Equity Research vs Investment Banking

Equity Research or Investment Banking?

Equity Research and Investment Banking are two distinct areas in the finance industry, and it's common to be confused about their differences.

Equity Research involves analyzing stocks and securities to provide insights and recommendations to investors. It involves digging into company data, financials, and market trends to help clients make informed investment decisions. People didn’t usually consider equity research before because they didn’t think it was as glamorous and prestigious as investment banking.

On the other hand, Investment Banking is often perceived as more prestigious, but it comes with long hours and a lot of stress. Investment bankers are involved in various financial transactions, such as mergers, acquisitions, and IPOs, helping companies raise capital.

Despite the challenges, investment banking still attracts many professionals. However, recent trends show that top graduates are exploring alternative paths in management consulting, technology, or even starting their own businesses instead of pursuing investment banking. This change has brought attention to roles like equity research that were previously overlooked.

When deciding between investment banking and equity research, it's essential to consider your personality and preferences. Both fields offer a stimulating work environment and lucrative pay, but the nature of the work and the lifestyle can vary significantly. As you weigh your options for a career in the capital markets, understanding the differences between equity research and investment banking will help you make an informed decision based on your interests and goals.

What is equity research?

Equity research analyzes financial data and openly available information to assess the performance and potential of particular stocks or the overall stock market.

Equity research analysts will look at a company’s financial statements, industry trends, market data, and other factors and statistics to determine the value of different stocks.

Equity research analysts then use this data to offer their firm’s clients (institutional investors, hedge funds, individual investors, and more) general market or industry perspectives and buy, hold, or sell recommendations on particular stocks. 

An equities research analyst's daily tasks can change based on the company's size, depending on their level of expertise, their level in the company, and the particular sector or industry they focus on. Though the general activities include:

1. Collecting and analyzing financial data

To stay current on the firm's equity research analysts' financial performance, you must constantly study corporate financial statements, market data, and other pertinent information.

2. Meeting with the company management

Equity research analysts frequently meet with the management teams to better understand the business operations, financial performance, and long-term goals of the companies they cover.

3. Talking to industry experts

On top of meeting with company management, equity research analysts also speak with other industry specialists, including rivals, suppliers, and customers, to develop a more thorough grasp of the businesses and industries they cover.

4. Writing research reports

Equity research analysts prepare reports based on their research to communicate their findings and investment suggestions with clients. Hence, you need to be good at communicating via writing, in person, etc.

5. Presenting research to clients

To clarify their investment thesis and respond to inquiries, equity research analysts deliver their findings to clients in person, over the phone, or in other ways.

6. Staying informed of market and industry trends

Equity research analysts must stay up to date on general market and industry trends to ensure that their analysis and suggestions are still relevant.

These activities show that equity research analysts must be highly analytical, detail-oriented, and effective communicators. You need to be able to analyze intricate financial data, think critically, and provide appropriate investment advice.

The typical annual salary for equity research analysts is between $70,000 to $150,000. While senior analysts with more years of experience can earn salaries toward the higher end, junior analysts may start at the lower end of this spectrum.

What is investment banking?

Investment banking is a financial business that involves advising corporations, governments, and other entities and generating funds.

Investment bankers assist clients in navigating the capital markets and finding ways to raise funds by issuing securities such as stocks and bonds.

Investment bankers work on underwriting (capital raising, IPOs, etc.), mergers and acquisitions, corporate finance, and general advising mandates to assist their customers in generating funds.

An investment banker's day-to-day activities can vary depending on the exact function and stage of a deal or project. However, here is a rough outline of a normal day for an investment banking analyst:

1. Reviewing financial data and market trends.
   Investment bankers begin each day by examining financial data and market trends to stay current on changes that may affect their clients and deals.
2. Meeting with clients
   Meetings with clients to negotiate possible transactions, offer updates on current projects, or answer queries.
3. Conducting financial analysis
   Investment bankers devote much effort to financial analysis, including developing financial models, generating presentations, and compiling client reports.
4. Participating in team meetings
   Investment bankers frequently participate in team meetings to coordinate their work, communicate information, and talk about the status of the projects.
5. Attending client presentations
   To deliver their conclusions and suggestions, investment bankers also attend client presentations.
6. Collaborating with other departments
   Investment bankers may work with other departments, such as legal or risk management, to ensure that deals are planned and carried out appropriately.
7. Staying up to date on regulatory changes
   Investment bankers must be aware of and updated about regulatory developments and how they might affect their customers and business deals.

From the above, you find that investment bankers must be able to analyze complex financial information, effectively communicate their findings and recommendations to clients and colleagues, work long hours, and collaborate effectively with colleagues and clients.

Depending on the location and the investment bank, recent graduates starting as investment banking analysts can anticipate salaries ranging from $70,000 to $100,000 annually.

Equity Research vs. Investment Banking

Now that you know what equity research and investment banking are, let’s examine the differences.

Here are some of the key differences between equity research and investment banking:

To sum up, equity research and investment banking are essential financial jobs. They have different tasks, skills needed, and work settings.

Work hours in the finance industry are always brutal regardless of the specific position, especially for those in more junior-level positions.

While equity research is more research and advice, investment banking is more hands-on in helping clients. Also, equity research analysts work on the firm's internal functions. In contrast, investment bankers work on the external functions of a firm.

Researched and authored by Alisa Zhu | LinkedIn

Reviewed and edited by Parul Gupta | LinkedIn

Free Resources

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