Analytical Skills

An individual’s ability to identify a problem, investigate to find out relevant facts, and find a logical solution

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What are Analytical Skills?

Analytical skills refer to an individual’s ability to identify a problem, investigate to find out relevant facts, and find a logical solution. They are considered important skills in many different fields; however, it is especially important in finance when evaluating financial securities.

Analytical Skills - Image of a young man trying to find a solution

Analytical skills are the ability to collect information and to thoroughly analyze that information. They refer to problem-solving skills and making a decision based on insights drawn from the collected information.

Analytical skills are used when detecting patterns, brainstorming ideas, observing data, collecting data, interpreting data, integrating new information, synthesizing information, and making decisions based on the situation.

Types of Analytical Skills

The five types of skills that are crucial to success in many different jobs and industries are:

Analytical Skills - Types

1. Communication

An underrated skill is the ability to communicate the analysis that has been conducted. Being able to identify problems and find solutions is useless if the conclusions and findings cannot be effectively communicated to decision-makers.

Findings from the analysis may need to be presented orally through a presentation or a meeting. The analysis may need to be presented in written form, either through a report or email. Therefore, communication skills are a critically important skill when developing overall analytical skills.

2. Creativity

Another important skill is the ability to think creatively. Many problems require “out-of-the-box” thinking in order to find the optimal solution. The obvious solution may not always be the most effective, and therefore, it is important to be able to think of creative solutions.

3. Critical Thinking

Critical thinking is exceptionally important to obtaining strong overall analytical skills. It refers to the objective analysis of a complex problem to form a judgment.

Effective critical thinkers are able to think clearly and rationally and understand the logical relations between data points and ideas. To find rational solutions, critical thinking is a very important skill to master.

4. Data Analysis

Data is very important in all disciplines, specifically, the ability to analyze large volumes of data and identify patterns and trends. Therefore, it is increasingly vital to understand the discipline of statistics and quantitative analysis. Data analysis is becoming more prominent within finance, as trends such as technical trading and quant-investing continue to grow in popularity.

Quantitative analysis requires identifying patterns in data but also being able to define the findings to decision-makers, which ties into the communication aspect of analytical skills.

5. Research

Applying analytical skills requires patience and curiosity. If a problem is solved quickly, without considering all relevant information, then it is highly unlikely that it will be the most effective solution. Therefore, coming up with an effective solution requires taking the time to learn more about the problem before attempting to solve it.

Research requires collecting information and relevant data, then compiling it before analyzing it. Collecting data and thoroughly researching a topic is important for being able to apply strong analytical skills.

Importance of Analytical Skills

Analytical skills are important because they allow people to find solutions to various problems and make concrete decisions and action plans to solve those problems. As mentioned earlier, they are important skills in all disciplines, ranging from data science, project management, marketing, law, medicine, scientific research, accounting, etc.

Analytical skills are exceptionally important in finance. Financial analysts must be able to synthesize large volumes of data, analyze the data, and find a solution to various problems. For example, consider an equity research analyst for an investment fund. The problem that needs to be solved is finding the ideal equity investment that fits the portfolio’s philosophy.

In order for the analyst to solve such a problem, they must take financial information from reports of companies, pricing information, information on the current portfolio, and other relevant data points.

Next, the analyst must analyze the information and find an ideal equity investment with an optimal return and risk profile, as well as an investment that aligns with the fund’s investing philosophy. Lastly, the analyst must be able to communicate their findings to the portfolio manager, so that an investment decision can be made in a timely manner.

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