IB keeps its’ rep because no one will admit they slaved away their undergrad earning perfect grades to simply slave away at a IB as a glorified assistant. So they make it sound 'baller with how much money they make and how they are closing deals and what not. In reality, they are powerpoint b!tchboys (aka the deck) who make pretty presentations to the sellers of businesses. Modeling is part of the job, but not a huge part. Despite what you learn in the CFA, valuation does not equal price. Some of you were bashing me for my comp valuation I was attempting awhile ago and how I should use free cash flows. Look, we’re looking to buy a company at the lowest price possible and justify it by comps in the market, not do a DCF valuation and pay what the company is hypothetically worth 10 years from now.
IB is like spring break. Any of you ever go? Every year tons and tons of horny frat boys go South to places like Cancun, South Padre, Miami, etc. to party and hook up each night with ease like MTV makes it out to be. I’m here to tell you that it’s all a ruse. When I went on spring break, it was easily 10-15 guys per girl, and most girls kept close to their crew since they know what our agenda is. It was a far truth from what the REAL WORLD MTV made it out to be. But, no guy is going to admit they blew $2k on a spring break that was shittier than the run of the mill weekend in their college town; so they lie and say it was crazier than a GGW gang bang.
There you have it folks. The cat is out of the bag.
Don’t forget to include weekend work, which could include 5-10 hours of work (usually in the office). Normal banking hours these days are more like 9am to 11pm or midnight. Things have gotten much better than they were back when I started my career over 10 years ago, but still pretty rough overall.
When I worked in sell-side research at GS/MS, my hours were 7:30am to 7:00pm on a normal day, and till 10:00pm or 11:00pm during earnings. I didn’t have much weekend work, but still. So much of your lifestyle in ER really comes down to your manager though. In my case, my hours were slightly worse than average.
My hours on the buy-side are about 60-65 hours a week, but the quality of work is way better as is the potential upside. I couldn’t be happier. My only possible regret is that I didn’t make the move to a hedge fund sooner, but perhaps also I hadn’t developed the skill set or passion in the years prior to my move. Frankly, I think I made the transition to the buy-side at the right time, i.e. when I was ready for the responsibility of working in a sink-or-swim environment, and when I had actually educated myself to be a true investor rather than just a data processor or number cruncher.
Overall, I agree that sell-side research hours weren’t that bad, but in hindsight they felt pretty bad at the time since I was working for a demanding boss, there was pretty little downtime, and sell-side research work wasn’t that exciting after a while. In banking at least it was easier to find pockets of downtime. Healthcare and tech teams (both IB and ER) tended to have the worst hours mostly because there tends to be so much deal flow, and the industries themselves have a lot of moving parts.
Glad I’m at a hedge fund now, as it seems to be the best fit for me as far a job/career is concerned. However, it seems unlikely that I would have ever made it to this point without earning my stripes on the sell-side.
I think its getting better, i come to the office here in canary wharf to study on the weekends and all the other buildings look very quiet, can only spot one or two shadows moving about even at JPM and Citi
Agree that healthcare/tech teams having the worst hours. I always saw the consumer research teams always leaving at 5:30 or 6pm, and people who cover companies like P&G who only forecast one or two years out and think , “damn. that’s easy going.” I was in pharma research, and leaving at 7 was basically unheard of.
Although I would have to disagree on SS research not being as exciting, I think it’s actually more exciting then buyside. You have to be more on top of things, always talking with many people (not just pitching your team or PM), always thinking of new industyr ideas or innovative things to publish or call clients on.
yes on the buyside you sink in real money and you take the win/lose risk, but without sell side to call and talk to, you can’t really always be on top of the 100 companies or so you cover. buyside lifestyle is better because sell side exists.
and as you say, SS ER is like the proving ground. just like how so many judges were once lawyers
Seeing these posts were really helpful, I appreciate you shedding light on that.
Tell me a little bit about the upside/bonus potential in SS ER. How are bonuses decided? If you write a report saying that Linkedin stock is going to go down and it does, will you get a bonus for being right? Will you get fired if you’re wrong? Or is this based on something more macro like the firm’s annual revenue?
What kind of incentive numbers we talking here? I imagine that the IB department is full of workahholics who are making 75 salary ( but hunting the 40k bonus) whereas the ER guys are making 60k (hoping for a 20k bonus). Are my numbers off-base?
Interesting perspectives – I agree with many of them, including that on the sell-side you get to talk to a lot of people, sell-side does provide a valuable service especially in keeping investors up to speed on what’s going on in an industry and company, and that it can be a more stable job from the standpoint that you aren’t taking win/lose risk. However, the reliance on sell-side research does vary from fund to fund. While I do look at sell-side research, it’s mainly to understand what the sell-side consensus is thinking and where they could be wrong. WIth few exceptions, I find that sell-siders really have little aptitude in accurately valuing companies, and thus their valuation methods and recommendations are patently unreliable. Sell-siders aren’t paid to invest, so they don’t think like an investor. They’re paid to keep track of incremental data points, provide management access, and organize conferences, while hopefully generating fees for their trading desk and getting II votes. I know, because I was a coverage analyst on the sell-side due to an accelerated promote.
Another reason why sell-side recommendations are unreliable, which is why we don’t use them, is because there are a whole host of agency costs and misalignment of incentives that cause sell-side to be almost perenially bullish at best and neutral at worst. As you said, ‘management access’ is one feature the sell-side provides, but how much harder do you think it would be to do that if you had a bunch of sell-ratings instead of neutral or buy? They also tend to be late to identifying inflection points because there is no incentive to stray too far from consensus – you get some glory if you’re right, but you lose a lot more of your investor fan base if you get something wrong. I think bromion has written about this in the past and I tend to agree with his view.
I don’t cover 100 companies, though I have a sense broadly as to what is going on in the sectors I cover. I don’t need to cover 100 companies, because my fund runs a fairly concentrated portfolio, and all we really need are a handful of high-conviction ideas to work. I mean, if I can find three stocks in a year that are potential doubles, and get them each to be 500 bps positions, then I’ve made 1,500 bps of performance for my fund. That would be a barn-burner year, and obviously easier said than done, but my point here should illustrate that 100 names don’t matter and maybe that’s what makes what I do as a long/short equity analyst different from a big mutual fund.
I’m personally responsible for ~$200 million of long/short investments at my fund. To me, it is more interesting to pitch my fund on stuff than to pitch clients. The opinions of my PM and my handful of colleagues are the only ones I care about. I rely very little on sell-side research in general, mostly because I have a good handle on the industries I cover, and I would even argue that many of the best buy-side analysts are more plugged into their companies than sell-side analysts.
I had a total of three calls with sell-side analysts in 1Q14, and all three calls went to the same sell-side analyst on the same company. I would argue that he benefited as much from the call as I did. Can’t speak for everyone out there but my point is at least indicative of how much I rely on sell-side research, i.e. little to none. I’d say for every 10 phone calls, 7 of them are to other buy-siders, 2 of them are to management teams, and 1 of them is to a sell-side analyst or some other personal call.
I’m not saying buy-side is better than sell-side or vice versa – it’s just different strokes for different folks. I don’t excel in client services (other than my own career coaching work), and also am not well-suited for a large regimented organization without having skin in the game. I also don’t like wining and dining management teams or investors, traveling multiple months a year for marketing, or putting on my happy face every time my salesperson or trader asks me to do something. So that’s why I’m not on the sell-side. Some people thrive in this sort of environment; I’m not one of them.
I’m entrepreneurial, love putting money where my mouth is, and enjoy the opportunity to bet against consensus either on the long or short side. My confidence enables me to bet big when it counts; my humility forces me to constantly battle-test my theses and figure out how the market might prove me wrong before I put too many chips on the table. The only thing that prevents me from being contrarian all the time is that it only makes sense to be contrarian when you’re right. Otherwise, you’re just a pain in the a$$ and losing money. Other than that, I like to go big or go home. That’s my personality. It’s in my DNA. That’s why I’m on the buy-side.
Your base numbers and bonus numbers are way too low for BB. Almost everyone except the most junior guys (< 1-2 years of experience) at BB shops are making at least $100K+ all-in. If not, they’re either getting fleeced or are horribly underperforming. I don’t wish to share anymore specific numbers on this forum but you get the idea.
The formula for how bonuses for a sell-side ER coverage analyst are determined is based on a bunch of different things including trade commissions generated, broker / II votes, performance of calls, # of companies under coverage, what salespeople and traders think of you, etc. For associates, you get a much tighter range and usually it’s a pool that’s pre-determined by senior management.
I should have specified that I’m talking about lowbies who are in the first 2 years, heh. You’d agree with those numbers then?
If you’re trying to generate trades, is it easier to do that by
A) going with the flow because you’re pushing a report that validates what potential players are already leaning towards?
B) going against the grain because you’re trying to get media intention for being a maverick?
As for the performance of calls, what time horizons are we usually talking here? How long would management give you before they come out and say “your call was wrong”? I’m sure in your own personal life, you’ve bought stocks at a low price hoping they go up in the next 3 weeks but the market takes 6-18 months to fully validate your decision.
Case in point: go back to October of 2008 after Lehman and AIG had crashed. If you had advised people to stop selling their stocks, and rather to start accumulating shares, you would sit there for 5 months while the market is going down and idiots are smacktalking you. But then in March 2009, your investments were likely to start shooting up.
I think you really hit a nerve there with your comment about access to management. I’m already getting nervous just thinking about the inherent conflict of interest between putting an accurate “sell” rating on a company and having to show up hat-in-hand next quarter begging the same company’s exec for a phone interview.
Sounds like journalism and politicians, eh?
I agree with your comment about having skin in the game, which is why the nature of private equity has intrigued me, especially after learning more about it during Romney’s presidential campaign.
Would you go so far as to say that when you were at GS/MS, that you didn’t really know how to invest (but you had just deluded yourself into that), or would you say that you knew how to invest but you just didnt have the nerve to stand up to the crowd and speak your mind?
If we forced you to go back to GS/MS into your old role, how would you play your cards? Knowing what you know now, that you’ve confirmed you can profit by thinking as an investor, would you write reports as if you were an investor? Or would you pander to your bosses and pander to the execs at the companies that you cover?