Equity Research Masterclass
That all junior equity research professionals should know
Are you dealing with infighting within your team? Are you having trouble gaining visibility in front of equity salespeople and clients? Do you not respect your analyst, or is your analyst too hands-off? In this series, I will share with you my advice on how sell-side equity research associates should tackle these issues and make the most of their careers.
If you don’t want to read, WATCH this article:
Mindset
There are four buckets of skills you should develop during your time in equity research:
Financial analysis and modeling
Strategic thinking
Sector expertise
Selling and relationship building
Unless you work at an elite research boutique that monetizes client subscriptions, come to terms that working in equity research is not really about picking stocks. The more appropriate term is “equity marketing”. The sooner you come to terms with that, the better your mind adjusts to getting the work done, helping your analyst and franchise succeed, and learning what you can learn.
Most people don’t stay in this profession for life. Everyone on your team, including your analyst, has their own motives. You won’t know what their motives are, until over time.
Nothing will come really easily. Too many associates take it for granted that they will have good exit opportunities for having worked in equity research.
Your career prospect almost always hinges on how good YOU are. If you don’t know your stuff, you won’t get good exits no matter how many years you stay in ER. If you are smart and can really prove your quality of work, you can land a lucrative corporate role or buy-side research job as soon as it opens up.
For example, buy-siders treat you like a second-class citizen because they know the profession has no skin in the game and is merely a liaison amongst many parties.
Based on all the client events I have been to, older clients are generally nicer, and I can tell who used to work on the sell side because they are more understanding of the crap we have to deal with and are of service to buy-siders.
Conversely, the pricks are usually that young guy who got straight into the buy-side after college. They won’t recognize your presence, and they demand to speak with the analyst because their shops are top commission payors.
Just be aware of these dynamics so you understand why people behave in a certain way, and why I never bother bringing my business card as an associate.
If you are going corporate, a lot of mid- and senior-level managers have no idea what skills high finance professionals can bring because they started in corporate as financial analysts.
Sell-side analysts are great at their job, but most of them are the worst managers. Welcome to Wall Street, where people make big bucks for producing, not for leading or mentoring. Most of them care too much about generating revenue to care about what you want for your career. You need to be your own people manager and hold yourself to the highest professional standards IF YOU WANT TO SUCCEED. If you don’t work hard, don’t wonder why you don’t progress like your peers.
Someone asked: “How to stay motivated when you are treated like an earnings monkey or your boss rarely talks to his associate?” Look, you might work for an II Hall of Famer who is just cruising and milking the goodwill she has built over her career, but they have a mansion and a summer house in the Hamptons, and you don't. You have to motivate yourself so you can break into a path where you want to build a long-term career. And please do not expect your analyst to change for you - they are set in their ways
To the closest buy-siders, your analyst didn't hire you to train you to be a great investor. You can develop industry expertise on the job, but you won't learn how to invest on the job, especially if you want to be a long-term investor. You got to put in your own work. You have to proactively discover your own philosophy, acquire mentors, and learn the skills. Use my investing reading list and my buy-side research playlist as resources. Don't waste time pondering which analyst you should hop to instead to learn to be a stock picker. They exist, but they are very rare.
If you don't like the job, that's okay. I didn't like the job (I have a social media following to prove that), but I loved being exposed to companies and the market. You should constantly find ways to be useful to your analyst. Always think about what busy work YOU can do, so that your analyst can take one more client call or think about another note idea. I don't know about you, but at least it feels better to be contributing when you work in a job you hate.
Equity research is a client service profession. You should be constantly building relationships. Take advantage of your access to a diverse array of powerful people: Wall Street professionals, public company C-suite, and institutional investors. It cannot hurt to build deep relationships with them regardless of what you want to do for the rest of your career. Work on your people skills and learn to be liked by as many people as possible. These relationships strengthen over time and can lead to mentors, future clients, job leads, and even business opportunities.
Don't make things up. If you don't know the answer, say "I will get back to you," actually go find the answer and get back to them. Your clients have to be right on their job to make money. Investing requires intellectual honesty. If you tell them false things, there is zero chance that they will like you, and that hurts you and your analyst. At best, that client won't call you again. At worst, if you did this to a big client and your analyst found out, you will be fired.
Understand things on a first-principles basis. Don't use jargon to fool yourself and your clients. Your clients will call you out: "What do you really mean by that (jargon)?" If you go on to invest for real, the market will tell you that you are wrong.
For example, during a mock interview, I asked a client "How do you analyze the Chinese cosmetics industry, which is a sector he covered as an intern." He answered using one sentence "I use Porter's Five Forces." Then it was an awkward silence. I knew I could break him, so I probed further: "Walk me through how you use Porter's Five Forces to analyze the cosmetics industry." He was like "Uh…" Therefore, hiding behind jargon won't work against experienced professionals. Really understand what you need to understand. It’s true that if you cannot explain a complex concept to a 5-year-old or your grandma, you don't understand it deeply enough.
When you do know your stuff, sometimes you have to take a stand and not let a more senior teammate bully you. They are not always right.
Write things down. Most of us don't have superhuman memories. Writing helps with remembering.
Constantly refine your workflow. So much time is wasted on this job because of disorganized bosses, information asymmetry, and pain-in-the-ass Supervisory Analysts, control what you can control. Time your core tasks and think about ways to automate them. Small process improvements add up. For those who are thinking corporate after equity research, a lot of roles have a big process management component. Start now.
Learn one Excel shortcut a day. The sooner you can automate and complete those low-value tasks, the sooner you can complete the busy work and do some actual research, see the big picture of how businesses create and destroy value and build your brand in front of clients.
Leverage AI: This is very topical. ChatGPT can save so much time. It’s like you have your own Senior Analyst who isn’t pulled in 20 directions. Just make sure you validate what ChatGPT spits out because ChatGPT doesn’t always give the right answer. I have heard folks use it to generate SQL codes or design a webpage. If you don’t know a shortcut key for Excel, ask ChatGPT. It’s more targeted than googling an answer.
Have a personality. Clients call you sometimes because they like you or can relate to you in a certain way. Think about what makes YOU unique and infuse those qualities into your communications.
Have a strong hook: No matter how great your note is, if your title is bad and you are wordy on the first page, the world will never know. If people don’t click on a YouTube video because of the boring title and thumbnail, the world will never know. Same idea.
Start having views. Yes, the sell side has the option to stay on the sidelines, but you cannot stay on the sidelines for all of the covered names. Clients are looking for a debate to plug their intellectual blind spots. They will pull up ratings for stock and call an analyst who is SELL-rated on something they want to buy, and vice versa. As you progress in this profession, you need to start taking career risks by taking a side on a name.
Develop thick skin. You are going to be wrong publicly. At least you don’t lose money because you are not an investor, but it still sucks when you say the company is going to beat and raise and the stock tanks 40%, the CEO left, and they are going to dilute their shareholders. The next day 10 pod shop clients call you and ask, "What the f*ck?"
Triple-check your work: Build a reputation by having strong attention to detail. That way, your senior analyst will give you more responsibilities.
Be super organized: Use folders in Outlook, OneNote tabs, etc. Don’t underestimate the old-school methods of having a physical notebook and folders, etc.
Even if you hate your covered sector, outsiders value an industry expert’s knowledge. Become an expert in your sector while you explore a path that suits your long-term interest.
Learn to skim: There are many free/paid resources on how to read.
Pass your Series exams ASAP. I see people on forums get stressed out about these four-part exams and ask for study tips or even tutors. Maybe I am very harsh on this: This is Wall Street. If you struggle to pass them, what makes you think you will succeed in whatever comes after equity research, or what is your prospect within the industry? Practice hard, and get them done. Then 1) your name now shows up on research reports 2) you can talk to equity salespeople and institutional clients 3) you can build your brand for whatever purpose.
Dress well. This is particularly important for younger associates because most clients and C-suite are not going to remember that 22-year junior associate working for the analyst. At the very least, if you dress well, you make a good impression via presentation. It can help you.
Be good with people's names. Write down their name and three things about them. Everyone wants to be recognized.
We have RegFD now, but there are still shenanigans here and there that you need to play along with. Just be aware, but know if SEC is not going after politicians’ insider trading, your whistleblowing on these shenanigans will not do you any good.
Single name and sector knowledge
No client values your breadth of knowledge. When a client calls, they need your deep knowledge of the names they are working on. For juniors, depth is more valuable than breadth if you want to build your own brand with clients.
In my opinion, a good analyst should divide her coverage and let associates be a “shadow lead” on a subset of companies. If you happen to work for an analyst who makes every associate know all the covered companies, I highly recommend you secretly go deeper on a subset of companies that either interest you the most or have the highest client interests. It’s always easier to expand into your team’s entire coverage over time.
Read company/industry-related books: For oil and gas, for example, Oil 101. For semiconductors, Chip War. For telecom, Cable Cowboy. For basic materials, World for Sale. Check out my curated industry book list.
You need an industry analysis framework. Master either Porter’s Five Forces or Hamilton Helmer’s 7 Power framework. These two frameworks are the only things I can think of that are applicable to every single business in any industry you will ever look at. I have summarized Helmer’s book in my newsletter before. I have linked to my notes that might save you time. I plan to make videos about them in the future too.
Keep a journal of news/events on your companies and the industry. Over time, you should be better at knowing what’s material and what’s noise.
Do you think the news is positive, negative, or noise to the company?
How did the stock react?
How does the news impact the other companies in the industry?
Know every detail: You never know what information a client is looking for. If you can add value by knowing something your client doesn’t know about your covered company, they will be a return customer.
How do you develop variant perception? 1. You need to know your sector very well, and every company and industry is different. 2. It takes time. Be a student of your industry’s history to start developing pattern recognition of why, at the time, the market was wrong about XYZ or undervaluing certain opportunities.
Financial Modeling
When you first start, learn how to "crank" the models - how to populate the earnings using the company's earnings results and forecast it forward. When I first started, I practiced doing the earnings before the earnings season to see how quickly I can do it. It comes with practice.
When you have downtime, I highly recommend building the models of your covered companies from scratch by looking at your analyst's models. You will be forced to distill down to how a model flows and what drives the revenue and cost of the business. You'll realize how unnecessary it is to have a 2,000-line model.
Don't assume a model is free of errors. Analysts and your teammates are way too busy to check everything. If you find some error, let your boss know. If it's an error, fix it.
Document modeling assumptions in a separate file: it will help you the next time you work on the model and when a client asks about your assumptions.
I understand it's more convenient to leave comments inside the model, but remember these models get sent to clients. Make sure you don't say anything stupid or MNPI
A lot of you love to know what matters even when that's something that can take many years. It depends on the company and its business model, but generally think about what KPIs have the biggest impact on the key financial metrics of the business – Revenue, EBITDA, EPS, FCF. If a company has three segments, which segments constitute the majority of the company's operating profit. Stuff like that. If a segment is only 5% of EBIT and it's not growing that quickly, you know clients won't care as much.
Save before running an Excel macro: there is no undo after a macro run.
Be super careful about deleting named fields because other parts of the file might depend on it. And you have no idea what part because you inherited the model.
When you operate on a tab with hidden columns and rows, expand all of them or select only visible cells because you might have copied something across cells but overwrote things in the hidden rows or columns.
Research Writing
Don’t stress out about how to write a research note. It comes with time.
The key is to conform to your analyst's writing style because that's part of her brand. Your analyst's writing may be far from perfect, but your job is to produce as final a product as possible to save your analyst time. You can work on being a concise and persuasive writer on your own time.
Most clients don't even read your note. By regulation, teams need to publish their view before being allowed to discuss that view with equity sales and clients. Writing the note is just going through the motion so that you have something concrete to pin clients to set up calls. Now you understand why you still have to write earnings notes even when no one other than your boss reads them: pod shop clients will call the next day, and you can't share views until you publish the note. That's why earnings season is a terrible lifestyle for us.
That said, research management tracks report readership. That's the hook to get clients on the call, which your firm monetizes in a few ways such as commissions and explicit fees for calls.
Unlearn all the creative writing skills. We are trying to communicate views to institutional clients, not trying to win the Pulitzer Prize.
You need a strong title and the first page. Conclusion up front. “We are upgrading this because of this reason.” Have an interesting title as long as it passes SA review.
You will regurgitate press releases, just try to tell clients what the news means for the stock. In general, focus on the "so what." What does this writing mean for your stock, for your industry? What action can clients take using your note?
Repurpose previous reports and exhibits. You can ask your team if they have done similar reports and exhibits. It saves time.
Someone asked me: “How do I differentiate?” Clients get 20+ emails from equity salespeople from different brokers every day, why do they open yours? You make them money, make them think, or they like you. There are infinite ways to differentiate. I wouldn’t worry so much about it until you have your own coverage because your boss has her way of differentiating, you just need to focus on executing the tasks reinforcing the differentiation.
Don’t spend time on things you cannot differentiate. As you progress, you need to think about what angle you want to pursue as your own unique angle. You can observe your boss's angle and see if that’s a direction you want to pursue. Or you can go in your own way: Some go with deep industry knowledge, some go with good channel checks, and some go with just outrageous but thought-provoking notes about those moonshot opportunities. You don’t have to differentiate in many ways, you just have to find one where you can have relative domination and that is valued by enough clients.
Given the incentive alignment, adding value to the highest commission payers, typically the multi-managers, is a prudent move.
If three clients asked the same question, that means no one else on the street has clarified the confusion, and you should pitch your boss to write a note on it.
Being yourself is a way to differentiate because it’s your voice, it’s your style, it’s your personality making the client want to talk to you. If you know a certain product of yours is very well received, that should become a staple product.
“System” knowledge
So much of equity research is mastering the team’s workflow. If you master this, you will become very entrenched and helps your job security.
Take your FIRST compliance training seriously: You need to comply with the regulations anyway. As part of the team, your actions impact your team’s reputation and regulatory compliance.
When you are speaking with external parties, your team’s view and stock ratings are what you need to be messaging (the “house view”). Some clients will ask what YOU think about a stock. Remember you are not allowed to message your own thesis on a stock when you are representing your team.
If you are unsure about how to proceed on something, always ask your teammates/senior analyst just to make sure. This is a highly regulated industry: Making assumptions about what to communicate to sales or clients can get your team in trouble.
It can help your work-life balance if you document your processes. Write down how things are done for routine tasks so you don’t have to reinvent the wheel every time. For example, for a weekly comp sheet or monthly oil well analysis, follow the steps to the dot. Use a checklist so you don’t miss any steps and minimize any back and forth with the SAs.
It’s the analysis results that help clients make investment decisions. So try your best to minimize the amount of time spent on doing work so you have more time to think about what the results mean.
Now let’s transition to a discussion on how you can maximize your relationships with parties within the equity research ecosystem.
Senior Analyst
Your Senior Analyst is your overlord and #1 customer. Your brand lies within the team. You will go on in your career being able to claim that you worked for John Smith at this bank. And if your counterparty has worked in this ecosystem, they know who John Smith is, and having worked for John Smith can help your credibility.
Ultimately, every analyst likes an associate who is good at getting the work done without much supervision. So the work should do the talking. That said, you are essentially working in a small business, so having a good personal relationship can’t hurt. Some schmoozing can’t hurt, know their birthday and stuff. Small things.
Never compromise accuracy to achieve efficiency. Pay attention to your analyst’s feedback on your work and always think about how to make your work product as a final deliverable as possible without any edits, saving time for everyone.
I got a question on whether ER adds value to the firm as a whole. ER adds value to the firm in many ways, but the big challenge is that bank management doesn’t see the impact quantitatively as historically ER has always been a cost center. The shortest answer is that ER helps banks sell other services, most of you know how ER helps investment banking.
As an associate, you don’t need to worry as much about adding value to the firm. Let your boss worry about that; you just focus on adding value to your boss and the franchise. Because if you like the boss and should your boss decide to move the franchise to another bank, you will follow her anyway.
Teammates
There are many setups here. You can be a sole associate. There can be a VP/Director. There can be multiple associates.
Try to make friends with your teammates. They have been on the team longer and can resolve information asymmetry for you. They know where files are stored on the shared drive, why your analyst did certain analyses five years ago, etc. They know all the quirks of your analyst and have the best tips on how to deal with them.
Everyone has different motives in this profession. You just don’t know what they are. When there is a disagreement within the team, especially with another associate, try to understand their motives. That will make you feel better.
I wasn't surprised to get multiple questions along the line of “infighting within a research team and how to gain visibility and avoid the backstabbing”. Yeah, this is always tricky. I can only try to make you feel better.
First, you need to understand that seniority on the team unfortunately means they have a head start on a relationship with your analyst, salespeople, and clients.
Two, your situation depends on how the analyst manages these conflicts. I could be wrong, but I suspect most if not all the time, the analyst knows there is infighting but is like your parents. Your parents have favorites but cannot let you guys know. And if the analyst has been in the business for a long time, I firmly believe they know which associate is intrinsically good and which one isn't.
And that means for you, you need to focus on what you can control, which is to know your stuff. Learn about your covered companies. Improve every day so you can add value to your team and to clients.
You just need to stay patient. Eventually, intrinsic talent wins over everything. That’s my belief. If it doesn’t work on this team, take your talent elsewhere when it’s the right opportunity.
Don’t waste time scheming ways to backstab others to get ahead. If your teammate is doing that to you, don’t sink to their level. Backstabbing might work better in traditional corporate jobs. However, in a skill-based profession, clients want to talk to people who know their stuff. Your time and energy are best spent on becoming better at your job.
To increase visibility in front of your analyst, let the good work do the talking.
To increase visibility in front of sales, be proactive in building relationships. I will discuss more in the next section.
To increase exposure to clients, be patient because it takes time for some of your teammates to leave and you will move up; that’s how this profession works. Focus on knowing your stuff and your companies, and eventually, it will be your time to shine.
If you want client access and you believe you are ready, go direct, especially to the clients who don’t use the sell-side. If your goal is to find buy-side jobs, position it as networking instead of soliciting businesses.
I will tell you my personal experience: My ex-teammate loves the sell-side research profession. On one hand, it drove me crazy because he has 20 ideas on more marketing-related stuff. As a closet buy-sider, I couldn't care less about this stuff. But because of such a dynamic, we work well together at times because I will let him run the show on public relation stuff while I go read another 10-K and chat with my closet buy-sider colleague on the hardline retail team.
However, if you are on a team where everyone is a closet buy-sider who wants to cover the same names with the highest client interest, you could run into conflicts. Every team’s dynamic is different.
And people behave in certain ways because of their motives. Find out what their motives are. It’s a way for you to develop empathy for why they are hogging client calls or want your analyst’s attention.
Network with prior associates for your analyst. I got job leads from my boss’ prior associates who are now wildly successful on the corporate side and on the buy-side. They, of course, also know how to deal with your analyst’s quirks.
They can also be good mentors. And it’s easy to initiate the conversation because you guys have the same master shifu.
Equity Salespeople
They are your channel to institutional investors and your “junior clients.”
If you are wondering why equity salespeople exist, check out my Equity Research 101 article. You've probably heard equity sales is a dying profession, but it's not going away because their high-touch approach to client service is needed when the client base is super fragmented: There are 8,000+ hedge funds and 500 mutual fund companies in the U.S. Each client wants a treatment like they are the most important client. It's impossible for your analyst to give the kind of dedicated attention to all of them, all at once.
Salespeople fill the reach gap. Be good to them because they are your team’s message amplifier. They create time leverage. On a good day, your boss can take 20 client calls. Each salesperson can make 30-50 calls to their clients. If 5 salespeople do that, 150-250 clients know about your boss’s note and might want to chat. It scales up your boss's reach.
In front of salespeople, you need to 1) demonstrate you know your company 2) find ways for them to know you exist on the research team 3) make them like you.
On the day your boss goes on the morning call, call salespeople you are comfortable talking to and ask to clarify their questions about your boss’s pitch. It's a good practice for you to answer questions on covered companies. These calls are touchpoints to help salespeople remember you. Over time, salespeople should connect you to smaller clients (if your senior analyst gives you exposure). That's how you build your own brand.
If your analyst doesn't allow you to talk to sales no matter how good you are, think about whether that's someone you want to work for.
If salespeople aren't clear about your analyst's pitch, they won't sell it to their buy-side clients. They will tell the client something unclear, or worse, they will sell another analyst's report that day. Spoon-feed salespeople the story you want them to say for maximum impact.
Be proactive. This is NOT an industry where "if you write it, they will read it"
If you are in the office, go to the trading floor on a Friday to say hi to the sales and trading people on a slower day.
At many shops, salespeople vote on research associates. Part of your performance is based on these "internal client" votes. It's important. Their votes on you have increasing weight in your review as you progress. They could vote for you because of your stock knowledge, but they could also vote because they like you.
Institutional Investors
Regardless of whether you want to serve them or work for them for a career, buy-side clients are where your brand lies.
Answer every client’s email and return every client’s phone call. Feel honored clients are choosing you to talk to for their needs when many of them have access to the entire equity research profession. Answer them promptly - every client wants to feel like they are a top priority. Some of the smaller clients can become big commission payers if they can scale. Cultivate every relationship.
Some clients just want to talk - be a good listener.
Give the generalists extra attention. You will have clients who know nothing about your sector. You have a chance to demonstrate relative sector expertise. If you can add value consistently to them, you can build lasting professional relationships.
Be a good listener when you serve sector experts because you are unlikely to know as much as they do. They have been right on many stock calls and you can learn from their pattern recognition.
You don’t have to respect all clients and all investment styles. But if you respect a client, understand their investment philosophy. You can check out my investment-style article to learn about all types of equity investing styles.
For example, if you are doing a call with a long-term investor, impress them with your depth of knowledge on the competitive position or deep knowledge about the business. You can make a strong impression with good preparation.
I got a question about how to speak confidently in front of clients.
The key to confidence is adequate preparation. If you know your stuff, you will be confident.
The salesperson scheduling the call will let you know what stocks the client wants to talk about. I would brush up on these stocks in terms of what has happened recently, what are the debates, and what your team’s view on the future is like and why. This is where knowing as much as you can comes in because you never know what the client wants to know about.
It comes with time as you are better prepared for the permutations of questions. After a while, you realize they usually ask the same set of questions. Then you should be more confident about doing future client calls.
There are always clients with questionable ethics who somehow still have a job in the industry. If they are probing for non-public material information, better to deflect than divulge.
Other research colleagues at your shop
They are your “support group”
The other sector teams' associates are invaluable resources for learning how to deal with your senior analyst or if you have any interpersonal issues within the team because they have their own team dynamics to deal with.
This might be me because I am curious about different kinds of industries and hoping to learn as many mental models as I can. Go hang out with the other sector's associates to learn about trends in their industries. It's good to be informed; you never know how something you learned from them can help you better understand your sector and the world.
If trading rules allow, you could invest in companies outside your sector and may find good ideas to invest in. I do caution you: Unless you are talking to a closet buy-sider, I would be careful about following their published opinions.
We saw SVB and Credit Suisse going through “big changes” - People get laid off or fired, especially in a turbulent environment like this. If your boss is let go, you might not lose your job, but you get "orphaned." The Director of Research will ask other sector teams to see who is willing to pick you up. You will be interviewed by other industry teams. If you are close with these teams, especially their analysts, you have a higher chance of getting a placement. You never know when the relationships you have built will pay off.
Relationship with investment bankers: I wouldn't worry so much as a junior equity research associate. You are not allowed to speak with investment banking colleagues unless compliance personnel is present. You just need to know stocks can get magically upgraded or your team picked up coverage on a company that doesn't fit into the theme of your analyst's coverage universe. These changes might be driven by "business needs" on the investment banking side.
Research Associates at Other Shops
When you go to an industry conference or an analyst day, you will bump into the competitor analysts, their associates, and clients. Building a relationship with associates who work for competitor analysts is another way to learn how to deal with your team’s issues. You also learn how to manage your career progress, if these associates are farther ahead of you on the career ladder.
They can help you ramp up your sector.
They are a good heat check on whether you are fairly compensated or which analyst within the sector is good to work for or is a mentor.
They provide job leads. Associates with direct sector coverage experience are incredibly valuable. You should be the first to know which competing analyst has junior turnover and can make a move should you choose.
If you change jobs within the sector, it’s always ugly because your analyst gets a massive ego hit when s/he loses a junior person to a direct competitor. When you give notice, you could lose your computer access immediately, and your analyst might never speak with you again. But you need to do what’s best for you.
Your associate peers will go on to corporate or buy-side or business school and provide perspectives on a career outside of equity research. Building that network can help in so many ways.
Company Management
As a junior, you don’t need to focus too much on company management, because most senior analysts own the C-suite relationships of covered companies.
However, remember not many 25-year-olds get to sit in a meeting with a Fortune 100 CEO and CFO. At least act appropriately: Don’t say anything stupid, and don’t reveal any confidential information. These are very powerful people, and your career could be over before it even begins.
Over time, you will need to build relationships with company management. While being a pleasant, charming person can’t hurt, the foundation of earning management’s respect is by knowing their business very well.
Observe how your analyst does it and leverage their toolkit to build strong relationships with management.
A small note from an ex-buy-sider: Remember the sell-side is a relationship job. You are not the short-seller, so don’t ask hostile questions.
Managing your performance
Sell-side analysts are great at their jobs, but most of them are terrible managers. Welcome to Wall Street, where people rise to the top and make big bucks for producing, not for leading or mentoring. They care too much about generating revenue to care about what you want for your career. You need to be your own people manager and hold yourself to a high standard if you want to succeed.
Becoming an Analyst is not for everyone, and that’s okay. You need to figure out your long-term goal and when to leave the industry.
Keep a mistake log: We are humans, and you will make mistakes. When you make a mistake, note it down in a log. At least you will never make the same mistake twice.
How do you know if you are progressing as a junior? After 2-3 earnings seasons, you should be familiar with how to do earnings, which means updating the model and writing the note.
Year two and onward: You should have a grasp of big industry trends and develop deep knowledge of major companies and know the metrics that drive the stocks. The rest is about knowing as many nuances as you can about the industry because, for most industries, the variant view is in the details.
For your annual performance review, many analysts ask associates to write their own reviews, which can be pretty useless. However, if your analyst gives you real feedback, note it down and incorporate it into your execution of tasks.
You should be vocal about what you want out of your time on the sell side, as long as it’s within the scope of the profession. You cannot say, “Hey, I want to learn how to be a better investor.” You have to learn how to be an investor on your own.
A more reasonable ask would be, “Hey, I think I can help you handle serving smaller clients,” or “I want more autonomy on deep-dive notes, but I want to be given credit with my name right below yours when it’s published.” Often, analysts are so busy getting pulled in 20 directions that they don’t know you are not developing or getting recognition.
When to jump ship
You have to leave equity research for the right reasons, and the following situations warrant an introspection on whether to stick with your current Analyst.
If your Analyst is conducting illegal or unethical activities, it's a no-brainer. Leave. You don’t want to associate with such a person.
Dealing with a mean person can be tough. If they don't make you better, leave. Otherwise, stick it out, learn actively, discover what your passion is, and make a move accordingly.
Work-life balance is also a tough one because ER is a grind. However, I don’t recommend jumping ship unless your work-life balance is impacting your personal health or your obligations to your family. If you’re not the Analyst, there's no need to stick with a job that demands 80 hours a week with no clear path to becoming a covering analyst while you just have a newborn and are getting paid less than $200,000.
If your analyst hoards all client interactions and does all the technical work, it's bad for your career development and brand building. Bring up the issue with the analyst at appropriate times. If they don’t change, leave.
The best leverage to negotiate compensation is another offer. If you are unhappy about a bonus and you are a performer, you can choose to look, but spots rarely open up. You have to deal with the uncertainty of new boss’ quirks. Quibbling over $20-30k in annual compensation doesn’t matter in the long-run.
The two-year mark is a general rule of thumb to start thinking about your exit if you already know you don’t want to do equity research for life. By that point, your technical skills are solid for many exit options, and you should have developed an understanding of a particular industry to be perceived as an industry expert.
Don't feel bad about leaving. If tomorrow your analyst were to become the head of investor relations for a Fortune 100 company, s/he wouldn't consider your career goals in her decision-making process. If your bank decides to cut costs, your feelings and livelihood are for sure not in their consideration. Everyone is for themselves on Wall Street, and equity research is no exception. Associates leaving is a feature, not a bug of the profession. The veterans have seen people come and go, and they should understand. However, you must leave for the right reasons and for the right role.
What are your exit options?
I got tons of questions on which exit options are "better." If you put a gun to my head, I would say the buy side has the highest financial upside. Keep in mind everything in life has trade-offs: The buy-side comes with the highest stress and instability, especially if you choose a hedge fund. If you don't add value, you will be let go. Both you and I know that plenty of people would love to take over your seat.
With that said, let's run through your options.
Investor relations: Your skills are transferable to this profession. You know what analysts are looking for, what the buy-side is looking for, and how management wants to message the company’s story. It's a natural transition and a move that even many senior analysts make when they want to slow down in their careers. Depending on the level of entry, you can just submit a job application, the head of a company's IR might poach you, or you can pitch yourself to the head of IR to source job leads.
Investment management (the "buy-side"): How transferable your skills are depends on what investment style you are pursuing. Given how frequently associates move into pod shops, I want to make a few things clear:
Pod shops are bottom-tier buy-side exits. I know associates who joined a pod shop, got blown up, and begged for their old job back after a few months.
Multi-managers are "top hedge funds" in scale, but you don't work for the platform. You will work for a pod under the platform.
Associates mindlessly pursue pod shops because their colleagues in different sectors went that route. A great analogy would be college students who start as pre-med, pre-law, or pre-business, only to graduate with some random major. If you do not work hard to figure out what your investment style truly is, you will suffer the consequences of your decision. The harder and better seats are the at-scale single managers ($1 billion+) and the long-only.
Another frequent question I get is: “How much time should I stay on sell side before going to the buy side?” It generally takes 1.5-2 years for the buy side to be receptive to your applications. The bigger question is: Are you ready to be a real investor? Have you bridged the gap between what you do on the sell side and how you need to think on the buy side? Some will never get there. Some were ready before stepping foot into their sell-side role. Just doing your equity research job year in and year out won’t magically make you a great buy side analyst.
Corporate: FP&A, Strategic Finance, Corporate Development and Strategy and Operations are most common exits. You need to convince your future employer because managers in companies might have never worked in financial services, so they might not know what equity research is. With enough effort to close the skill gap and tell the right story, you have a shot at all the exit ops on the corporate side that investment bankers and management consultants have.
Business school: As someone with an MBA, I want to make one point clear: those with clear post-MBA career goals tend to make the most of their MBA experience. Therefore, I highly recommend that you know exactly what you want to achieve from your MBA before you enroll. Saying something like "I don't know, maybe IB or consulting" is the worst answer that I have heard from at least 20-30% of my MBA classmates. If you're looking for a two-year vacation, then an MBA might not be the best choice. Instead, you could consider quitting your job and traveling around the world for two years, which could be cheaper than doing an MBA. The truth is you won't learn much in the classroom during your MBA. I spent most of my time in the library and worked at a hedge fund four days a week during my second year. I am sure I did MBA incorrectly by not having fun, but I made the most of my experience.
Thanks for reading. I will talk to you next time.
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Good that you use a funny approach in finances. Kung fu panda