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Equity Research Ins & Outs. Peter J. Keith MBA 2005 Michigan Business School. Research Analyst . Sell-side Research Cover 7 – 12 related companies within an industry Understand industry/companies better than anyone else in the country Speak to management, customers, suppliers, etc.

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Equity ResearchIns & Outs

Peter J. Keith

MBA 2005

Michigan Business School


Research analyst l.jpg
Research Analyst

  • Sell-side Research

  • Cover 7 – 12 related companies within an industry

  • Understand industry/companies better than anyone else in the country

  • Speak to management, customers, suppliers, etc.


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Research Analyst (cont.)

  • Provide written commentary and company/industry opinions to the buy-side

  • Ideas and insights are passed on to Sales for mass distribution

  • Frequent interaction with buy-side clients via phone or office visits


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How It All Works, and How the Sell-side Makes Money

Buy-side

Sell-side

Analyst

Portfolio Manager

Or Analyst

Sales Desk

Research analyst has information on Q4 Housing Starts, which will be a boon to

Home Depot and Lowe’s.

Information is given to Sales desk during morning call. Sales Desk calls Buy-side

Client with Analyst recommendation


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How It All Works, and How the Sell-side Makes Money

Buy-side

Sell-side

Analyst

Portfolio Manager

Or Analyst

Sales Desk

Portfolio manager discusses idea with Sales Person. Is interested in getting exposure to the group; can’t decide between HD or Lowe’s

PM calls Analyst to discuss HD and Lowe’s. Analyst provides opinion on which is a better Buy right now


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How It All Works, and How the Sell-side Makes Money

Buy-side

Sell-side

Analyst

Portfolio Manager

Or Analyst

Sales Desk

Buy-side trader

Based on Analyst feedback, PM decides to buy shares of Home Depot. Calls her firm’s trade desk, places order for 100,000 shares.

Tells trader to buy stock through Sell-side firm


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How It All Works, and How the Sell-side Makes Money

Buy-side

Sell-side

Analyst

Portfolio Manager

Or Analyst

Sales Desk

Buy-side trader

Trade Desk

Buy-side trader calls sell-side trade desk and places order for 500,000 shares of Home Depot. Sell side trader “works the order”. Finds seller of 500,000 shares at $50, takes shares and sells to Buy-side desk for $50.04.


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How It All Works, and How the Sell-side Makes Money

Buy-side

Sell-side

Analyst

Portfolio Manager

Or Analyst

Sales Desk

$20,000

Buy-side trader

Trade Desk

Commission of $20,000 on HD trade is split amongst the three areas that contributed to the trade (Research, Sales, Trading).


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Equity Research - Teams

  • Most teams have 2-5 people

    • Senior Analyst / Managing Director

    • 2 Associates (MBA or CFA)

    • 1 Analyst (2 years out of undergrad)

  • Teams are located at firm headquarters (typically NYC)

    • Some teams located in other areas for strategic reasons (e.g. San Francisco = Software)


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Equity Research – Summer Internship

  • Work with one Senior Analyst / team for entire summer

  • Structure of summer dependent on needs of Senior Analyst

  • Example projects:

    • Initiation Report

    • Industry Report

    • Earnings calls and additional guidance reports


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Day In the Life

  • Analysts typically work 12 hour days (7 am – 7 pm)

    • Pre-market opening: communicate with internal staff

    • Market hours: speak to clients and communicate with companies under coverage

    • After market hours: write research reports

  • Senior Analysts have much interaction with Buy-side (e.g. company roadshow: bring CEO of company around country to meet with top buy-side clients)


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Equity Research – Typical Career Path

  • No typical career path

  • One example:

    • Work on team as Associate for three years

    • Promotion to VP, begin coverage of own companies (2-4 names)

    • After two years, boss jumps to a competitor. Analyst is promoted to Senior Analyst and takes over coverage of entire group


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Equity Research – Career Path (cont.)

  • Many different options later in life

    • Work as analyst for 20 years

    • Move to buy-side, eventually become PM

    • Move to Sales

    • Work in Industry (i.e. become executive at Software firm

  • Bottom Line: many options are available. People coming out of a strong research shop are highly regarded


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Equity Research – What Banks are Looking For

  • Intelligence

  • Analytical Skills

  • Strong writing skills

  • Ability to work in teams

  • Strong interpersonal skills

  • Passion and interest in the market

  • Be able to have an opinion, and back it up!


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