Monday, 28 January 2013

How To Become An Equity Analyst

I get this question all the time from younger folks wanting to get a foot into the financial markets. When we talk about investment banking, we are talking about equity analysts, sales traders and investment banking (corporate finance included) primarily. IB basically are the guys (gals) who meet with company owners listed/private and getting them to do deals which may include listings, corporate exercises such as rights, warrants, bonds, placements and/or M&A deals. Sales traders are the new fangled name for institutional dealers of the past. Sales traders deal with flows from clients, placements and basic buys and sells orders. It can get tricky with switching strategies, reweighting and ability to take on positions on books. I will talk about the IBs and sales traders in later postings.

Today its how to be an equity analyst. The easiest way, well not really easy, is to get a good degree from a good university. The named universities such as the Ivy league, plus the LSE, Oxcam or Sydney University or Melbourne University is a start. There are the second tiered ones such as Monash University, UNSW ... and you must score well. Most top houses will at least grant you an interview.

The most important subject to take is accounting. If you don't like accounting, forget it. You must be very good at Excel, if you hate spreadsheets, this is not for you. Get your niche early, know one or two industries very well.

If you are like me, screwing around during university and getting so-so results, there are plenty of ways to get your foot in as well.

a) Get a good internship - Use your contacts, your network, hope your parents know some BSDs at some investment banks. An internship at any top 10 brokers would do well on your resume. If you get your internship, don't just do what's been told to you. Ask around and get to know the BSDs in the right department. Hint that you want a starting position when you graduate, failing which, its OK to beg.

b) Do your CFA - This is the best route if you come from a university not in the top 100, and/or your results are so so only. Once you land a "business type" position, enroll and try to pass all the papers. It always look better if you can put in your resume, passed CFA Level 1, completing Level 2 etc... May not get you into the top 10 houses but getting into a local one even is a foot in. Get your foot in first.

c) Specialise - Do you want to be an equity analyst because you heard it pays well, or do you have a passion for analysing industries and companies? If its the former, you'd probably won't make much of yourself even if you get in. All analysts end up covering one, two sectors at most. Do your research, you can go the indirect route by specialising in plantations or banks, or semiconductors or technology, or mining etc... If you have spent 3 years at a plantations firm doing relevant work, you will be familiar with the parameters for that industry, what they look at, how to get the data and make predictions. 

To be an analyst in Malaysia is a small thing, if you can, work yourself into a regional position. Know the regional stocks as well. The big money is in becoming a regional something. You may have to move to HK or Singapore for those roles, except if you are in plantations, which you can basically look at companies in Malaysia, Indonesia and Singapore. The best paid person in IB, for sure is the top notch analyst ... look for the person who covers only ONE stock, e.g. Samsung or BHP ... they are paid over a million USD a year.

How to ace that interview:

a) Speak well - Besides researching and writing abilities, you need to speak well as all good analysts will have to speak to fund managers sometime. Your command of English must be good and your verbal skills as well.

b) Convincing - Be passionate, don't come to an interview even for a junior position without knowing anything. Must say you have deep interest in one or two industries, and you will be grilled further, and you must know your stuff. How? Read a few industry and companies research reports and things must roll off your tongue. If you can't even do that, then you better hope and pray you are a very pretty girl. (...its still a male dominated domain).

In the end, getting in is tough, once in you can move up by networking with better houses. Write good research reports that brings value to readers. I would say only 1 out of 5 analysts starting out become good ones, the rest just stick around and at best become Senior Analysts after 5 years but cannot progress.

To make it, you have to be early in calls, and be right most of the time. You have to be vocal. If you do not have the "stuff" to do that, then you will not make much headway. You have to get closer and closer to the company owners. You have to stick around at conferences and industry sessions. You have to write well, you have to be PERSUASIVE. You have to make a name for yourself. You are your own brand, the house is just a shell. Brand yourself first. 

Its not everybody's cup of tea, its a high stress job, you work 12 hours a day, everyday there's updates, results ... you keep spreadsheets that run pages and pages, you have little time for socialising. Your job is never secure, you can get laid off when times are bad (i.e. every 3 years), the higher you go the harder it is to find similar positions when there is a crisis or market contraction. So you better be very good at what you do. 

Analysts get crucified all the time. Sales traders think you are useless paper pushers who cannot hack it in the real time wheeling and dealing. IBs think you are their lackey boys to support whatever corporate exercises they are doing. Bosses think you are a huge mf cost center. Good luck!

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