Equity Research/Equity Analysis

Equity research analysts follow particular industries, recommend stocks to buy and sell, and convince salespeople why they or their clients should or should not invest in Company XYZ.  The road to becoming an analyst is either paved with solid industry experience, or through the research assistant/associate path.

Full-fledged analyst positions are difficult to come by.  The skills required to succeed as an analyst include a firm grasp of: 1) the industry and dynamics of stock picking, and 2) the sales skills required to convince investors and insiders alike why a stock is such an excellent buy.  An analyst lacking in either area will simply not become the next II-rated star (that is, an analyst highly rated by the annual Institutional Investor poll).

Research analysts spend considerable time talking on the phone to investors, salespeople and traders, pitching buy and sell ideas or simply discussing industry or company trends. Everyone tries to get the research analyst’s ear, to ask for advice or (as we will discuss in-depth later) to pressure him or her to change a rating or initiate coverage of a particular stock. Analysts also travel regularly, visiting buy-siders or big money managers and companies in their field. Indirectly, they are trying to generate trading business with money managers, research ideas from companies or trying to build a reputation in the industry.  All in all, analysts must be able to convincingly and quickly pitch an idea, and defend it thoroughly when the time comes.

In this atmosphere, research analysts must scrutinize every company that they maintain under coverage. Any news or company announcements will prompt a deluge of phone calls to the analyst, with questions ranging from the big picture to the tiniest of details. They also must maintain a handle on an extremely important aspect of any company—the numbers. Inaccurate earnings estimates, especially when they are far from the mark, reflect poorly on the analyst. Why didn’t an analyst know the company stock was going to come out with such low earnings? Or why didn’t the research analyst know that industry growth was slowing down? The analyst is responsible for staying on top of these things.