definitely makes for a pretty fulfilling longterm career choice.
Finally, if you want to make the jump to the buyside you have to learn how to think like an investor. Going back to the Stock Pitch, it is relatively simple to understand if a company is good or bad but why now, why should you or clients invest now? Always remember that being too early is no different than being wrong. Something that's worked for me is making my own conviction list that I routinely revisiting it and explaining the changes I'm making and why. You could start doing this on a quarterly basis so its not too hectic and it'll teach you some discipline in sticking by your recommendations.
Guys, those are my 2 cents about S&T. Ended up coming out to be quite long as I kept on remembering stuff to add. Hit me with all the MS you've got and I hope this'll help someone land an offer, and if anyone wants to reach out via PM please feel free to!