I got an intern position(though chances are high i might get hired but on low renemuration) at an investment bank in Kenya and got assigned to the research department. I have a finance background(in university i did Economics and Finance) but have no work experience(haven’t even graduated). I’ve had a taste of what research (i was given a two assignment to write a report on a listed company and make a presentation-deep end stuff) is about.
What i want to know from you guys is, apart from the CFA (which i’ve not even started) and academic stuff, what else can i do to build my career. The skills and habits that i need to develop, how long should it take?. My supervisor tells me it involves a lot of reading.(He sent me this http://blogs.cfainstitute.org/investor/2013/09/12/advice-on-how-to-become-a-research-analyst/ ) Not really a problem. What else should i expect? Please share your experiences.
Here are two articles you should read. These articles were a two-part series when I was interviewed for Mergers & Inquisitions a few years ago. As you are currently an intern, I think you (like many other aspiring analysts) would benefit a lot from reading these articles.
Thats what am actually doing at the moment. The firm releases a lot of research work(in Kenya and other countries in the East African region) so am i kinda lucky. I also help in preparing some weekly reports(economic highlights,stock market statistics).
That forming my own ideas and opinions is what i have a problem with especially with the financial modelling.
When you are starting out, it’s tough to have good independent ideas, and the temptation is to do little more than extrapolate off of existing trends. Insight comes from many sources, but I’ve found one of the quickest ways is by making comparisons between companies or economies. Without comparisons, it’s just hard to figure out what is relevant.
Experienced people can make comparisons not just across companies and economies, but across historical periods, and they can add their mental state to those comparisons too. So there’s a little bit of patience involved.
So when you are analyzing something, search out something you can compare it to to get perspective. That will help you get better ideas faster.
Even later on, it can be hard to come up with good ideas, because anything remotely obvious is likely to be out there already, and anything subtle or complex probably has enough moving parts that it could be one scenario out of a zillion similarly subtle possibilities. Occasionally you will run across a sweet spot of something not too obvious but not too subtle (like management that seems prone to fraud) in which case you start looking at the balance sheet and earnings more closely to understand how the fraud works and what might bring it to a more public light.
This is a good point, agree 100%. I had a really skilled investor tell me it would take about 5 years to learn to be a good analyst, but in reality that was 5 years of working with him and being trained. It might take 10 years or longer depending on who you are working for and what kind of opportunities you have, and also how aggressive you are. My advice is to be patient and realize that this is a long-term proposition. I’ve been doing this for 8 years and still have a lot to learn.
I agree with this too but I would recommend looking at hundreds of ideas. After a while you can see things that are “obvious” to you but not the market. All of my best ideas this year, including a few stocks that returned over 100%, jumped out as great opportunities in the first 1-10 minutes. My best short idea of the year I knew was a fraud in under 60 seconds never having looked at the company before but for some reason the market assigned it a market cap of $300mm.
This is another good point (great post bchad). Try to study similar companies in the past. For example, I found one where it had 7 prior public comparables in various developed world markets where every single stock had gone to zero. Since the one remaining company I was looking at was running out of cash, it seemed that it too would go to zero. Apparently the market didn’t know about the prior comparables. The reason they all went to zero is because the business doesn’t make sense and is prone to running out of cash.
Another example is that there is a particular trade in the IPO market that happens maybe a couple of times a year at the most. There is about an 80-90% chance of making money on this trade if you execute properly. It’s very simple but I guess people lack the historical perspective and understanding of the mechanics to realize why the trade works.
So try to look at the big picture and not get buried in your models. You want to try to understand why something is priced the way it is and what would cause that to change, otherwise you are just throwing darts.
You touched on an important point, being aggressive. Is it something that i can develop? You see the only thing that i’ve ever been very passionate about is information technology(including IT companies). In fact when i had my first meeting with the company directors, they pionted it out(it was so obvoius from my c.v) and thats one of the reasons why i got the intern position. However, i like finance but for this research work, i need to have something else that drives me. Its not all about crunching numbers. In fact the numbers part in my view is the least demanding and smallest part .
When you got into research, did you have a passion for it or is it something that you learnt and developed when you got the job?
Models are essential part in getting the target price of any stock. Whethet you’re using the DCF or Price multiples, you’re have to develop the model of the company. The most challenging part that i’ve encountered in building models is the “story behind the numbers”. How do you incorporate the macro environment(future periods) in the model. I was used to just using averages or the same rates over the forecasted period. Am being told i have to sometimes use “my best judgement”. I find it so hard.
Itera, I was drunk when I posted this so I would have worded it differently if sober, but no, it’s not a joke, as I have never worked with public equities.
I did the valuation stuff in level II but it’s far behind and I never had to apply it.
I understand the classic methodologies like comparables, multiples applied on EBITDA minus net debt, discounting FCF, LBO, but they are not really used for companies that are publicly-traded as far as I know, rather used in a transaction context.
So with public equities, isn’t the main methodology finding out what will be the dividends in the future and discounting these cash flows to reach an intrinsic value ?
My advice is not to go into finance then. This is a zero sum, winner take all business. Of course there is more than one winner but it’s probably 80 / 20 where 80% of the participants fund gains for the other 20% over time. It might be 90 / 10. There are literally trades that are almost guaranteed to make or lose money and yet someone is on the wrong side of that trade in every case.
This is difficult to see from the outside but believe me, you will be competing with other people who are willing to do little else besides research companies. The guys I know who do this well work 12+ hours a day 6-7 days a week. There are a lot of pretenders but that’s what it takes to actually be successful. It’s not worth it if you don’t love the work, life’s too short. There’s lots of money to be made in IT if you like that work.
Its too early to tell whether i hate research work or not. I’ll give it one or two years. Maybe i’ll get ‘passionate’ when i get my first research work released or i see the pay package. I think right now am just overwhelmed by the amount of new things i have to learn and the poor renemuration. I think i’ll also make an investment in shares and make the research more about my own investing than just releasing reports for others to read.
My guess is that the certificate is unlikely to help much, but that the substance of the course(s) might. A lot of people here have done the Breaking Into Wall Street course (around $500 if I remember right) and found it helpful.
Again, a certificate (even from breaking into wall street) is not likely to help much, but if you have little or no practice in building financial models, having someone walk you through how to do it is genuinely valuable.
Echoing what bchad says, the “certificate” itself is simply just validation that you completed the course. The course itself, however, is extremely useful and excellent bang for the buck. It is also very well known, so when employers see that you took the modeling courses, it just gives a bit more credibility to your modeling and technical skills.
For what it is worth, my personal opinion is that Wall Street Prep, Training the Street, and Breaking Into Wall Street are all good. They are all well respected. Therefore, if they’re of equivalent quality, you might as well go with the cheapest option. That would be BIWS.
I have the Wall Street Prep training videos. However, analysts in this firm do things differently and allow and encourage ‘newbies’ to be creative(but it should make sense) in financial modelling. But the training videos are useful.