Equity Research – A Career Path

Principles of Equity ResearchRole Entail Equity ResearchEquity Research imminence Hierarchy What will it do for you?Formula for success

AGENDA

Principles of Equity Research

Produce research/ideas/analysis (reports) and distributes it to their clients

Investment Governance Capital Structure Finance Market Economic Space

Buy Side

Sell Side

Money ManagersInvestment Managers

Stock/Bond Buyers

Strategist

Hedge Funds

Mutual Funds

Equity Funds

Internal Sales Professionals

(sales & trading desk)

Proprietary Trading Desk

Micro-view

Hedge Funds/MM

Equity Research Department

Sales & Trading Desk

= Think Tank

Internal Dynamics of Equity Research

Drawing on the global network of equity, fixed-income, international, economic and political analysis

Engage in primary and direct research in a coverage area as well as make investment recommendation

Gathering, analyzing, interpreting company and industry information

What do Equity research roles entail? ER&V Buy Side Research Sell Side Research

In depth company analysis In depth company analysis

Financial modeling Financial modeling

Meeting with company management & sell side

Meeting with company management & buy side

Recommendation of investments to portfolio managers

Recommendation of investments to portfolio managers

Preparation of detailed corporate/industry report

Preparation of detailed corporate/industry report

Screening for new ideas Industry specific expertise

Flexible hours Client driven

Earning seasons(increased hours) Dictated by earning releases

Travel pre-requisite

Analytical, creative skeptical and individual contributor

Ability to communicate and sell ideas

Strong communicator Public interaction and communication

Typical Activities

Typical Lifestyle

Typical Personality

Equity Research imminence

Industry research reports Company-specific reports Notes on importance events

– Industry and company related

Industry Research Reports

• Overview summary of the industry– Market trend/conditions

• Past and future outlooks– Current industry leaders and lagers

• Quality of the report shows the firm’s and analyst’s expertise within the industry

• This imminence will usually be associated with an initiation of a group of companies

Company-Specific RR

Company-specific RR fall into three categories– Initiation of coverage

• Company information, forecast model, and risk factors– Update

• Explain movement in the stock, change/confirm earnings estimate, news from management

– Change in rating

Company Specific Notes

Deal with short term events – Earnings release

• Update the forecast for model, qualitative trends– News item

• Could deal with lawsuit, legislation, spinoff, stock repurchase plan, etc.

– Short-term trade recommendation• Increasingly becoming popular due to HF client demand• Will often times differ from long term rating on company

Ratings

Downgrade (Underperform) Lower expected earnings power, diminished growth, turnaround plan suspect Hold (Neutral) Do not expect much growth, potential problems, analyst and market is wary, perform in line with group

Upgrade (Outperform) Better expected earnings, smart acquisition, beneficial long term trends starting to develop

Hierarchy

• Basic Structure – Associate is junior to Analyst– Who gets their name on reports?– Analyst runs the group

• Is the one in charge of making recommendations

• Within the Equity Research Department– Structure looks similar to banking– Not all analysts are MD’s– Most regarded talent sits on SSC

What a Career in Equity Research Will Do for You

• Strong training programs provide

– Practical and working insights of ER&V– Strategy, focus and positioning– Financial & Valuation Modeling– Industry/Company Analysis– Earnings estimate analysis & models– Market microstructure analysis – Stock valuation, scoring and ranking – Analytics, rank scores & signals for quantitative models– IPO model from scratch– Writing equity reports

• Most importantly, you’ll learn the nuances about stocks and its economics, how you can be a game changer in providing the well analyzed forecasts and its derivation

Formula for success

• Work hard & learn quickly• Comp skills (Word, Excel, PP)• Good writing skills are mandatory • Good communication skills• Good listeners and ask questions• Enjoy analyzing companies and be diagnostic

Learning embarks CharacterCharacter embarks Destiny

Thank You