What looks the best to prospective employers and adds the most value as far as on your own self-improvement for someone that doesn’t have relevent AM/ER/IB experience?
Pursuing a designation like the CFA?
Learning Excel/VBA?
Taking a financial modeling course?
Individual AM and ER? Compiling a portfolio of your own performance/research reports?
Of course it’s known that who you know/networking is the biggest game changer, but you can’t just go meet a bunch of people and say I wanna break in without having something to show for it.
can anybody link to a good example of a general report? I’ve found some but all the templates differ slightly in one way or another, any veterans able to step in with a good all around sample?
Also, any good Youtube courses for financial modeling? or texts? I can’t find any colleges in a reasonable radius that offer financial modeling courses
L2 books have a template. Think of a company overview, Porters 5, 4Ps, 3Cs, and common size financials.
You learn modelinng by doing it. Find someone else’s model online using google (DCF Model) and understand how it works. I used Wall Street Prp back in the day, but did not find it helpful.
The only reports you’re likely to find online are going to be sell-side reports, which is OK. I suggest you try to find one that is the first report on a company (“initiating coverage”) because they tend to be a complete top-to-bottom overview of the business, and many “ongoing” reports tend to omit stuff they assume the reader already knows. If you can find a really good “initiating coverage” report (it should be more than 5 pages of text, not including charts/tables/spreadsheets), that’s probably an OK template to work from.
I would say that reading good investment books (start with the classics), reading sell-side reports, reading annual / semi annual letters from fund managers you respect, trading your own portfolio (even if it’s fake money but you track your buys/sells accurately), and writing your own “write ups” of companies are all really good things to be doing. If you’re doing all that stuff, even if you’ve only been doing it for 5+ hours/week for 2 months, you are going to kick the crap out of other candidates with no ER/IB/AM experience who are not doing these things, all else being equal. It is impossible to spend time on these tasks and not come across as someone who’s pretty darn interested in the equity markets. As a nice bonus, your reports will get better the more you do them and take less time. There’s a limit to how good your work can get without formal feedback, etc, but I would bet you that your 2nd company writeup will be better than your first, and your 10th will be better than your 2nd.
I listed a bunch of stuff there^^, but you asked for the “best bang for your buck”…I guess if I had to pick, I’d say that you should be reading sell-side research “initiating coverage” reports, and then attempting to do your own writeups on different companies following that template. But the other stuff I mentioned will only help you further, if you can do it as well.
WSP doesn’t teach you how to make the more subjective calls, but they do a pretty good job teaching how to build the models. I’m curious what you didn’t like about it? (I’m not saying it’s a godsend, but for people with no exposure it’s the best thing I’ve found so far…)
Good advice already given. If bang-for-buck is about length of time to see tangible results, then I’d have to say that CFA studying, while useful, should go at the back of the list. That doesn’t mean don’t do it, but that if you have fire in your belly, work on other things first. Here’s your list reordered.
Learning Excel/VBA?
Taking a financial modeling course?
Individual AM and ER? Compiling a portfolio of your own performance/research reports?
Pursuing a designation like the CFA?
Taking a course (live or online) to improve my excel skills was probably the best bang-for-buck that I did. I was fine with basic excel stuff, but learning how to use some of the less well known features was really really good. A little bit of VBA to write your own functions where necessary is also useful and doesn’t take too much time. Financial modeling course: You might do this, or you might just read books and do your own research reports. I found it helpful to do a short course just to see what parts of a model need to be linked to other parts of a model, and what parts come from assumptions that you pull out of thin air. Once you see this, you don’t get so nervous about “how the heck am I supposed to come up with this number,” when in fact it just ends up being an assumption you pull out of the air. Individual AM and ER is going to be good, but it will go better if you’ve had a bit of 1) and 2) already under your belt. The CFA designation is very helpful, just so you feel like you have some sense of what you’re doing with 3) and how it all fits together, but it’s a LONG program, and so I wouldn’t put all your hopes on it. Besides, you probably don’t need to start studying until January or February or so.
supersad…thanks for your input…i really appreciate it
may i ask for recommendations on “the classics”? i know there are plenty of threads discussing good books but they are like 4 pages long and cover all types…im just looking for maybe 2?
also, recommendations on how to get these initiating coverage reports? do u need a subscription to a resource? i know if u have an account w/discount brokers sometimes u can get free analyst reports, but im not sure that they are as detailed as what you are suggesting
There are a few differing opinions on “the classics”, depending on what type of investing you’re interested in, but you’d probably find on a lot of lists:
-The Intelligent Investor (Graham) - follow this up with “Security Analysis”, also by Graham, at a later date.
-Common Stocks and Uncommon Profits (Phil Fisher)
I don’t think anyone would particularly object to those two, if I had to name two. Graham and Fisher are probably viewed by most as the forerunners of the modern “value” and “growth” schools of thought.
Initiating coverage reports: Discount broker or library. It’ll say “initiating coverage” somewhere on the report’s first page. Call up customer service or ask a librarian if you get stuck, but you should be able to find a few, with some work. A thomson reuters or bloomberg terminal would also be an easy way to do this, if you have access.
EDIT: Made it clear I’m talking about Phil Fisher, not Ken Fisher.
i am taking level 1 in december…but will not be doing level 2 in june 2013…woud like to continue to be useful though…i will spend my time that would normally be allotted to studying doing the various things mentioned here…ive basically come to the conclusion that just rushing through all of the levels isnt going to open any doors if im not doing anything else since i dont have any relevent experience…theres probably an MBA or some sort of masters in my future as well, maybe right after taking level 2 or something
Fisher is considered good by many people, but I’m not so convinced. When he argued against the use of P/E multiples, he revealed a staggering misunderstanding of how statistics works. I’m not opposed to an argument about the weaknesses of P/E, but the mistakes he made made me dubious of the rest of his logic.
I’ve read good portions of his “The only three things that count.” Some of the qualitative items are useful, like “when something big happens, try to look in the opposite direction as everyone else, because that’s what’s probably being undervalued.”
Please please please please please know that I am referring to Phil Fisher (father, deceased), not Ken Fisher (son, alive). Ken Fisher is definitely not on my list of classics, and based on what I’ve read of his, might even go in the “don’t bother reading at all” category.
Soros, The Alchemy of Finance might be considered a minor classic. His idea of reflexivity is useful. It was more impressive when behavioral finance didn’t exist, because it recognized that there is an interaction between what people believe and how markets behave that is not explained by “fundamentals.” This is especially true in currencies, but also applies to other assets.
just picked up the intelligent investor off of amazon for $2.89 to read on lunch breaks because i cant study during them…not focused enough during that short time period…i hope its ok that i bought the original one…300ish pages…not the updated one thats 600+…
Out of curiosity, how long does it take to model a company from scratch if you’re doing something like an initiating coverage report and aren’t simply tweeking a model?
I have no idea what the average is for buy-side people. It takes me 1-2 weeks working alone to get my core reports done, but:
-I’m working largely alone
-I’m not working on a single company exclusively for the entire period.
If you’re ultra focused and know what you’re doing, you could probably get a heck of a lot of work done in a few days or a work week. If you’re new to writing and doing this type of research, assume it’ll probably take you 2-3 times as long because you’ll have to figure out where to find stuff, how to format it, etc, etc, etc.
Many of my clients that have enlisted me for career advice have been asking me this exact question these days. What I always tell them is that the biggest way to make a positive impression on a potential employer on the buy-side or sell-side, assuming you don’t have the network, work experience or pedigree, is to come up with your own investment ideas and write-ups. Even if you do have work experience, having a good write-up and model for an idea is essential. This whole business is about generating ideas, and way too many people out there spend too much time on academic or CFA studies but don’t know how to generate investible ideas. If you were an employer, what kind of confidence would that instill in you if a potential candidate has no competence doing exactly what you are trying to hire him/her for?
As a former senior research associate on the sell-side and now in the hedge fund space, here are my suggestions “in a nutshell”:
Sell-side initiation reports are a great way to get up to speed on a company or industry and learn what the key drivers are.
However, you still need to get into the habit of doing your own investment analysis. That means going through transcripts, SEC filings, and other players in the value chain (such as customers and suppliers) to develop a whole picture of what is going on.
You have to form an independent opinion, and oftentimes sell-side analysts are inherently upwardly biased, i.e. bullish. You should do a Google search and figure out why that is. I have many answers for you but you will find it more informative to figure this out on your own as it will reinforce how important it is not to rely on sell-side research. This isn’t to say that sell-side research is useless, but once you understand the potential conflicts of interest and sources of bias in sell-side research, you’ll better understand the benefits and limitations and you can use this understanding to your advantage.
Take a look at what leading investment managers have recommended in the past, why they’ve recommended them, and most importantly understand their rationale. There’s a lot you can learn from understanding someone else’s best practices, and then modifying them as needed on your own. You need to figure out the difference between a good analysis and a bad one to improve your own skill. How will you know what the good is if you don’t understand the bad?
Lastly, and most importantly, have someone that knows what they’re doing review your work. I routinely send my investment ideas to my respected mentors and peers to have them battle-test my hypotheses. This includes one or two people on the forum with whom I have built a professional relationship off-line. I am very selective about who I discuss investing with because I’m interested in someone that can go toe-to-toe with me when we debate investment ideas. Why is this important? This is important to me because when I’m putting my own capital or my firm’s capital to work, I want to hear pushback from people that know me best before actually putting chips on the table. I want to make sure I anticipate all the sources of risk that could cause my investment thesis to go wrong. There’s a simple reason for this – I want to be right more often than I am wrong, and make more money than I lose.
You will have to rinse, wash and repeat the aforementioned processes many times over weeks, months and years. Therefore, I caveat my “in a nutshell” comment with the reality that it takes years of experience to figure out how to be a good investor and what your style is. You need experience and history to be on your side – the more you see, the more you learn. However, a good way to get more experienced is to read some of the books that other people mentioned above; you still need to supplement this with following stocks and reading high-quality analysis, ultimately developing the confidence to develop your own.
Hope this helps. Want to know what else you might be doing wrong and how to break into the sell-side (or buy-side)? Check out the two articles listed in my signature below. Best of luck.