How to Get Into Equity Research?

Equity research is a profile that helps the IBD. Equity research professionals produce analyses, create recommendations, and suggest the right investment opportunities to institutions, investment banks, and clients. If you want to be an equity research professional, you can either be on the sell-side (the investment banking wing) or the buy-side (the institutional wing). Or else you can work in an independent organization.

Unlike corporate finance, equity research professionals work in a flat organizational structure. And there are only four main positions – Head of Research, Senior Analysts, Associates, and Junior Analysts. Inequity research associates are junior people who work under Senior analysts. In most cases, few associates work under one Senior Analyst and report to them.

A Senior Analyst usually analyzes many companies and delegates 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. For example, mentionable sectors under equity research are mining, telecom, consumer staples, healthcare, technology, etc.

So, How to Get Into Equity Research? Look out for entry-level roles – Associate and Junior Analysts.

As an equity research analyst, your main work is to produce reports. The report can be updated within short notice, flash reports, or very detailed and in-depth reports. So if you want to make a stew of your career as an equity research professional, your job is to create reports.

Usually, reports can be divided into the following heads: industry research, overview & commentary of management, financial results based on historical data, forecasting, valuation, & finally, recommendations.

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 look at a typical job posting for an Equity Research Associate.

source: https://chc.tbe.taleo.net

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 you need to take additional courses/training to understand financial analyses and financial modeling.

With a bachelor's 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 lead to becoming a senior equity research analyst. But with a master's degree, you can become a fund manager or progress in any portfolio position.

If you want to go for any additional qualification, the best is the Chartered Financial Analyst (CFA) qualification. To be certified as CFA, you need to complete four years of full-time employment in a relevant field (read finance), and you need to clear three levels. Usually, the second and third levels are the toughest. But if you can clear CFA, you will be able to reach a much higher position within the firm.

How to Get Into Equity Research – There are a 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 equity research professionals. As we have already mentioned, creating all sorts of reports is an equity research professional; having great written communication skills is imperative. To be able to write reports within a 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 simultaneously.
• Verbal communication skills: As an equity research professional, you often need to face media. So if you don't know how to speak or concisely present ideas, you will be in difficulty. Make sure that you prepare yourself to speak crisp, user-friendly words and convey a message worth listening to.
• In-depth knowledge of Finance and Accounting Skills: These are micro-skills you need to develop to make your mark as an equity research professional. You need to know how to look through the annual reports of a company, financial statements, how to understand whether a company is creating enough cash flow, and how management's decisions affect the revenue generation procedure of the company. To do these, you need to have the knowledge and financial skills you can develop through practice and voracious reading.
• Macro & Microeconomics: In economic research, the most important ingredient is the knowledge and understanding of macroeconomics. If you know how the 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 proof of your recommendations. As a financial modeler, you need to be a specialist in finance and a generalist in economics and mathematics. It would help if you understood every industry from a helicopter view and looked at each business from a pixel view. And you should know how to build a complex financial model to convince your clients/investors to go for/abstain from a particular investment.
• Research: As you can guess from the name of the career, research is an essential part of equity research professionals. 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 great research, and not only will you answer questions you have, but you will also be able to answer other people's questions.
• Valuation: You also 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 valuation method in the right area.
• A lot of flexibility: This is one of the 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. Having a flexible attitude and being open to acting at a moment's notice separate an ordinary equity research associate from a great one.

For more details, please refer to Equity Research Skills.

How much would you make as an equity research professional? In the previous era, equity research professionals used to rake in millions. Still, things have changed, and they have been earning normal compensation similar to front office investment banking jobs.

However, that doesn't mean that you will earn chicken feeds as equity research professionals. 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 a different level –

• Associate: This is the entry-level or junior-most position in equity research. The basic salary range 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 in the 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 $700,000 to $900,000 per annum.

The salary structure of each position is 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 the 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 asked 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 be receiving 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 a minimum of 60-70 hours a week. Usually, you will come at 7:30 a.m. into the office and leave at 7:30 p.m. Typically; you will work 12 hours a day, which will be 60+ hours a week.

However, you may also work more because equity research professionals have no fixed timings. Some days you need to work 14-15 hours, and most of the days, you will be able to finish your work in under 12 hours.

As equity research professionals, you will be able to maintain a healthy work-life balance, and you will also earn more than most finance professionals.

How to Get Into Equity Research? Here are a few things you can do –

• Know the market: No matter where you are in your career, 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 want to do it in the first place. This will equip you with all the necessary skillsets for Equity Research Interview.
• Do the basics: To get into the equity research profile, you need three things. First, you need to have in-depth knowledge of finance (if you're not an older candidate, consider doing a bachelor's degree in finance or a similar stream). Second, go for a couple of internships in junior positions in reputed organizations. If you cannot find an internship, offer to work for free for 2-3 months. Third, network, network, network. Talk to someone already in the industry; offer value, and share your desire to get into equity research. The 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 several failed attempts.
• Register for CFA Exam - To boost your resume, you should consider taking the 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-to to 3 years and see whether you can get promoted as an analyst or not.

The educational requirement for the equity research profile isn't much. However, you need to have multiple skills to crack into the job. So, use the above information and take the first step. The whole world of equity research is waiting for you.

This article has been a guide to How to Get Into Equity Research. Here we discuss equity research career paths & its qualification, skills, experience, compensation & job opportunities. You may learn more about financing from the following articles –

• CEO vs. Managing Director
• Equity Research Careers
• Career in Treasury
• Functions of Investment Banking