Everything you've ever wanted to know about what happens on an average day in equity research
What follows is derived from an interview with a real-life equity researcher in an investment bank...
"I usually get in around 7:30 AM and I check for important news and research notes relating to
companies I cover right away.
I might spend 15 - 30 minutes catching up on emails from traders and salespeople, reading the news, and understanding the market as a whole. Stock movements can be affected by anything from the company itself to global economic news.
Throughout the rest of the day, it's a mix of maintenance work - updating models, for example - researching companies (mostly by speaking with the buy-side to see what investor sentiment is), and then finding new companies to initiate coverage on.
It might take 2-3 months to initiate coverage on new companies, so we have to balance that with all the ongoing work and make sure we're not sacrificing quality by covering too many stocks at once.
Equity research is most well-known for the reports we issue, but ironically that's not what takes up most of my time - each associate might cover only a few companies and we only issue a few reports each quarter.
We issue reports when companies announce earnings each quarter, and then a few times in between for incremental information and news - an investor conference they hold, a big M&A deal, or a major new product announcement from a competitor, for example.
The most important part is to predict the company's earnings in advance - shortly before they announce, we'll meet with the management team, survey customers and partners, and do other research to figure out whether they'll come in at, above, or below the consensus.
This work is split between the associate and the research analyst - the associate handles the tactical aspects while the research analyst is the first point of contact since his/her name is on top of the report.
Most research teams cover 8 - 15 companies - so if you're responsible for large-cap tech stocks, your team might cover Microsoft, IBM, Intel, Cisco, Dell, Oracle, Google, Apple, HP, Yahoo, and Amazon (in real life the team would be split into hardware, software, and internet).
When you pick companies to cover, you want names that will drive trading volume. They might be large-cap names that always have lots of trading volume, which is why most bulge bracket banks focus on the biggest companies. Or, they could be small- or mid-cap names that have less analyst coverage, but where you can offer a differentiated opinion and potentially make a name for yourself that way.
Remember that equity research exists to give buy-side investors ideas and to encourage those investors to make the trades through the bank and generate trading commissions like that - there's no point in covering companies that investors don't want to buy or sell.
Sometimes we pick a new company to cover because an existing one was acquired or otherwise de-listed; other times it's because there's some new development like a partnership or a change of strategy that makes a company more interesting to follow.
But it's always a balancing act and there's no easy way to make decisions - sometimes we think a company would be great to add, but we just don't have the resources to do so.
One final point: sometimes we may also cover a company that gets little attention from other equity research analysts, but which may attract many investors - the key there is to make a different call than everyone else.
Lots of boutique and middle-market banks and research firms take this approach and purposely focus on lesser-known names because they can add more value when there aren't 25 other analysts covering the same stock.
A statistical breakdown of how an equity analyst spends his/her time:
If I had to guess, I'd say I spend my time as follows:
- Research / Conferences / Speaking to Investors and Management: 65%
- Reports: 20%
- Modelling: 15%
Most of the modeling work consists of small tweaks and even the reports themselves, aside from company initiations, are not terribly long most of the time.
Best and worst parts of the job:
1) You learn how to analyze companies from the perspective of investors.
2) You develop credibility and detailed knowledge about a certain sector.
3) You get to interact with investors and senior management teams.
1) You have no skin in the game - you're always making recommendations for other people to follow.
2) The hours are long and you spend a lot of time working alone, in your cubicle. It may be possible to avoid this by moving to the buyside.
A version of this article first appeared on Mergers and Inquisitions, a website dedicated to helping people break into investment banking, and to maintaining their sanity while doing so.