Equity ResearchIns & OutsPeter J. KeithMBA 2005Michigan Business School

Research AnalystSell-side ResearchCover 7 12 related companies within an industryUnderstand industry/companies better than anyone else in the countrySpeak to management, customers, suppliers, etc.

Research Analyst (cont.)Provide written commentary and company/industry opinions to the buy-sideIdeas and insights are passed on to Sales for mass distributionFrequent interaction with buy-side clients via phone or office visits

How It All Works, and How the Sell-side Makes MoneySell-sideBuy-sideAnalystSales DeskPortfolio ManagerOr AnalystResearch analyst has information on Q4 Housing Starts, which will be a boon toHome Depot and Lowes.Information is given to Sales desk during morning call. Sales Desk calls Buy-side Client with Analyst recommendation

How It All Works, and How the Sell-side Makes MoneySell-sideBuy-sideAnalystSales DeskPortfolio ManagerOr AnalystPortfolio manager discusses idea with Sales Person. Is interested in getting exposure to the group; cant decide between HD or LowesPM calls Analyst to discuss HD and Lowes. Analyst provides opinion on which is a better Buy right now

How It All Works, and How the Sell-side Makes MoneySell-sideBuy-sideAnalystSales DeskPortfolio ManagerOr AnalystBuy-side traderBased on Analyst feedback, PM decides to buy shares of Home Depot. Calls her firms trade desk, places order for 100,000 shares. Tells trader to buy stock through Sell-side firm

How It All Works, and How the Sell-side Makes MoneySell-sideBuy-sideAnalystSales DeskPortfolio ManagerOr AnalystBuy-side traderTrade DeskBuy-side trader calls sell-side trade desk and places order for 500,000 shares of Home Depot. Sell side trader works the order. Finds seller of 500,000 shares at $50, takes shares and sells to Buy-side desk for $50.04.

How It All Works, and How the Sell-side Makes MoneySell-sideBuy-sideAnalystSales DeskPortfolio ManagerOr AnalystBuy-side traderTrade Desk$20,000Commission of $20,000 on HD trade is split amongst the three areas that contributed to the trade (Research, Sales, Trading).

Equity Research - TeamsMost teams have 2-5 peopleSenior Analyst / Managing Director2 Associates (MBA or CFA)1 Analyst (2 years out of undergrad)Teams are located at firm headquarters (typically NYC)Some teams located in other areas for strategic reasons (e.g. San Francisco = Software)

Equity Research Summer InternshipWork with one Senior Analyst / team for entire summerStructure of summer dependent on needs of Senior AnalystExample projects:Initiation ReportIndustry ReportEarnings calls and additional guidance reports

Day In the LifeAnalysts typically work 12 hour days (7 am 7 pm)Pre-market opening: communicate with internal staffMarket hours: speak to clients and communicate with companies under coverageAfter market hours: write research reportsSenior Analysts have much interaction with Buy-side (e.g. company roadshow: bring CEO of company around country to meet with top buy-side clients)

Equity Research Typical Career PathNo typical career pathOne example:Work on team as Associate for three yearsPromotion to VP, begin coverage of own companies (2-4 names)After two years, boss jumps to a competitor. Analyst is promoted to Senior Analyst and takes over coverage of entire group

Equity Research Career Path (cont.)Many different options later in lifeWork as analyst for 20 yearsMove to buy-side, eventually become PMMove to SalesWork in Industry (i.e. become executive at Software firmBottom Line: many options are available. People coming out of a strong research shop are highly regarded

Equity Research What Banks are Looking ForIntelligenceAnalytical SkillsStrong writing skillsAbility to work in teamsStrong interpersonal skillsPassion and interest in the market

Be able to have an opinion, and back it up!