Ok guys. Looks like I have an equity research interview scheduled for next week. This is literally the first equity research position that I have every applied or interviewed for, so it’s quite disorienting. Plus, I know nothing about financial statements, so you guys are going to have to help me fake it.
So pretend I walk into your office. What sort of questions do you ask? Also, what should I read in advance?
They invest in international stocks, if that matters.
ohai, first of all, congratulations on your interview. It’s a tough hiring market out there, but you may be more prepared than you think given your industry experience. At the same time, you’ll also be held to a higher standard. Here are the questions I think you should be able to answer, based on my experience with interviewing potential candidates while I was on the sell-side:
Walk me through your career to date (try to have a 30-second “hook” rather than walking through your resume line by line)
Why do you want to do equity research? Why now?
Describe your passion for the stock markets. (If the interviewer can’t sense your passion for investing, it’ll likely be a dealbreaker)
Describe your investment style and process (more common for buy-side interviews, but you never know. I recently spoke with a client that was interviewing for a sell-side role and he got this question.)
What sectors do you know best? Tell me about your top investment idea. Tell me about your next best idea. (Have at least two ideas you can talk about, backed with primary value-added research. You probably won’t have to go more than 2-3 ideas deep, but on buy-side interviews I’ve been asked to pitch up to seven stocks in one meeting, which was a bit unnerving. Hard to know that many names cold without some notes in front of me, but people will be forgiving if you’re a decent guy and they like you.)
What do you think will make you succeed on the sell-side? Why sell-side and not buy-side?
Tell me about an investment mistake you’ve made and what you learned from it.
Which international markets do you think represent the most attractive opportunities today, and why?
In terms of what you should read in advance, I’d suggest you read the WSJ or Barron’s or whatever you like to develop an overall view on the markets. Also, you may want to look at these articles (you’ve probably read them already): here a couple of interviews that I did with Mergers & Inquisitions in the past couple years. I suggest you read both, because it won’t be uncommon for you to get “hedge fund” type questions given that you’re a mid-career hire.
http://www.mergersandinquisitions.com/equity-research-recruiting/
http://www.mergersandinquisitions.com/hedge-fund-case-studies-part-1-overview/
Furthermore, I were interviewing you, I would hope that you not only know the ropes of the sell-side and can hit the ground running with financial statement analysis and valuation stuff (at least the basics), but that you also have a handle on how to communicate investment ideas and interact with the buy-side. If I’m a hiring manager and I don’t get the sense that you can do deep fundamental research or that you don’t understand the dynamics between the buy-side and sell-side, I’d likely go hire someone younger and cheaper…not necessarily because you’re not qualified, but because it seems like every bank and every business unit has pressure to tighten their purse-strings these days.
Hope this helps and best of luck. Let us know how things go.
Thanks nums. Your feedback is always appreciated.
Since you said “invest in international stocks” I assume its a buyside interview. In my opinion:
Have at least 1 great idea you know well that meshes with the firm’s investment strategy. So if it’s an international investment firm, make it an international idea (cough TEVA). Ideally, 2-3, which shouldn’t be a problem if you’re passionate about this. Ideally, talk about stocks that aren’t famous or household names.
In addition to the above, be knowledgeable about tons of different stocks. I recently had an interview where I met with 7-8 people and thankfully, I was able to speak with each person and discuss multiple investment ideas across a range of sectors. You want to fit into this team, so you should be able to talk on their level and be very knowledgeable about what they do.
Have a unique style of investing that you’ve thought carefully about. Don’t sound like an excel monkey. It would be good if you follow a famous investor. Also, be able to speak about a few investing related books. (Every investment firm I’ve spoken with asks me about a book or investor).
Be honest about your weaknesses, if you don’t do something because you don’t understand it, be upfront. In investing, you’re not required to know every single sector or every single style of investing.
If you have the above, I think it comes down to “fit”, personalitywise they need to feel like you belong on this team.
When I interviewed for equity research out of college, this is how it worked. May be different for those who have their CFA or experience.
I got the questions almost all right.
-What is the formula for FCFF/FCFE?
-The Price to Book Ratio would be useful for which industries?
-What is the stock symbol for this company? What is it trading at?
-You say you covered X stock for Y fund. Should I buy it? What was the investment thesis, how did you get the buy/sell target?
-What are the last 5 finance books you read?
AND OF COURSE it seems everyone gets asked eventually “If a company adds an additional $10 in depreciation, how does it impact all 3 of the financial statements” (http://www.ibankingfaq.com/interviewing-technical-questions/accounting-and-financial-statements/if-a-company-incurs-10-pretax-of-depreciation-expense-how-does-that-affect-the-three-financial-statements/)
That last question seemed like rocket science to me in college. But now its like “lolwut? I had problems with that?” because my current job required a lot of accounting training. If you struggle with financial statements, I’m pretty sure I still have a “cheat” sheet given to me from an alumnus who was at JPMrgan Investment Banking in NYC. It shows all the traditional accounts and how they interact with each other. I may also have other helpful items such as investment banking interview guides, as I found investment banking questions and equity research had some overlap (the finance, the mind teasers, etc). Just let me know if you’d be interested in any of this (I think its still on my computer somewhere).
But then again, it may be compeletly different. I was in college and probably had to prove my knowledge more than you may have to. But it was very technical (very few behavior/fit questions).
Be sure to check out Glassdoor. You usaully can figure out the types of things you’ll be asked (assuming you are interviewing at a large firm).
I would like to see the cheat sheet, rawraw.
Thanks for the input guys. I am reviewing this and am getting great insights.
Another question I have is - does anyone have feedback on forming macro or country specific views? Since this company has international and EM exposure, this might be important to them (and it is actually the primary reason that I applied for this job).
I would read everything that the company publishes so will be able to speak with them starting from a common thought framework. I would also read pieces put out by their competitors. If you are looking at INTL stocks then the FT would be the best paper to read through. Do they do developed, emerging or a mix?
I’ve recently heard from managers, when we ask them about their thought procss regarding macro analysis they all start with “Oh…we don’t just look at GDP growth”…obviously important for the long term but be sure to consider things like governance, liquidity, stock exchange dynamics, tax law, etc. Issues that could possibly impact your return in an EM country that seem like non-issues in the US. This is especially important if your firm is doing more than just public equity investing and looking at private issues as well.
First, Congrats! It’s inspiring to see a thoughtful contributor here getting some good news. Hope more is coming!
Well, with macro stuff, you generally look at trend economic growth and where in the business cycle the country is. Then, you check markets for their recent performance, remembering that they tend to lead economic events by about 45 degrees. A lot of economies are fairly synchronized right now, but that isn’t always the case.
Then you start to look at what the economic directions for change are… are exports rising, is the trade deficit changing markedly. Has the currency been relatively stable or fluctuating all over the place. Does inflation seem to be under control, and what direction are things going.
Then I do a political overlay… does the government want to do economically sensible things, or is it under pressure to overregulate or overspend. Can the government fund itself, and at what rate of interest if it borrows. Is public order a problem? Most of this feeds into estimations of risk and to me are indications of whether a traditional market risk premia are too high or too low.
Remember that markets and economics are not fully correlated: You can have good companies with overpriced stocks as well as bad companies with underpriced ones. Similarly, you can have good countries with overvalued markets, and bad countries with undervalued ones. So don’t forget that valuations are still important in Macro stuff.
Market meaningful political events are very hard to predict. If things seem very stable, then political events are probably already in market prices. Betting on rare events and being right makes for a lot of money and good headlines, but most of the geniuses in that game are probably just lucky, because you can be right about the event and wrong about the timing and lose. Political analysis is about risk measures, and less so about return opportunities. And there is almost always some additional mechanism that you haven’t thought of going on.
EMs tend to have a lot of momentum to them. When they’re hot, they are hot for a while; when they tank, people are afraid to go back for a while. Of course, there’s the value in being contrarian. A lot of the performance may come from liquidity premia, because when people run for the exits, the doors may be tiny.
Learn about their current holdings…what do they own…come up with your own opinion on them…
What field were you in before / currently?
Bchad added a lot of useful information. I usually hear a lot of the same things when I’ve spoken with international bond and equity managers. I would only add that if they are taking country-specific bets, I wouldn’t expect an equity analyst to have as much influence in how they are taken. If you’re really interested in that aspect of the process, perhaps you’d prefer a role just doing that.
If you care about country-specific bets, I would also expect you to have a story for explaining recent performance of major groups of countries (EM vs. U.S. vs. Japan vs. Europe) and what you expect for the future.
I second the request for the accounting cheatsheet. I’m far better at statistics than remembering accounting relationships.
Curious why you are want to go into ER now from derivatives trading. Don’t you make like $400k a year ? You will probably take a huge pay cut I would imagine.
ohai is one lost soul
Read the Economist, paying special attention to current global macro issues.
Yeah, in truth, I don’t know if I will take the job even if offered. But who wants to do the same thing for their whole life? Or maybe the skills and contacts in a different industry will be valuable in the future (like going to business school or something).
ohai,
I also wanted to let you know that Mergers & Inquisitions and BusinessInsider.com just published part three of my “hedge fund case studies” interview series today. The link is below. I suggest you read it not because you should obsess about modeling at this point, but because if you’re asked what metrics you look at or how you think about risk, you’ll have something to say. Certainly everyone looks at different things, but the idea is that whatever you want to key in on is what you’ll want to have reflected in your model. So I think this article could give you some ideas about how you want to articulate those investment characteristics that you look for, if you’re asked about them.
http://www.mergersandinquisitions.com/hedge-fund-case-studies-part-3-financial-modeling/
Numi, while i have your attention :), Any recommendation on books regarding Sales and Trading specifically regarding to different workflows and client interactions?
hey comp_sci_kid, unfortunately I am not aware of any books specifically on S&T subject matter, other than the general investment sensibility that one acquires through reading investment articles and books regularly. However, the client interaction side I can certainly talk about the things that matter to me. As an equity analyst at a hedge fund, I talk to sales and trading fairly regularly to get investment ideas and other types of services, and I can tell you what differentiates a good S&T guy from one that isn’t so good. Is this what you’re looking to get color on?
Feel free to email me more specific questions and I’ll respond in an email or give you a call…as a reminder my address is numi.advisory@gmail.com. Thanks.