Equity Research

Anyone out there in EQ Research finding the job a wee bit too dull these days?

I found my equity research job starting to get a little dull and perfunctory around the two-year mark, which was why I eventually left. It’s hard to say whether it lost its luster because of my responsibilities or because of the guy I was working with, but I suspect it was a combination of both.

I’m at the two-year mark. I’ve learned all the tools I need and I don’t want to be an expert in this particular sector (ie, I don’t want to be here for years). Too bad the entire industry sucks right now.

Yeah, trying to move out of ER sucks right now but better to have a job than not right now. By year two most of your responsibilities should be almost programmed so you should have to spend less time on your job unless your spcae just happens to be particulalry busy or you have a particular dicky boss. I’d use your spare time to develop more buyside related skills like looking at different vlauation metrics, asset allocation concepts ect.

2 yrs for me too. I echo your sentiment.

Yeah, by the two-year mark, everything in the sell-side job was pretty much second-nature to me, so I’d just get my work done really quickly and then spend the rest of my time reading about the buy-side and the deal world

Is the reason that ER has little value b/c all the analysts have two years of experience and then stop caring?

ER here too, 1.5yrs Would actually like to move to either trading and/or banking Will likely work towards that goal in the next year I guess it is mostly because I see ER as a center cost - you’re always in survival mode

so what did you guys learn from being an associate? i suppose you guys can analyze companies pretty well and pick stocks right? Alayle, what do you mean “survival mode”?

I’d love to get into ER, too many guides/info on ibanking, very little on ER, someone care to fill me in on the details?

FrankArabia Wrote: ------------------------------------------------------- > i suppose you guys can analyze companies pretty > well and pick stocks right? The Associate experience is valuable in that you become proficient in Excel, hone your financial accounting skills, gain some experience with the earnings mangement game (aka “get to know management”), learn to write a decent report, follow stocks / the market daily, etc., but I think it’s a stretch to say that you become a good stock picker. Sell-side analysts are not actually meant to be stock pickers. That may have been true in the past, but they are increasingly becoming information brokers and gate keepers between management and the buyside rather than stock pickers. For example, if you are an analyst or a PM on the buyside working at something smaller than a mega fund, you may have a hard time getting quality access to management (they’re busy and they tend to focus on the big ticket investors – even several hundred million isn’t considered a big fund, to put it in context). The sell side can often help make this connection, for which they get paid by the buy side shop(s) they help. Or the sell side will meet with management and publish their findings, which can also be value-added in some cases. Sell side firms also pass regular informational updates along to investors, although most of these take the form of quarterly updates of dubious quality (some people in the industry call these “analysis of a press release” since they contain lots of rehash and little valuable / insightful analysis about the stock in question). In this regard, a lot of sell side analysts are closer to journalists than to investors. Most on the sell side would refute this claim I’m sure, but having been on both the buy side and the sell side, I think it’s pretty accurate for most analysts out there. Of course there are some analysts who do produce a lot of insight and value and can actually move the market in their sectors. Chris Huber (I think that’s his name, anyway) who covers the newspaper industry for Barclays, and Chip Dillion, who covers forest products for Citi, are two examples of high value-added analysts. As far as stock picking goes, I don’t think anyone even remotely in the know takes sell side ratings seriously, which makes it sort of difficult to be a “stock picker” on the sell side. Although the global settlement supposedly cleaned up conflicts of interest between investment banking and research, it seems to have failed (in my opinion at least) at cleaning up the deeper systematic problems inherent in this conflict. You can still “hear” the banker talking in a lot of research notes (particularly in a lot of IPOs from the recent peak of the cycle) – when there is an ibanking relationship between a company and that particular firm, the research seems to reflect this more often than not. Also, despite the supposed purity of ratings, there is still a derth of sell ratings on the Street; analysts who want to keep their jobs won’t jeopardize valuable banking relationships, which results in the infamous “Hold-Sell” rating in which hold really means sell. I haven’t been in the industry that long, but it seems as though sell side research is becoming less and less relevant, although it’s not completely irrelevant, and probably won’t be any time soon.

kblade Wrote: ------------------------------------------------------- > I’d love to get into ER, too many guides/info on > ibanking, very little on ER, someone care to fill > me in on the details? I think Vault.com has a guide, you might try that.

Thanks very much for the insight, bromion. I am not an equity research analyst – I am on the corporate side of the oil and gas industry-- but I have had the chance to read many reports from different brokerages on my industry. One more point to add: I think one of the inherent shortcomings with equity research is that many sell-side analysts unfortunately don’t have technical knowledge ffor their covered industry, which perhaps causes them to “rely” on management’s discussions. A specific example is oil sands companies. This is understandable because the required experience and technical expertise are too great - imagine an analyst being critical of how a process is implemented. Some brokerages might have in-house technical expertise, but not always. I’m often told that I would be best suited for a sell-side role, since I have technical experience and I am working towards obtaining the CFA charter, but I’m reluctant to dive in to that role for the reasons you’ve mentioned.

Nice post, bromion - pretty much sums up the current dynamic of sell-side research well. As I often say, I think sell-side research is a great way to start a career in finance, but actually making it your lifelong profession will steer you more in the direction of a relationship manager/sales guy rather than a good stock picker. I actually enjoyed the associate experience because of the technical skills I learned, but I know for sure that I wouldn’t enjoy the senior analyst role, which is why I eventually left the sell-side (and will likely never return).

I don’t know, I’m at the 2.5 year mark, but I still enjoy what I do. Like any other job, as long as you stay engaged, you won’t get bored–and one of the best things about research is you have the flexibility to pretty much do whatever you want to do. I guess it all boils down to whether you like the sector and the people you work with, and the amount of responsibility you accept as an associate.

If you’re bored one the sell-side then move to the buy-side. I started out in sell-side equity research for a year and a half. Moved to the buyside about a year ago and love it. I agree with what you said Bromion. Sell-side research analysts don’t really make investment recommendations so much as channel information from companies to investors. It’s certainly possible to add value there, but I personally wouldn’t find that nearly as interesting as actually making calls on stocks. In my opinion there will continue to be a role for sell-side equity research in the future. Its equity sales I’d worry about. What value add do they really give for the large salaries and bonuses they receive? If the research team is channeling information from companies to investors, then equity sales is channeling information from research to client. It’s an extra layer in the process that I think adds a lot less value than does the research team yet usually they will be on higher remuneration. That doesn’t make sense to me and its a situation I think will become untenable as buy-side firms move more to a model of paying for research directly.

i see some positions for associate on the sellside opened. however, they’re in industries that i have no background in: oil/gas, technology, mining etc. do associates get hired without a background in those areas? i read a bit into these sectors, but my knowledge of any of them is elementary to basic at best.

FrankArabia Wrote: ------------------------------------------------------- > so what did you guys learn from being an > associate? > > i suppose you guys can analyze companies pretty > well and pick stocks right? > > Alayle, what do you mean “survival mode”? You’d be surprised. There are many awful stockpickers.

So for those of you in buy-side research, do you see it as having more long-term potential than sell-side?

What do you mean by potential? The buy side is pretty much always going to need analysts, at least for fundamental investment processes. What’s the alternative - just invest without analysis? - that’s what quant processes are for (jk) :wink: Sell-side research is basically there to generate transactions. If you can generate transactions without using sell-side research to find people, it will be cut ASAP to improve profitability. The buy side does seem to use sell-side research for two purposes: 1) as a training ground for buy-side analysts, 2) to help their analysts get a first-view on some security that has recently shown up on their radar. The idea is that sell-side analysts follow a set of companies or an industry in depth, whereas most buy side analysts hop around to where the opportunities appear to be (in a large fundamental shop, buy side analysts may be able to specialize more), so the sell side can help get the buy side up to speed when the buy side is checking out an unfamiliar company or industry.