A Guide to Becoming a World-Class Equity Research Analyst
1. Profiling an equity research analyst
a. Who is an equity analyst?
An equity analyst is a person who studies and analyzes financial data and trends for an organization or an industry. An equity research analyst reviews stocks, bonds, and other financial instruments and writes an unbiased, honestequity research report.He studies public records of organizations in order to forecast the organization’simpending financial needs. He writes reports on the organization’s finances and defines the business’s investment potential by assigning financial ratings, such as buy, sell, or hold. He is also accountable for analyzing the financial ...view middle of the document...
In a typical hedge fund or asset management firm you have 1 head person taking the decisions and everyone else below him/her implementing and trying to come up with different ideas. There is a quasi-mid-level where you could have senior analysts and then just analysts, but it’s much less categorized than say, Investment Banking. Equity research is more about how good you are at servicing clients and giving insightful ideas – here we don’t need an assembly of people as you do with Mergers & Acquisitions deals. There are usually 2 – 3 Associates and 1 Senior Analyst on each sector/industry team – so if we’re covering 20 companies, each associate might be covering about 5 companies.
c. Where can you work?
As an equity analyst you would typically work in a brokerage house, analyst or securities firms, equity or security investment firms, commercial or retail banks, NBFCs (non-banking financial corporation), insurance companies, mutual or pension funds, or other such financial companies.
As an equity research analyst you will have to work on both the sell side as well as the buy side. As a sell-side analyst you will typically work at an investment bank or with an independent research company, whereas as a buy side researcher you typically will be workingwith hedge funds or investment management companies.
On the sell side, your research will be driven by stock performance and you will have to develop cash-flow models and earnings of the organizations you follow in a particular sector or industry. On the buy side, you will most likely follow some 30 to 40 companies in two to three different sectors or industries. Here, you will have to focus more on providing relevant insights to the portfolio managers who are managing investments for the client.
Equity research analysts can find jobs through professional recruiters or job consultants who specialize in recruitment in the financial industry. Job bulletins and classified advertisements are supplementary methods for finding appropriate jobs in this field.What prospective employers really seek is for your intangible skillsets to be made tangible. This realization should empower you significantly, because with this framework, you can concentrate on giving concrete proof that you have the skillsetrequired for being an effective and good analyst.
d. How to give good Interview and get a job
When applying for jobs with these firms, remember that while cover letters for your CV might be just a formality for some other job positions, in this scenario they're a reflection of your writing skills. Don't underestimate the importance the company’s Human Resources will give to them.In addition to the standard Human Resources generated interview questions, be ready to speak about stocks you like and explain why you like them. Frankly speaking remember one important thing - The stocks you choose don’t matter as much as the thought process behind the choice, and what explanation you provide.You will have to be...