A guide to one of the most coveted jobs on the sell-side
Equity research analysts work for sell-side firms in the finance sector.
As part of generating business for the investment bank, equity research analysts are tasked with providing unbiased company research to investors. Equity research analysts conduct research on publicly traded companies, typically within a specific sector, and communicate their opinions about these companies as potential investments to clients.
As part of this, the equity research team collects a significant amount of financial and operational information on companies in a specific sector or industry. This information is then analyzed and synthesized to help construct models to explore potential scenarios for stock prices.
Once analysts arrive at an intrinsic value for the stock, they will then categorize it as a Buy, Sell, or Hold recommendation and ascribe an expected target price to the company’s stock. This recommendation, along with supporting evidence, is then published and distributed to buy-side clients in a research note, as well as verbally through phone or video calls.
Getting a job in equity research can be quite challenging due to high levels of competition. Whether it’s a global investment bank or a smaller, boutique investment bank, firms don’t typically hire as many candidates as they do in, say, investment banking. Since compensation levels are quite attractive and skill development is high, many people compete for positions in equity research.
The usual entry point into equity research is as an equity research associate. Given the competition, it can be very difficult to even secure an interview for an associate position. Beyond the first interview, the hiring process can be challenging, with difficult quantitative interview questions and financial modeling requirements.
As mentioned earlier, the majority of equity research analysts start their careers as equity research associates. Associates will report up to an equity research analyst, who is usually near the top of the equity research “food chain.”
Equity research associates are usually hired out of undergraduate business programs at universities and colleges. Sometimes, associates are hired after being in the workforce a few years or upon completing a master’s degree in either business administration (MBA) or finance.
Equity research associates often begin the job by reviewing and updating existing financial models and then progress on to begin building new financial models. Once they are familiar with the financial models and the companies the lead equity research analyst is covering, associates often start drafting research reports and notes for the analyst to review and publish.
A determined and experienced equity research associate can eventually be promoted to the analyst level, at which point they would begin covering and publishing on their own group of covered public companies.
The promotion from an associate position up to equity research analyst can take two to five years, depending on the person’s ability and the particular opportunities in the sector in which they are focused. People will usually continue working in the equity research analyst role for roughly three to 10 years. From there, they sometimes transition into a role as the Head of Research, overseeing all equity research analysts in the firm.
Equity research can be a great place to start in order to transition to other roles in finance. The quantitative skills learned while working as an equity research associate or equity research analyst are very valuable and form a great foundation for other finance careers.
For instance, many equity research professionals transition from research into corporate development or investor relations at companies, typically in the same sector they were covering in their equity research roles.
Also, people can transition from an equity research role on the sell-side to a similar analytical role at a buy-side firm. In this case, they might work as analysts supporting a portfolio manager or actually get hired as a portfolio manager. Portfolio managers maintain portfolios of securities and are responsible for analyzing information from multiple sources to ensure an adequate balance of return and risk for their clients’ investment needs.
The ideal candidate for an equity research position would be intellectually curious with strong quantitative knowledge and great communication skills. They must be able to analyze complex models and situations, form an opinion, and effectively communicate their views to their clients.
They need to possess the proper educational qualifications, whether that’s a university degree or some other qualification. Additionally, it’s helpful to have sector-specific experience to better understand the strategy of the companies under coverage. Then, over time, more senior analysts develop a deeper understanding of the sector and companies and are able to identify trends and movements in that sector.
In summary, the best candidates for a position in equity research are able to combine quantitative abilities with communication skills to effectively describe their views and investment recommendations. It is also important for equity research professionals to be ethically sound and trustworthy.
In order to work in equity research, applicants will usually have a bachelor’s degree in business at a minimum. This gives them a foundational, working knowledge of accounting and finance.
It’s common for equity research associates and analysts to have an MBA or a master’s degree in finance, as mentioned earlier.
It’s also quite common to see Chartered Financial Analyst (CFA) charterholders working in equity research. Equity research professionals often obtain more practical, hands-on certifications like the Financial Modeling & Valuation Analyst (FMVA) certification.
Finally, equity research professionals will typically be required to pass various regulatory exams. For example, in the United States, equity research analysts and associates will typically need to pass the following FINRA exams:
Beyond the educational experience required to work in equity research, having experience in the sector you will be covering can be critically important. For instance, it’s extremely valuable for someone to have experience in the oil and gas industry, as the skills and knowledge gained can really drive insight into the industry and create value and insight for clients.
Similarly, it is ideal for a person to have experience in real estate before beginning their career covering real estate companies.
This sector-specific experience will prove valuable as that person will understand the unique nuances of the sector, which can be incorporated into their analysis of the sector’s publicly traded companies.
Equity research analysts and associates can expect to work about 60 hours per week during a typical week. This figure may increase to 80 or more hours per week during earnings seasons, which are usually the busiest times of the year for equity research professionals.
Additionally, it is common for equity research professionals to start work quite early in the morning. Often, there are developments that happen overnight. These developments need to be analyzed in the morning before the local stock market opens.
Public companies will also issue press releases or other information in the evening or early in the morning, outside of market hours, to avoid a halt. These releases must also be analyzed before the next market open.
Working in equity research can definitely be quite stressful. Equity research analysts need to have an investment opinion on all of the public companies they cover.
Moreover, their opinions and recommendations are published and distributed to a wide and diverse audience on the buy-side, from pension funds to hedge funds. When analyst recommendations prove to be wrong, they still remain in print, which can be unnerving for many people.
Much of the work in equity research involves really tight timelines, which can also be stressful for some people. For instance, equity research analysts are required to quickly form an opinion and publish a research note as soon as possible after a company issues a press release. These quick turnaround requirements are not for the faint of heart!
It’s important to consider whether a job in equity research is the right fit before attempting to transition into the role. While the hours and stress can be significant, the skills acquired while working in equity research can be very valuable. Also, as we mentioned previously, it can be quite common to use a role in equity research as a launching point to a different role in finance, like corporate development, investor relations, or a position on the buy-side.
Thank you for reading this article on equity research roles. To learn more, see these additional relevant resources below:
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