How to get into Equity Research? So you would like to get into equity research! You want to analyze financials, look at the annual reports of companies, forecast about the nearest future, do financial modeling, and explore various scenarios to choose the best one to buy/sell.
I used to work with JPMorgan and CLSA India as an Equity Research Analyst. I confess that finding a job in Equity Research is a difficult challenge, but definitely not impossible. In this guide, I will lay down step by step method to get your first entry level job in equity research.
In this article, we will talk about –
- Understanding Equity Research Profession
- What is the role of Equity Research Analysts?
- Educational Qualifications Required for Equity Research
- Required Skills for Equity Research Role
- Equity Research Compensation & Work-life balance
- Strategies to get into Equity Research
Understanding Equity Research Profession
Equity research is a profile which helps investment banking division of a bank. Equity research professionals produce analyses, create recommendations and suggest right investment opportunities to institutions, investment banks, and clients. If you would like to be an equity research professional, you can either be on the sell side (the investment banking wing) or on the buy side (the institutional wing). Or else you can work in an independent organization.
Unlike corporate finance, equity research professionals work in a very flat organizational structure. And there are only four main positions – Head of Research, Senior Analysts, Associates and Junior Analysts. In equity research, associates are junior people who work under Senior analysts. In most of the cases, few associates work under one Senior Analyst and report to him/her.
A Senior Analyst usually analyzes a huge number of companies and delegate the work to associates. Analysts are split into different industry segments and each analyst normally has the specific industry knowledge to handle the whole gamut of companies. Mentionable sectors that come under equity research are mining, telecom, consumer staples, healthcare, technology etc.
So, How to Get Into Equity Research? Look out for entry level roles – Associates and Junior Analysts.
What is the role of Equity Research Analysts?
As an equity research analyst, your main work is to produce reports. The report can be updated within short notice, flash reports or reports that are very detailed and in-depth. If you want to make a ruckus of your career as an equity research professional, your job is to create reports all the time.
Usually, reports can be divided into the following heads – research of the industry, overview & commentary of management, financial results based on historical data, forecasting, valuation, & finally recommendations.
I think the best way to get an answer to this question is to see the actual output of Equity Research (Equity Research Report). Below is a sample Research Report prepared by us when I was at CLSA , we downgraded Reliance Petroleum. We saw an excellent response to this report in the market. Reliance Petroleum Stock tumbled by 18% in just 1 day.
Click here to know more – Reliance Petroleum Downgrade
source: CLSA Research Report
Educational Qualifications Required for Equity Research
How to Get Into Equity Research – If you want to get into equity research, you better decide in advance. Otherwise, the career path would become a little tricky.
Let us have a look at a typical job posting for an Equity Research Associate.
The basic educational qualification is a bachelor’s degree, preferably in finance, economics, accounting or business administration. However, if you have a degree in mathematics, physics, statistics or engineering, you are good to go. You can also do graduation in other streams, but then you need to take additional courses/training to understand financial analyses and financial modeling.
With a bachelor degree, you can directly get into equity research and will report to a senior equity research analyst. You can still do the masters if you want to, but it will not always pave the way to become a senior equity research analyst. But with a master degree, you can become a fund manager or progress in any portfolio position.
If you would like to go for any additional qualification, then the best is of course Chartered Financial Analyst (CFA) qualification. To be certified as CFA, you need to complete four years full-time employment in relevant field (read finance) and you need to clear three levels. Usually, the second and third levels are toughest. But if you can clear CFA, you will be able to reach a much higher position within the firm.
Required Skills for Equity Research Role
How to Get Into Equity Research – There are few key skills that you must develop if you want to make your mark as an equity research professional.
Let’s see the most important skills of equity research professionals below –
- Written communication skill: This is by far the most important skill of an equity research professional. As we have already mentioned that creating all sorts of reports is the chief task of an equity research professional; having a great written communication skill is imperative. To be able to write reports within few minutes or after analyzing a company’s financial statement, you need to choose words that convey the exact meanings. As an equity research professional, you will be a researcher and writer at the same time.
- Verbal communication skill: As an equity research professional, you need to face media quite often. So if you don’t know how to speak or present ideas in a concise manner, you will be in difficulty. Make sure that you prepare yourself to speak words that are crisp, user-friendly and convey a message that’s worth listening to.
- In-depth knowledge of Finance and Accounting Skills: These are micro-skills you need to develop if you want to make your mark as an equity research professional. You need to know how to look through the annual reports of a company, how to interpret financial statements, how to understand whether a company is creating enough cash flow and how the decisions of management are affecting the revenue generation procedure of the company. To do these, you need to have knowledge and financial skills which you can develop by practice and voracious reading.
- Macro & Microeconomics: In economic research, the most important ingredient is the knowledge and understanding of macroeconomics. If you know how industry works, what are the trends of the industry or key political or socio-cultural issues that are affecting the economic affairs of the industry; you will be able to view every industry holistically. And if you know microeconomics, you will be able to relate it at a micro level as well. Also, look at Macro vs Microeconomics
- Financial modeling: You will always not build financial models, but you may need to create some to cite proofs of your recommendations. As a financial modeler, you need to be a specialist in finance and generalist in economics and mathematics. You should understand every industry from a helicopter view as well as look at each business from pixel view. And you should know how to build a complex financial model so that you can convince your clients/investors to go for/abstain from a particular investment. You may also consider Financial Modeling Course to learn this skill.
- Research: As you can guess from the name of the career, research is an essential part of an equity research professional. As a skill, you would be a good researcher when you have two basic mini-skills – first, an excess amount of curiosity about a particular industry or a sudden change in the industry; second, you know how to ask important questions. If you can develop these mini-skills, you will be able to do a great research and not only you will answer questions you have; you will also be able to answer questions of other people.
- Valuation: Along with that you need to know how to value a company or a project by using different methodologies like DCF, relative valuation method etc. You should have enough knowledge to apply the right method of valuation in the right area.
- A lot of flexibility: This is one of toughest skills to master. But as an equity research professional, you may need to write a report right away within a moment’s notice. Or maybe you need to build two financial models at the end of the day because your analyst asks you for a report to be submitted immediately. As an equity research professional, you don’t know how your day would look like. Having a flexible attitude and being open to acting in a moment’s notice separate an ordinary equity research associate from a great one.
For more details, please refer to Top 5 Equity Research Skills
Equity Research Compensation & Work-life balance
How much would you make as an equity research professional? In the previous era, equity research professionals used to rake in millions; but nowadays things have changed and they have been earning a compensation that is normal and as similar as front office investment banking jobs.
However, that doesn’t mean that as equity research professionals, you will earn chicken feeds. No, your compensation would be much better than normal corporate finance profiles.
Let’s have a look at the compensation of equity research professionals at different level –
- Associate: This is the entry level or junior most position in equity research. The basic range of salary that the associates receive is $100,000 to $150,000 per annum. After adding the bonus, the take-home compensation for associates ranges from $125,000 to $150,000 per annum.
- VP: In a flatter organizational structure, associates report to analysts or VPs. People who are at VP position earn a basic salary of $150,000 to $275,000 per annum. With bonus, they earn around $225,000 to $375,000 per annum.
- Director: Directors’ basic salary ranges from $250,000 to $350,000 per annum. With bonus directors earn around $400,000 to $675,000 per annum.
- MD: Managing directors earn the most in equity research. They earn the basic compensation of $400,000 to $600,000 per annum. With the bonus, their salary reaches a range of $700,000 to $900,000 per annum.
The salary structure of each of the position is basically dependent on certain factors. Let’s have a look at them one by one –
- The performance of the individual: This is by far the most important factor responsible for your compensation. If you have been exceeding expectations of the management year after year, naturally you will earn much more than an average performer.
- Rankings: It is the rankings given by the investors on the buy-side. Did your investors earn more because you ask them to buy? If yes, it will directly affect your compensation.
- The performance of the call you made: What you said to the investors is equally important in increasing/decreasing your compensation. If you have asked the investor to buy the stock before the price triples, you will definitely be receiving a better pay.
- Trading commissions: Your compensation will also depend on how much commission your reports and recommendations have generated.
Also, have a look at Equity Research Jobs
But what’s about work-life balance?
As equity research professionals, you will be working minimum 60-70 hours a week. Usually, you will come at 7:30 a.m. into the office and will leave at 7:30 p.m. Typically you will work 12 hours a day which will turn out to be 60+ hours a week.
However, you may also work more because there are no fixed timings for equity research professionals. Some days you need to work 14-15 hours and most of the days you will be able to finish your work under 12 hours.
Having said that, as equity research professionals, you will be able to maintain a healthy work-life balance and you will also earn more than most of the finance professionals.
Strategies to get into Equity Research
How to Get Into Equity Research? Here are few things you can do –
- Know the market: No matter where you are in your career right now, you can still get into equity research if you can learn the required skills and train yourself. But the first step is to know the market and find out whether you would really want to do it at the first place. You can consider taking this Equity Research Training. This will equip you with all the necessary skill set to crack any Equity Research Interview.
- Do the basics: To get into equity research profile, you need to have three things. First, you need to have in-depth knowledge in finance (if you’re not an older candidate consider doing the bachelor’s degree in finance or similar stream). Second, go for a couple of internships in junior positions in reputed organizations. If you are not able to find out any internship, offer to work for free for 2-3 months. Third, network, network, network. Talk to someone who is already in the industry; offer value and share your desire to get into equity research. Networking alone can do wonders for you.
- Prepare and apply: Once you get a couple of interviews for equity research profiles, prepare yourself and do whatever you can to give your best shot. Even if you don’t clear the interview in one go, keep pushing. You will learn how to crack the interview after a couple of failed attempts.
- Register for CFA Exam – In order to boost your resume, you should consider taking CFA examination. Even if you clear CFA level 1, it gives a positive impression on the employers about your interest in the subject.
- Stick to the profile for at least 2-3 years: You can always switch if you want to. But once you get an associate position, it’s better to stick to the profile for at least 2-3 years and see whether you can get promoted as an analyst or not.
The educational requirement for equity research profile isn’t much. However, you need to have multiple skills to crack into the job. Use the above information and take the first step. The whole world of equity research is waiting for you.