Why are you still trying to break into equity research?

cle_guy18's picture
Rank: Monkey | 33

I keep seeing all of the posts for people trying to get into ER - why?! Commissions were down 10-15% last year, firms are closing, and more regulation is coming....

Comments (58)

Jul 20, 2017

For me, its more about pivoting. I come from a science background and realistically have no chance of breaking into IB, so ER seems like a good way to take my background, get some financial experience and jump ship when regulation fucks it all up

I think a lot of people want ER as a shorter term option rather than gunning to make analyst

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Jul 20, 2017

Well I speak for myself but I think many people most and foremost like the job. I wouldn't see myself working in M&A or in S&T and I like having companies to dissect, doing some micro/macro work and talking about the market with clients.

Also, keep in mind that while new regulation is adversely impacting commissions, it is also transforming the sector into a real business. For newcomers, this is quite motivating. And also, whatever branch of finance you are looking at, it is almost impossible not to see something truly bad happening (robots, passive etc), so just stick to what you like and stay ahead with your skillset.

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Aug 1, 2017

Deleted.

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Jul 20, 2017
thefinancekid:

It's significantly harder to break into IBD and S&T if u go to a non-target, so the people who are going into ER are from mostly non-targets. Haven't seen anyone from targets go for ER

Not sure if that's true now but generally you'll have mostly people from target school in AT, same as any FO position. I would also say that by the number of jobs available ER is comparable if not harder to get into then IBD

Jul 20, 2017

You clearly have no fucking idea what you're talking about. Don't talk about an industry unless you've been in it/have experience in it.

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Best Response
Jul 20, 2017

I would thoroughly disagree. I actually think ER is one of the hardest to break into. Here's why.

1.) Most of ER is filled with people from targets...so idk what you are talking about.

2.) Lets say you wanted to be on an internet team (covering FB, SNAP, etc) at a BB. Lets assume there are 10 BB banks so 10 internet teams. A team is typically composed of 1.) Sr. analyst 2.) Analyst 3.) associate. Since you cant make the jump to analyst before being an associate, you can only fill the associate position. ER there is much less turnover...its not uncommon for guys to stay 3+ years as an associate. That means in a given year, there may be 1,2,3 associate spots that open up on an internet team at a BB..... Most of the time, those positions are being filled by kids lateralling....so good luck getting a spot.

3.) analyst turnover in banking is crazy. simply put, there are probably 100x as many spots in banking as there are in ER. Go on any BB career site and you will find a analyst opening. Not the case with ER.

4.) to be an analyst in banking, you CANT have a MBA. In ER, most associate positions are MBA/CFA preferred. This makes it harder to break in as you can get a wide variety of candidates,

5.) broadly speaking, there are many more shops that offer banking services v. capital markets. Basically every ER shop is tied to an IB, but not ever IB has an ER branch (Lazard, Greenhill, Moelis, all the way down to the M&A shop down the street that has 4 guys running it), This means many more seats.

Jul 20, 2017

just as a follow up. Search equity research jobs on linkedin and also do a search for IB. The results are 371 postings to over 10,000.

Aug 1, 2017

Ok fair points!

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Aug 1, 2017

Point 1: I think for ER positions with non-BB, it is still a lot easier to get into ER vs IBD. With non-BB, IBD positions still requires previous deal experience. However, for ER positions, non-BB takes in all sort of people as long as they can demonstrate that they can do the job. I think that might be the reason why people are saying that it is a lot easier to get into ER than IBD.

Point 2: In term of seats, I do not agree. Similar to IBD, even under the Analyst (MD level), you can easily see about 5 Research Associates (Analyst level) covering just one sector. So I definitely don't agree that the headcount is a lot lower.

Point 3: Not necessarily that ER prefer MBA/CFA. Graduate school might be for Healthcare related sectors. MBA will be seen a higher cost. Most Research Associates are still out of undergraduate school.

Point 4: Standalone ER has been expanding into IBD. For example, New York based Telsey (http://www.telseygroup.com/), is started by a well-known retail analyst. They were mainly a research shop and now has expanded into consulting and investment banking. As long as you can get an investor, there will always be business.

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Jul 20, 2017

The skills you gain from ER are very transferable to a lot of other finance/investment roles, and also provide good exit opps to companies under coverage. Not everyone works solely for money, since you seem to be quite concerned about commissions being down. Also a much better work/life balance in ER.

Aug 2, 2017

What do you think is different about investment banking?

Aug 2, 2017

probably not much. I hope consulting is somewhat different.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

Idk dude. What's so attractive about M&A or trading? If you don't like it, GTFO and give someone else your job.

Aug 2, 2017

lol what a dick.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

You get to enjoy all the "amazing things" about investing and stock-picking without any of the risk (or the reward).

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Aug 2, 2017

i dont see any of those "amazing things" ... So much goddamn reading and numbers that are meaningless to me.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

Have you began to ponder the purpose of life as you fade in and out of consciousness while reading footnotes?

Aug 2, 2017

You don't enjoy reading? How many white collar jobs do you think that works in? People that are good at their jobs are reading constantly. Yes, even traders. You are an intern-ever consider that the "meaningless" numbers actually mean quite a bit to people with the experience and knowledge to interpret them? If it's not a fit for you that's fine but you sound like your expectations were a bit off.

Aug 2, 2017

I guess to more directly answer your question- I can tell you a lot of positive things about Equity Research. I work on the buyside so somewhat different than your experience, I suppose, but I enjoy reading about all different companies as a generalist and trying to analyze them.

Aug 2, 2017

lol howd you get the job?

Aug 2, 2017
Mr. Hansen:

Have you began to ponder the purpose of life as you fade in and out of consciousness while reading footnotes?

Exactly.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

What is your target career if you're not a fan of reading filings and looking at numbers?

Aug 2, 2017
cheese86:

You don't enjoy reading? How many white collar jobs do you think that works in? People that are good at their jobs are reading constantly. Yes, even traders. You are an intern-ever consider that the "meaningless" numbers actually mean quite a bit to people with the experience and knowledge to interpret them? If it's not a fit for you that's fine but you sound like your expectations were a bit off.

These meaningless numbers are useful for modeling and stuff. Great. But I guess I just think forecasting is kind of bullshit. I really enjoy making connections and learning some new business sector, but honestly, I don't understand how you "interpret" numbers when there is no consensus.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017
NYU:

What is your target career if you're not a fan of reading filings and looking at numbers?

I love numbers. Readings are okay, too. But the 10k is so fucking verbatim. I am now considering management consulting or IT consulting. I think I like cause-effect relationship and fixing problems than trying to come up with a model that simulates a company.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017
cheese86:

I guess to more directly answer your question- I can tell you a lot of positive things about Equity Research. I work on the buyside so somewhat different than your experience, I suppose, but I enjoy reading about all different companies as a generalist and trying to analyze them.

I am on the buy side for this internship as well. What is your extent of "analysis?" Reading 10ks and building up a model on excel with revenue projections and whatnot? I am just confused if this is really what it takes to make a judgment on billions of dollars.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017
Febreeze:

lol howd you get the job?

Leveraged school portfolio mgmt experience and networked with alumni. I honestly thought there was a lot more technique and skills to investing.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

I look at it as a stepping stone the same way most people look at IB. The only difference is ER people have to work a lot less than IB people. That and the exit opps don't have as much variety as IB exit opps.

Competition is a sin.

-John D. Rockefeller

Aug 2, 2017
Hooked on LEAPS:

I look at it as a stepping stone the same way most people look at IB. The only difference is ER people have to work a lot less than IB people. That and the exit opps don't have as much variety as IB exit opps.

What are the exit opps with ER? You are pretty much gonna be doing the same thing from the buy side anyways.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

Yes and no. I feel the buy side gives you a lot more opportunities to think creatively. And if you're a risk junkie like me, the idea of having some skin in the game makes reading 10k's and research reports a lot more interesting.

Competition is a sin.

-John D. Rockefeller

Aug 2, 2017

What do you expect? You're an intern. In terms of importance and the "totem pole," you're at the bottom. No, not even above those "proles" working BO jobs - they've got seniority and are more crucial than you are. So your work is comprised of "boring" fundamentals so that you can eventually prove yourself to use those skills to produce insights and build a client base with powerful people whom you advise and extract info from. At your level, you find it boring because there's not demand for your creative input? Why not offer it or challenge your analyst's assumptions (tactfully)? The allure, from my perspective as an outsider, is that you get to voice your opinion at the entry level (you apparently haven't) about potential trades and ideas. Later, it's the client building. Then, if you "make it," the firm you work for becomes nearly irrelevant (goldman vs. boutique & no-name? not your problem) whereas your name and word alone can move markets. Not quite to the extent that The Beard of at the Fed's word moves them, but similarly. You also bear less risk, allegedly (at senior lvls) work ~60-70 hours (unlike IB) a week, and can make serious money (I've heard of top analysts making $2M annually) without the stress. Allegedly, it's a more creativity-friendly atmosphere and that makes the work itself enjoyable - but I'm rambling at this point. Try your hand at something else, perhaps trading or w/e, and speak with senior ER people about their job at that level. Get a mentor. But to reiterate, all entry-level positions will entail this BS because this BS will be integral to the product you offer (research) and thus your future in the role.

Aug 2, 2017

If you're just starting to realize that ER is boring, wtf were you doing in your 'portfolio mgmt experience?'

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

Aug 2, 2017

I would second the notion that a lot of it is fairly bullshit. Most ER firms or divisions cannot consistently make the right calls. It's really a crap shoot, but gives you good fundamental knowledge on how professionals do valuations. It's also my opinion that the firms that employ industry experts with strong qualitative knowledge do far better than the firms that believe they can quantitatively model everything (which is absurd, frankly). A model that could actually simulate a complex company would have to be infinitely more complex than the models that exist at present.

In my view, ER is a stepping stone. To where? The buy-side - asset management or a hedge fund.

That's really the problem. I - and a lot of folks here on WSO - are passionate about investing, not about research.

Instead of picking stocks, a sound investment strategy can go a lot farther. Few portfolios have unhedged long positions, and there are great lengths that the more conservative firms go to diversify their investments. Point is - that if the traditional valuation approaches were so effective, then why do firms not put their money where their mouth is and go with their picks? IMO, it's cause research is very much bullshit.

Would gladly appreciate any counter-arguments to this or an alternate perspective

Aug 2, 2017
Take_It_To_The_Bank:

I would second the notion that a lot of it is fairly bullshit. Most ER firms or divisions cannot consistently make the right calls. It's really a crap shoot, but gives you good fundamental knowledge on how professionals do valuations. It's also my opinion that the firms that employ industry experts with strong qualitative knowledge do far better than the firms that believe they can quantitatively model everything (which is absurd, frankly). A model that could actually simulate a complex company would have to be infinitely more complex than the models that exist at present.

In my view, ER is a stepping stone. To where? The buy-side - asset management or a hedge fund.

That's really the problem. I - and a lot of folks here on WSO - are passionate about investing, not about research.

Instead of picking stocks, a sound investment strategy can go a lot farther. Few portfolios have unhedged long positions, and there are great lengths that the more conservative firms go to diversify their investments. Point is - that if the traditional valuation approaches were so effective, then why do firms not put their money where their mouth is and go with their picks? IMO, it's cause research is very much bullshit.

Would gladly appreciate any counter-arguments to this or an alternate perspective

I agree with your argument. I'll add:

(a) ER guys are sector specialists. They are great at making relative value calls within their sector, but not great working outside it.

(b) They do not do well at extremes. Do not expect them to call tops/bottoms. They expect the near future to look like the recent past. Not many analysts had sell ratings on AAPL at 700.

(c) Notes are mostly bullshit. They are a marketing tool that goes out to say "hey, call me. maybe process some trades through us."

In ER you're covering a sector. Good, bad, and mediocre companies. And there are a lot of bad/mediocre companies, aka "holds". Researching a non-investable company is painful.

I went into ER because it seemed like a path to the buyside that would be a bit better than banking, both from a life and skills perspective. The IB skill-set doesn't overlap all that much with investing (less than PE, at least). Recruiters love bankers though.

And sound investment strategies matter a lot: you don't need a crazy Yale-model allocation. Just reasonable diversification across strategies.

Aug 2, 2017

To all the ER haters:

A) Unless you are really really good you will make less money on the buy side with more stress, think top 20% of the buysiders making 80% of the industry comp, and by definition most of you can't be in the top 20%. I am always having fun with the buy side saying sell side is irrelevant and then paying millions and millions in commissions for research specifically (your bosses who are paying commissions are not as dumb as you think). There are some firms that really don't pay much for research - I respect that, but they are in very small minority

B) Much more varied work than IBK with the comp actually being comparable these days (at the analyst and senior level, not at the associate level though - bankers make much more money from associate to VP level but then research picks up)

C) You interact with more senior people as a junior compared to consulting

D) As a junior you will be treated much more like a human being (if you care)

Just make sure you go and work for a well ranked analyst that you like (don't just go for prestige of the firms and the sector)

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Aug 2, 2017

You're making me like my job. Stop it.

Aug 2, 2017

Post of the year?

Aug 2, 2017

Every person in ER ive talked to says that it all depends on the analyst you work under, and that they would be better off working under a good analyst at a MM than an average analyst at a BB. Is this true?

Im beginning to think I should start looking for ER FT positions because im not exactly happy with IB right now..

Aug 2, 2017

There was a really great post about ER a while ago. The main gist was the analyst who can actually pick stocks is very rare. Most analysts will add value through relationship management and being able to connect investors with the stocks they cover.

Aug 2, 2017
NYU:

What is your target career if you're not a fan of reading filings and looking at numbers?

NBA Basketball player

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Aug 2, 2017

No one is insulting the career, they are questioning the premise. Most of the picks are wrong, and even if they are right, they are rarely consistently right. Of course it beats IB, almost anything beats IB.

When you call equity research analysts a mere segue to upper management, well, the profession becomes a lot less desirable. If you want your work to be a tangible value-add, go to the buy-side.

Plus, what about the multitude of independent research firms that simply don't have the connections that the BB research divisions do? Makes me wonder how many of them go down on account of the unreliability of their targets.

I've been with one buy-side firm and they paid a decent amount for research. We would usually discount any forecasts/estimates and come up with our own through our own models. In my experience, the research wasn't really worth the cost. Frankly, I found a lot more value in technical industry news outlets (covered semis).

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Aug 2, 2017

Whats not to love about ER? People rely on your research to invest their life savings. It's great. If you don't get a thrill out of recommending strong buys that it is obviously not your gig.

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Aug 2, 2017

How have you not encountered annual/seasonal reports before?

Aug 2, 2017

To give an update:

I am starting to realize that I enjoy the modeling and figuring things out part. But I just hate the verbatim aspect of the 10k.

You crave what you are not.
Dude, your perspective on life sucks.

Aug 2, 2017

I think this interview sums up why ER will continue to be important. Also addresses the whole buy-side vs. sell-side argument. Enjoy.

//www.wallstreetoasis.com/forums/here-is-how-equity-...

Aug 2, 2017
ytinifni:

If you're just starting to realize that ER is boring, wtf were you doing in your 'portfolio mgmt experience?'

This.

Currently: future psychiatrist (med school =P)
Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)

Aug 2, 2017
DictatorCloudy:
cheese86:

I guess to more directly answer your question- I can tell you a lot of positive things about Equity Research. I work on the buyside so somewhat different than your experience, I suppose, but I enjoy reading about all different companies as a generalist and trying to analyze them.

I am on the buy side for this internship as well. What is your extent of "analysis?" Reading 10ks and building up a model on excel with revenue projections and whatnot? I am just confused if this is really what it takes to make a judgment on billions of dollars.

My extent of analysis is pretty deep. We spend weeks working on a potential investment idea before potentially putting a large position on. We run a very concentrated portfolio with low turnover so I know a company backwards and forwards before presenting it to my PM, I'd argue better than most of the sell-siders who cover it at that very moment. We actually don't forecast much in the way of revenue projections but I'm sure a lot of shops do. I could write a book answering that question but think about it man, what do you think we look at? Barriers to entry/moat for the industry to assess the sustainability of margins, market share, etc; Management team and their track record (this is huge); valuation from a number of different angles but much more focused on what is here today than what we project in out years; while we are bottoms up of course I'll look at some industry trends, etc. Part of the excitement of the job is figuring out exactly what you need to figure out.

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Jul 20, 2017
  1. Money is still good (senior analysts can still clear $1mn...top associates $350+)
  2. Intellectually interesting job - you analyze companies all day and talk about stocks
  3. Good exit opps - buy side or corporate
  4. Good networking - you talk to CEOs and CFOs of large companies regularly
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Jul 21, 2017

Just a disclaimer here, associates don't make anywhere near $350 all-in. Most banks will cap you until you get promoted/have your own coverage to some extent. Post-MBA associates will still have a hard time clearing $200.

Bonuses for juniors aren't nearly as large as they are in IB, $60-$70 doesn't suck but that is generally for the absolute rock stars/long tenured guys (jr. for 4-5+ yrs.). Heard some BBs will pay large bonuses to juniors but rarer than your comment leads people to believe.

Jul 20, 2017

Thus the adjective "top". Depends on bank and team, but tenured associates commonly break $200k.

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Jul 21, 2017

Going to have to agree with Street Smart here...no way 350 for associates is happening. Only way an associate gets near that is to become an associate/junior analyst and pick up coverage. Maybe before the industry started coming under pressure, but these days I would be very surprised

Aug 1, 2017
Comment
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Aug 1, 2017
Comment

Hoping for hedge life.

Aug 2, 2017