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Interview with: Equity Research Associate

This interview was conducted with an Equity Research Associate at a global bank – securities discussed have been changed

What is your background?

Canadian target school Honours undergraduate in Accounting.

Worked in Big 4 audit for 3 years and got my CPA before “switching to industry” in Consumer Packaged Goods (PepsiCo/RB/Unilever/P&G), where I got my CFA. Always kept a personal portfolio where I was always doing well, but keep in mind this was post-crisis and everything was doing well. I was young and hungry and put all of my money into stocks that moved with the economy, so as America recovered companies that I liked skyrocketed.

As my portfolio grew, I became more and more interested in learning about stocks, so I decided to try the finance route.

How did you prepare for the interview?

The CFA helped a lot in terms of technical knowledge, but information was more scarce back then and you couldn’t find hundreds of interview guides on the internet. I had a few friends who were in finance so they gave me a heads-up on technical questions I could expect.

I took accounting fairly seriously in university so I was prepared for how things flow through the three statements and read stock pitches on stocks I already owned on Seeking Alpha.

What did you like about equity research?

Incredible learning and gaining a sense of market timing and how securities will react to earnings. Reading sentiment and being able to pick up new industries and metrics very quickly. I am confident that I am able to generate much better alpha than my friends in investment banking (who cannot at all and are better off with passive indexing). My personal account has seen multiple returns on capital.

Working with very smart people and being rewarded for idea generation. People do not get rewarded on buy/sell recommendations or price targets; that’s mainly a marketing component. Basically you will spend the majority of your time testing your own theses and if you come up with something the market hasn’t thought about yet you will see this reflected in bonus and being a go to person for buy side analysts. It is a small street in ER and you will get to know most people, who are by and large sociable and good conversationalists.

Exposure at a very early level to top level management. I was on a first name and number basis with the CEOs and other executives of TSX 60 companies as an associate. Being on a small team was especially helpful in this initiative due to less stratification. I found commentary to be exceptionally insightful and also improved my communication skills immensely.

OK, why not give us a stock recommendation?

I’ll leave it to you to put up all of the necessary disclaimers and I won’t put my neck out here – this is not an endorsement to purchase any securities but I am currently sitting on a lot of [redacted].

What did you not like about equity research?

Like other capital markets jobs you can be called in at any time. If there is a non-scheduled release you will have to drop everything and go to the office. However, all in the hours are not as bad as banking.

You will be regarded as a cost-centre by other parts of capital markets as there is a large marketing component to equity research (and sell side equity research is definitely biased). This can result in unreasonable requests from other parts of the bank.

Buy side clients are very important and their requests can go all the way to actually doing their work for them at the analyst level. However, usually they just steal your models and put in their own assumptions.

What is a normal day like in equity research?

There is no standard work in ER except for earnings, which is once a quarter, and you do have to drop everything to get earnings reports out. You release pre-release and play the EPS estimate game against the rest of Bay Street.

Once earnings are out you have to immediately provide new commentary.

There are groups that will release tear sheets every week or month which gives general commentary. This means pulling a data from FactSet. From time to time you will write primers for clients, which is great from a learning perspective. You may write something which discusses everything you should evaluate in a bank stock as well as an overview of the coverage universe.

The rest of the time you will be coming up with new ideas, apprising your analyst and going about testing your thesis. For example, I can go in to work one day and ask “is BMO undervalued?” and begin to look at it from various angles that the market does not use. Along the way you will come up with some conclusion whether related to your idea or something else you uncovered that you did not expect.

It is a very high stress environment and attention to detail is paramount. Often teams are lean and you will not have the benefit of an associate marking your work followed by a VP before going to the client, who may not even look at your deck. Everything you write will be disseminated to a large audience and your credibility is on the line. That said, firings are rare and it is more common people are advised to leave.

Why did you leave equity research?

To do equity research for a long time, you have to really love it. I found that I only liked it and it wasn’t enough to stave off burnout. Also I wanted to have a decision making component to my day job.

There are very good exit opportunities for equity research, especially moving up to good positions in asset management. You can also lateral fairly easily to investment banking due to the respect the street has for modelling skills and general market knowledge.

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ex investment banking associate

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