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Thoughts on a Sell-Side Equity Research Job?


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Hi all.  I'm considering getting a job as an (entry level) sell-side equity research associate.  The position is for one of the top ranked teams for the industry it focuses on, according to Institutional Investor.

 

Any thoughts on this?  I was thinking that doing sell-side research for a few years or so would really help me gain a solid understanding about how to do depth focused research, when it comes to specific companies and the industries they're in.  I could then leverage this skill later on when doing more breadth focused activities either in a buy-side position (at a value investing firm, of course) or for myself.

 

Honestly though, I have no real world experience or knowledge about sell-side or buy-side research.  So I'm only guessing doing sell-side research is going to help me with my practical value investing skills (and hopefully give me a better chance of switching to buy-side research later on.)

 

Is my thinking correct, or am I missing something somewhere?

 

Thanks for your help on this!

 

(Btw, I would immediately jump into a buy-side position, but I don't think my analytical skills are that great at this point.  I've done the first two levels of the CFA exam and have done a good amount of accounting courses, but that's about it.  And the only reason why I think I'd even get the sell-side job is because I know a lot about the industry the position focuses on.  That and I think the CFA stuff would help me at least get an entry level position.  Maybe I'm wrong.)

 

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It was my understanding that while sell-side Equity Research guys sometimes answer questions for clients working with brokers, they spend most of their time doing actual research, talking with the management of the companies they cover, etc.  Basically all the things you'd do on the buy-side, just without the "buying" part.  And little to no selling, despite the name.

 

Am I mistaken about this?  I hate to pester the board about this again, but I really would like to hear what people think about this.  I'd love to break into the investing industry, but considering the jobs for entry level guys, this seems like the best bet.  Is there something I'm not thinking about?  Or anything else?  This is a big career decision for me, so if you have experience with this, I'm all ears if you have opinions :D

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It was my understanding that while sell-side Equity Research guys sometimes answer questions for clients working with brokers, they spend most of their time doing actual research, talking with the management of the companies they cover, etc.  Basically all the things you'd do on the buy-side, just without the "buying" part.  And little to no selling, despite the name.

 

Am I mistaken about this?  I hate to pester the board about this again, but I really would like to hear what people think about this.  I'd love to break into the investing industry, but considering the jobs for entry level guys, this seems like the best bet.  Is there something I'm not thinking about?  Or anything else?  This is a big career decision for me, so if you have experience with this, I'm all ears if you have opinions :D

 

You're not mistaken (assuming the big banks). There is almost no selling involved. You got other Sales guys for that. You might meet some clients but usually it is the lead analyst(s) that actually meet buy-side clients. You do get to meet company management and attend nice conferences.

 

It's a great way to gain experience and after a few years transition to the buy-side.

 

 

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It's definetly a great way to build your resume for future positions on the buyside. But be warned, from my experience interviewing with a couple sellside shops, a majority of them are the furthest thing from value investors. A lot of the focus in my opinion is relatively short-term. On the  flip side, you can build some solid industry connections.  I would also look at a corporate credit/lev.fin role at a reputable shop.

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Having been on both the institutional buy side and the investment bank sell side as an analyst, I can offer you some perspective.

 

This is not the most ideal way of getting experience, but if you think it is your only opportunity of getting experience then by all means take it.  It will give you an insight into the way sell side works and some of the shenanigans that goes on there.  The most ideal experience would be to get into a buyside institution with a value bias and absolute return orientation but I understand that this could be very competitive.

 

The sell side associate position tasks will consist of updating excel models, formating and writing research for publication, powerpoint presentations, attending to client requests / questions and other support for the lead / marketing analyst. They will also want to use you for your industry knowledge, and industry contacts. You will also get to go to morning meetings where sell side research pitch their ideas to the internal sales force. You can learn by just listening / absorbing everything you can not only from your lead analyst but other lead analysts for other sectors / industries.

 

Remember the investment bank / sell side is in the business of generating revenues, the lead analyst is interested in getting ranked number 1 (as this raises their compensation).  The investment bank wants their analysts to be "commercial" - a euphemism for reducing hold ratings as they do not generate commissions for the investment bank.  This is the reason they generally prefer buy ratings, because all investors can buy.  Sell ratings are only available to a smaller investor population - those who already own the stock and those who can short sell the stock. 

 

You may also want to investigate if your analyst is known for promoting IPO's - such sell side analysts are basically stock promoters masquerading as analysts - their analytical ability may not be strong but their marketing / presentation skills are very good.

 

Being a highly ranked analyst is a popularity contest (there is an Institutional Investor magazine survey which is conducted each year and it has been known to have been "influenced" in Asia) - more a function of how much marketing the analyst has done and not about the quality of their analytical rigor. If your analyst is highly ranked they will generally be on the road marketing to clients and you will be doing a lot of the work for them. 

 

I would call sell side analysts "market analysts" - they are trying to correctly guess the short term market price movement of the stock and less concerned about the longer term intrinsic value of the company.  This is due to the fact that most of their clients are institutions who have short term investment horizons - mutual funds which report monthly performance, hedge funds which report monthly performance to their investors etc.  Some analysts have a great following from buysiders that they can influence the stock price.

 

If you decide to take the position, you must be aware of the shortcomings of the sell side and discount these when becoming a true value investor.  I took the sell side job as an opportunity to learn everything in sight, but I discounted a lot of these when I joined the buyside such as sell side ratings, sell side valuations.  Something that you will unlikely hear when a sell side analyst is asked a question is the following response "I don't know"- they are more likely to give some BS answer to appear knowledgeable to the client - trying to sort out fact from fiction can be difficult, which is why I tended to discount their verbal answers.  The sell side do not search for the investment truth which is what you are looking for when you are on the buyside or investing money.  There is definitely more spin on the sell side, trying to find new ways to pitch the same stock idea, trying to find new valuation techniques to justify their ratings .... 

 

It's all part of the game ...

 

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I interact with a lot of sell side analysts and do a decent amount of calls with them.

 

I don't think starting out in equity research is a bad gig. People like to make fun of analysts for their price targets and I agree, those are generally not too great (they tend to be very short term-focused). But some analysts really have a great, in depth knowledge over the industry they cover and I enjoy reading their stuff.

 

When I talk to analysts, I'm much less focused on asking them about valuation and instead use most of my calls to learn how industries work. For this, they tend to be very good.

 

 

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When I talk to analysts, I'm much less focused on asking them about valuation and instead use most of my calls to learn how industries work. For this, they tend to be very good.

 

In my limited interaction with sell-side analysts, I'd agree with this. And kiwing100's post is excellent. I've never had a sell-side job, but his last two paragraphs are spot on.

 

Best,

Ragu

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kiwing100 is right on the money! Phenomenal answer!

 

If understand correctly that you are entry-level, then you need to get any job you can to get in the door. Sell Side Equity Research Associate is OK to start. You need experience period. However really read kiwing100's answer a couple of times to understand what you would be getting into.

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When I talk to analysts, I'm much less focused on asking them about valuation and instead use most of my calls to learn how industries work. For this, they tend to be very good.

 

In my limited interaction with sell-side analysts, I'd agree with this. And kiwing100's post is excellent. I've never had a sell-side job, but his last two paragraphs are spot on.

 

Best,

Ragu

 

Agreed. In general, sell-side analysts have a great deal of understanding of the companies, and probably have a good sense of the intrinsic value of businesses. Unfortunately, they're paid to figure out where the price of a company will trade at in 12 months.

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Thanks guys!  Especially kiwing100!  I really appreciate the help.

 

It really sounds like sell-side isn't that great.  I guess if it's a necessary evil to get to the next phase, I can do it.  But honestly, I'm not someone who's very comfortable BS-ing answers to people when the real answer is "I don't know".  And I'm not really big on selling products I don't believe in myself...

 

Maybe I should try harder to find a buy-side job...

 

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Sometimes I think that people don't live in the real world. Of course in a perfect world you should hold out for a better job or the job of your dreams. But very few people live in a perfect world. Take the bird in the hand and learn what you can from it. Make some money. Make some contacts. While doing all of this keep your line in the water and keep fishing for a position you would like better. I don't care which shop you would be at. Almost always better to land a new spot while employed than not. You can always tell the buy side that after X years on the sell side you are certain it makes sense for you to switch over and you would be seen as knowing what you're talking about. Just my 2 cents.

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Sometimes I think that people don't live in the real world. Of course in a perfect world you should hold out for a better job or the job of your dreams. But very few people live in a perfect world. Take the bird in the hand and learn what you can from it. Make some money. Make some contacts. While doing all of this keep your line in the water and keep fishing for a position you would like better. I don't care which shop you would be at. Almost always better to land a new spot while employed than not. You can always tell the buy side that after X years on the sell side you are certain it makes sense for you to switch over and you would be seen as knowing what you're talking about. Just my 2 cents.

 

I think you're right.  At this point, the focus is getting *into* the industry.  Not getting the perfect job.  That can come later, once I can show people that I really know my stuff.  And once I really do know my stuff, of course.

 

Thanks Kraven.

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Sometimes I think that people don't live in the real world. Of course in a perfect world you should hold out for a better job or the job of your dreams. But very few people live in a perfect world. Take the bird in the hand and learn what you can from it. Make some money. Make some contacts. While doing all of this keep your line in the water and keep fishing for a position you would like better. I don't care which shop you would be at. Almost always better to land a new spot while employed than not. You can always tell the buy side that after X years on the sell side you are certain it makes sense for you to switch over and you would be seen as knowing what you're talking about. Just my 2 cents.

 

I think you're right.  At this point, the focus is getting *into* the industry.  Not getting the perfect job.  That can come later, once I can show people that I really know my stuff.  And once I really do know my stuff, of course.

 

Thanks Kraven.

 

Sure. It isn't easy to get one of these positions. Holding out makes no sense to me. That being said all the negatives about the job are spot on. You'll be a yes man. You'll be a grunt. The job will suck. Know what that's called?  Being the junior guy. It's no different anywhere. All junior jobs suck. Gotta start somewhere.

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There are other alternatives you may want to consider.  You can invest your own account and gain experience that way keeping your existing job.  There are some folks on the board doing that right now.  This will allow you the freedom to invest where you want not where the client wants.  In some cases explaining why you are buying the cheap unloved stock to a client takes more effort than selecting the stock.  I have done this and would not want to explain to someone why their money is in LinTV and Alliance Healthcare and the high weights in the portfolio.  To a certain extent even when you get to the buy-side, you will be constrained by the buy-side firms constraints.  There is a reason why mutual funds (even good value oriented funds) have a hard time beating the market by a significant amount, it's their constraints (including size).  If you beat the index by a few percentage points you are considered a genius under these constraints.  If you do your own account approach, you don't have those constraints and achieving better than market performance can be easier.

 

Second, you can enter a field that is related where there is good demand but not as much supply.  Business valuation is one area right now where that is the case.  But as with a sell-side analyst you will be starting at the entry stage and it will take 18 to 24 months before you can start to feel confident in performing the analysis on your own.  Just some thoughts.

 

Packer 

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Maybe I should try harder to find a buy-side job...

 

I would just say this -

 

The traditional routes into the buyside typically come from either working ibanking or equity research. They typically stick around for two years and then leave.

 

There are some people on this forum that took a non-traditional route to start managing money, but they're really the exception, not the rule and as a result they tend to have a skewed perception on this kind of thing.

 

 

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Sure. It isn't easy to get one of these positions. Holding out makes no sense to me. That being said all the negatives about the job are spot on. You'll be a yes man. You'll be a grunt. The job will suck. Know what that's called?  Being the junior guy. It's no different anywhere. All junior jobs suck. Gotta start somewhere.

 

Agreed.  But as long as I'm learning... well, I may not always be happy with the job, but at least I'll be learning!  And I'm perfectly fine with enduring a little bit of pain today as long as I end up better off tomorrow!

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There are other alternatives you may want to consider.  You can invest your own account and gain experience that way keeping your existing job.  There are some folks on the board doing that right now.  This will allow you the freedom to invest where you want not where the client wants.  In some cases explaining why you are buying the cheap unloved stock to a client takes more effort than selecting the stock.  I have done this and would not want to explain to someone why their money is in LinTV and Alliance Healthcare and the high weights in the portfolio.  To a certain extent even when you get to the buy-side, you will be constrained by the buy-side firms constraints.  There is a reason why mutual funds (even good value oriented funds) have a hard time beating the market by a significant amount, it's their constraints (including size).  If you beat the index by a few percentage points you are considered a genius under these constraints.  If you do your own account approach, you don't have those constraints and achieving better than market performance can be easier.

 

Second, you can enter a field that is related where there is good demand but not as much supply.  Business valuation is one area right now where that is the case.  But as with a sell-side analyst you will be starting at the entry stage and it will take 18 to 24 months before you can start to feel confident in performing the analysis on your own.  Just some thoughts.

 

Packer

 

I've thought long and hard about working at a non-investing job while doing investing in my spare time.  For example, the SF startup market is on fire right now and doing a startup is something I've always wanted to do.  (That and software engineers are getting paid bank right now. :D  Although it's my guess that salary levels are not going to persist at the levels that they're at right now for more than an another year or two... but I digress.)

 

So it's my understanding that in order to do something like work for a hedge fund, you've got to be involved in the industry at a pretty young age and work your way up.  I'm not 100% sure that working at (or running) a hedge fund is what I really want to do.  However, I'm young-ish and really don't want to worry about thinking "What if..." ten or twenty years from now.  So I figure doing equity research for a few years isn't a bad way to test the waters.  Worst case scenario, I hate it (unlikely :D) and I go back to my old career and do investing in my free time :).

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There are other alternatives you may want to consider.  You can invest your own account and gain experience that way keeping your existing job.  There are some folks on the board doing that right now.  This will allow you the freedom to invest where you want not where the client wants.  In some cases explaining why you are buying the cheap unloved stock to a client takes more effort than selecting the stock.  I have done this and would not want to explain to someone why their money is in LinTV and Alliance Healthcare and the high weights in the portfolio.  To a certain extent even when you get to the buy-side, you will be constrained by the buy-side firms constraints.  There is a reason why mutual funds (even good value oriented funds) have a hard time beating the market by a significant amount, it's their constraints (including size).  If you beat the index by a few percentage points you are considered a genius under these constraints.  If you do your own account approach, you don't have those constraints and achieving better than market performance can be easier.

 

Second, you can enter a field that is related where there is good demand but not as much supply.  Business valuation is one area right now where that is the case.  But as with a sell-side analyst you will be starting at the entry stage and it will take 18 to 24 months before you can start to feel confident in performing the analysis on your own.  Just some thoughts.

 

Packer

 

 

Hi Packer,

 

What are the necessary qualifications to make a switch into business valuation? Masters in Accounting or CFA? Appreciate any guidance.

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The main source of our hires is from MBAs.  We do hire non-MBAs but that is for our research support function.  Accounting is relevant but finance is more important.  PM me if you want to discuss in more detail your situation. 

 

Packer

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I would say either one as far as I know.  I used to work for a Big 4 over 10 years ago and MBAs were there main recruiting place for associates.  It is not the only way but it is the most common.  Clients include corporate, hedge funds, banks or HNW individuals and their advisors (lawyers, tax advisors and accountants) depending upon engagement.

 

Packer

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If you don't want this job, Can I apply? I'd love to work in an SS ER job just to get an entry.

 

No one's stopping you. :D

 

Honestly, I just googled "equity research" and found the job through one of the sites that popped up.  (And the sites all used that geolocation stuff to know I was located in the Bay Area so I just got Bay Area results).  There were plenty of jobs that popped up, but only two that really intrigued me.  (And I'm not going to talk about the other one.  :D)

 

I'm sure if you google "equity research" + "New York" or "Toronto" or "San Francisco" (actually, stay away from that one; that's my territory!) plenty of stuff will pop up.  And, for better or for worse, almost of all of it will be sell-side positions.

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