Career Paths: Equity Research 101By Xiangrun Li • 5 min read
My most memorable internship experience was the one with Citi’s Equity Research. I would attribute my entry into an investment banking career to the great mentors that I’ve met as well as the corporate valuation skills that I’ve picked up during my equity research internship.
Research analysts (or what we call the “sell-side analysts”) typically produce research ideas via publication of research reports.
It can range from initiation reports to ﬂash notes updates on the company results/announcements, which is followed by “selling” this idea to the fund managers, investors, buy-side analysts and the bank’s internal sales team who would also cover the same universe of fund managers, investors & buy-side analysts.
Research Assistants / Research Associates
You begin your career with limited industry or market experience. As a Research Assistant or Research Associate, you typically do not cover your own stocks yet.
- Number-crunching, digging up of information and editing or formatting of reports
- Help with financial modelling
- Update the company’s financial models for the quarterly or semi-annual announcements
- Revision of earnings estimates
- Limited traveling (at the onset)
- Help with monitoring the industry news-run to update briefing notes to research analysts or selected buy-side investors
- Start the day early at about 7am to prepare for morning meetings that are ahead of the commencement of trading hours
- May be expected to work over the weekends and late nights (especially during the earnings results season which lasts for 2 to 3 weeks per quarter. Now it’s mostly on a semi-annual basis, seeing how more Singapore companies are transitioning from quarterly reporting to semi-annual reporting
- Workload is highly cyclical, and not too different from the investment banking hours (definitely longer hours than mid-office roles in the banks)
“Research Analysts” would be the general title given to analysts who cover their own stocks — a progression from research assistants or research associates. Although there are typically bank-wide titles such as Associate, Vice-President, Senior Vice-President/Director, Managing Director.
- Live and breathe particular industries
- Recommend the stocks to sell or buy (and to convince sales and buy-side investors to follow suit)
- Have a firm grasp of the industry, stock-picking, and sales skills to convince people of the research idea
- Spend considerable time with investors (on the phone, face-to-face meetings, global roadshows) and with company management of the stocks/industry
- Meet the buy-side investors and conduct site visits and management meetings (if the coverage stocks’ operations are based overseas)
- Similarly starts at about 7 am everyday (slightly later than the research assistants or associates who have to get in early to prepare the printing of the materials and sales notes)
- May be expected to work late nights during the earnings results reasons
Factors that affect Compensation:
- Performance of stocks under coverage (if stocks perform like the analyst predicts, they get paid better)
- Trading activity within the firm of stocks under coverage (MIFID rules may influence this aspect)
- Performance evaluations of the research analyst by superiors
- Institutional Investor rankings (the goal of all research analysts is to enter and move up to Institutional Investor or equivalent rankings)
Types of Research Reports
Once an analyst’s industry piece has been written and digested by the investment community, the analyst focuses on publishing research reports on specific companies.
To create a well-rounded research universe, research analysts will typically write on the top industry players, as well as several smaller players in the industry.
One of the most critical roles of an equity research analyst is to make future earnings estimates for the companies he or she covers.
Company-specific reports fall into three categories:
(1) Initiation of coverage:
- These reports indicate that an analyst has not previously written research or covered the particular company
- Usually an initiation of coverage report includes substantial information about the business, a detailed forecast model, and risk factors inherent in the business
- An update report is put out whenever 1) the stock moves, 2) news or earnings are released, or 3) when the analyst meets with management
- Often one-pagers, updates either provide quick information important to current movements in the stock or will raise / lower earnings estimates
(3) Change of rating:
- Whenever an investment bank alters its rating on a stock (from Hold/Neutral to Buy/Outperform or to Sell/Underweight etc), a report is issued
- These reports vary in length from 1 to 5 pages
- Reasons for downgrade include lower than expected earnings, forecasts for diminished industry or firm growth, management departures, problems integrating a merger, or even overpriced stocks
- Reasons for upgrade include better than expected earnings, new management, stock repurchases or beneficial industry trends
Tips for Getting Hired & Being Successful in the Equity Research Career
- Research assistants and associates must work hard & learn quickly (as with all careers)
- Demonstrate proficiency in Microsoft Excel, Powerpoint, Word and statistical analysis
- Have a flair for writing, as analysts often hand-off a significant portion of the writing and editing of research reports to the associate
- Avoid messing up the financial models or lose sight of details (for example, missing out on an important note to the financial statements that warrants adjustments)
- Demonstrate ability to ask smart due diligence questions to company managers
- Demonstrate good communication skills with internal sales or buy-side investors (if given the chance)
- Attain the CFA designation – which lends the analyst respect and credibility to investors (all things being equal, promotions will go to the analyst with a CFA certification)
Preparing for the Interviews
Some of the more important traits to demonstrate during the interviews:
- Strong financial & accounting knowledge; understanding of the various financial ratios (solvency, efficiency & profitability ratios)
- Understanding of typical valuation methodologies (discounted cashﬂow, trading comparables)
- Understanding of how to build a simple discounted cashﬂow model or possess the ability to build a simple 3-statement financial statements model (linking the P&L to Balance Sheet to the Cashﬂow Statement)
- Interest in the industries that the bank’s equity research team is strong in or focusing on
- Willingness to work hard, and the ability to pay attention to details
Equity research continues to play an important role in the investment community – offering a rewarding career and potential ‘exit’ to careers in areas such as portfolio management and buy-side analyst.
Initiate with a ‘Buy’! 🙂
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