Note: This post has been amended (see the end) to include information requested by an overwhelming number of the readers. Thanks for your interest!
I am frequently asked, "What can I do to improve my chances of getting hired as a research analyst?" Beyond the obvious — become a CFA charterholder — there are a number of other steps that aspiring analysts may take.
Making the Intangible Tangible
What an aspiring analyst has to offer to an employer are largely abstract- and creative-thinking skills. These skills are intangible and difficult for recruiters to assess. This is one reason why firms in finance tend to recruit from the same schools decade after decade: rigor of the curriculum and reliably high quality candidates. This is also why those without experience in the investment industry find it hard to get hired for research analyst positions. That is, in the absence of other evidence, firms hire what they think they can depend on — that is, what is tangible: your education and your experience.
But do not despair if you have not gone to your country's top educational institution or if you have no experience! I went to the University of Colorado (not a top school for finance recruiters) and had very little experience when I was hired as a research analyst at one of the largest and best-known US money managers.
What employers really want is for your intangible skills to be made tangible. This realization empowers you tremendously, because with this framework, you can focus on providing concrete evidence that you have the skills necessary for being an effective analyst. When I began my career I created a personal website that included: examples of my own personal research analysis on companies; book reviews of economics, finance, and investment texts that demonstrated my ability to think critically about information; and an extended version of my CV (i.e., greater than the orthodox one-page maximum), so human resources departments could see if I had what it took to be a research analyst.
By engaging in these activities it will also sharpen your own skill set. For example, when I created my own research reports — which I highly encourage you to do — I used only primary data sources, such as company annual reports. I also did all of my own calculations for things like future gross domestic product (GDP), the future shape of the yield curve, and the cost of capital.
Recognize that your opinion matters. Companies will be hiring you for your opinion as much as for your skill set. They hire you with the expectation that you will take responsibility for your choices. So, if you choose to make your intangible skills tangible by creating your own research reports then you must track how your investment recommendations do by noting the prices of assets on the day that you recommended them for purchase and then track how they perform over time. You must be honest with yourself, otherwise you won't learn anything. This is more for you than for your future employer. (Though it certainly wouldn't look good for you to get caught fudging the numbers in even a theoretical exercise.) Markets provide a valuable feedback mechanism for assessing your skill set. The beautiful and terrifying thing about investment management is that the results of your performance are measured objectively. You either did well for people or you did not. So, if you are not doing very well, then you need to identify where your analysis broke down, and then strive to improve.
I have a friend who took a similar approach as me to getting work. He sent his research reports to investment firms every single month for two years and eventually got a job interview. By doing this process he taught himself to be an analyst.
Look for a Mentor
Across the globe, CFA Institute has scores of local societies, which are made up of many generous individuals, many of whom may be willing to guide your career track. If that does not appeal, then contact money managers whose process is in alignment with your own. You may be intimidated, but the worst they can say is "no." In any case, any possible anxiety you experience in approaching investment heroes is good practice for the anxiety you may experience in approaching management of prospective businesses, some of whom may include the likes of Rupert Murdoch or Li Ka-Shing.
Analysis Is Probably Not What You Think It Is
Most analysts — the aspiring and the experienced — think that investing is about facts, models, mathematics, and analysis. Yet, as I discuss extensively in my own book, The Intuitive Investor, there is no such thing as a future fact. Facts, by definition, are things that occurred in the past. Yet investing results unfold in the future. What this means is that investing is as much a creative and intuitive process as it is an analytical process. To be a well-rounded and experienced candidate you need to be able to think in a balanced fashion — that is, both analytically and creatively. Therefore, engage in activities that enhance your creativity, too. For me, I am an active meditator, as well as an artist. Your success as an analyst will depend on your ability to synthesize information and to see things no one else is seeing. After all, by definition, if you want to earn returns that no one else is earning, you have to do things that no one else is doing.
Stock Your Mental Toolkit
Another tip is to read, read, read, read. Read investment texts. Read texts on geopolitics. Read texts on mergers and acquisitions. Read economic texts. Read anything that sparks your curiosity, even fiction (potent advice from Tom Brakke, CFA). And most of all, read the news, from many sources every single day, and begin to develop an opinion about the news and how it affects different countries, industries, businesses, and individuals. The most important skill for any investor is: understanding information. He who understands information the best does better, and he who understands information the best and acts decisively on that information wins the day. When I was an aspiring analyst if I encountered a piece of news I did not understand, I would read not just the article in question, but also an entire academic paper or book on the subject. I did this day after day, month after month, and year after year until my mental mosaic became large.
So let your ignorance guide you. What you do not know and understand should inform what you try and learn next.
Introspection
Spend some time figuring out who you are as an analyst. This is critically important. Why? If your natural strengths as a thinker make you a good trader, then you will be very frustrated working at a deep value, long-term focused money management firm. Likewise, if your character is more in line with a long-term, deliberate process, then you will likely be frustrated at a high-frequency trading (HFT) shop. You want to know yourself so that you can make an informed decision about where you want to work, about what type of analysis works in accord with your mind, and about where to spend huge parts of your life.
Furthermore, your introspective process will allow you to take an inventory of your innate strengths and weaknesses — and we all have both. You want to develop skills that accentuate your existing talents and skills that compensate for your shortcomings, too.
Be Patient
Expect this entire process to take a lot of time. From the time I first had the idea to become a research analyst to the time I got hired doing the work I wanted to do, it took me five years. For some people it is a much shorter process. But then, having done all of the work I described above, once hired, I was promoted to portfolio manager in two short years and was fortunate enough (and maybe skilled enough) to have retired at age 35.
Best wishes for success!
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Update: Many of you in the comments section have requested a link to an example research report. When I began my career I got a copy of a brokerage report from my local market and then used it as the basis for my own report. I am going to point those interested in what a research report looks like to Zacks.com.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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If you liked this post, don’t forget to subscribe to the Enterprising Investor.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images / Ascent / PKS Media Inc.
Professional Learning for CFA Institute Members
CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker.
410 Comments
Hello Jibran,
It is my opinion that the famous 'site visits' touted by many investment management firms do not occur with the frequency indicated by company marketing departments. That said, I have done my fair share.
When I was a junior analyst I accompanied a portfolio manager on our site visits. This usually entailed a meeting with management in their offices. Occasionally we would ask for a tour of their operations. Obviously what you would see on these site visits depended on what type of company you were visiting. Manufactures might show you one of their factory floors; a natural gas company might take you to the wilds of Wyoming and show you some of their working wells; a consulting firm would show you their state of the art IT facility; and so forth.
I don't think it is possible to ever have the level of understanding of the people that do their work every single day (per your ISO expert question). Someone that has operated a metal press for 25 years will always understand nuance much better than the smart and diligent analyst. This makes investors particularly vulnerable to the claims of management. Which is one of the reasons that trust is so important in the investment business.
In the years that I did the site visits I never saw anything untoward. In part, that's because the company knows that you are coming and you are visiting as their guest. So they can show you whatever they want to show you. In part, I think it is also the case that firms that lie, also lie about other things, and you can catch this in their financial statements, conference calls, press releases, and so on if you are shrewd. That said, on my various site visits the one time I was disturbed by the sumptuousness of the offices of a company that, at the time, had never made a single dollar of profit. This stark contrast was a strong indicator of hubris on the part of the company. Not surprisingly I caught that same firm committing fraud in their financial statements, too.
I cannot speak about other firms because I spent my career at the same company and the business is so competitive that competitors do not talk to one another about their advantages.
With smiles,
Jason
Hello again Jason,
Seems to be pretty much the same in most countries; but I was wondering though, since you have written one book already, why don't you write a small guide on actually conducting equity analysis and report making.
A guide that describes the routine steps in data collection, an overview of the modelling involved, assimilating the all information and making sense out of it, making a connection between the company's intangible, qualitative information and its quantified data, and so on; in some ways an extension of this very excellent article of yours.
And here are some links you can add to help aspiring analyst with their interviews (some of these links also have sample answers for their questions except for the LBS link)
http://www.lbsimc.org/content/index_5_2145523323.pdf
http://www.londonstockexchange.com/home/ir-apracticalguide.pdf
http://www.cgu.edu/Include/drucker/career/Vault-Finance%20Practice%20gu…
http://vincer.weebly.com/uploads/2/2/9/0/2290177/finance_interviews.pdf
http://www.cgu.edu/Include/drucker/career/Vault-Guide%20to%20Advanced%2…
http://business.financialpost.com/2013/08/09/30-smart-answers-to-tough-…
http://myfinanceinterview.com/
and of course, keep smiling Jason
Regards
Jibran
Hello Jibran,
My book, The Intuitive Investor, actually began as The Discerning Investor, and was a combination of the left-brain and right-brain skills that I think make for good investment success. When I shopped the book to publishers in the spring of 2008 none were interested in the left brain techniques that I was sharing with readers. They told me that no one was interested in that kind of material and that it was a crowded marketplace for those kinds of tools. I happen to disagree, by the way. So some of the proprietary techniques I used and use to manage money well remain just that: proprietary. I am awaiting the highest bidder for such knowledge!
Thank you for your enthusiastic contributions to this thread. I am certain that the mindsets, books, and links that you have shared will help young analysts everywhere! Nice work!
Still smiling, but bigger now!
Jason
Hello yet again Jason,
The publisher is right to say that because people pretty much everywhere, specially if we generalize human behavior, aren't really interested in human behavior let alone human behavior in finance. Maybe my experience is rather not a good reference.
Well at least from what I have seen, is that marketing professionals and HR employees scoff at the idea of organizational behavior, could there be anything more weird than that (my experience is limited to my country only). So I think we can understand that people are not yet ready to understand human behavior from a scientific perspective, specially if it comes to actually applying it in our lives.
A professor teaching finance and laughing at the idea that research is being conducting for Organizational Behavior as a field (and this particular example is about an individual who has been educated via a well reputed university or so I was told)
Funny perspective people have in my country, and I quote "Oh, psychology? only crazy people study that!" (again a well educated person saying that) and if you have an interest in psychology you get branded as a "pop psychologist".
So neuroscience and the biological determination of behavior can wait till it gets accepted in the mainstream, I think it comes down to the lack of an open mind.
For example I read in your post about stock listings, your comment regarding liquidity, I can bet that if I show this to people that I know in the field of finance, they will just not be able to comprehend the concept you put forward in that comment. So your idea of the brain's right side/left side skills for investing might have to wait for a bit, but I hope not for long. Your book is definitely on my list.
All the best
Jibran
Hi Jason,
Thanks for your insightful advice on how to become an analyst. I’d like to seek you advices on my situation.
I did my bachelor degree in finance in China and then move to Australia to do a master degree in Accounting. During my pursuing my master degree, I complete all the three levels in CFA. Therefore, when I graduate, I have both Master degree and the “CFA charter pending” status back in 2010. However, those credentials didn't help me much in pursuing a career as equity analyst. The financial market here in Australia is very small, compared with the US and China. There are not many opportunities, particularly for the graduates without much experience.
Starting from Accounting is easier than from investment analysis. So I started as accounts clerk in small company. The job is very lower level-it's more about data entry. While doing the accounting job, I didn't stop looking for the equity analyst jobs. Realizing that no matter how many resume I sent, there wasn't any response from the recruiters, I started to knock the door-I went to every investment firm's office, knocking the door and give them my resume.
Luckily, I got one response. A new started long-short equity fund investing in the renewable energy sector is just looking for an analyst. They invited me for an interview. The interviewer told me that he is just impressed by my extra-ordinary way of looking for job. In the conversation, I expressed my keen interest and enthusiasm to be an analyst. At the end, they assigned me a task to analyse a listed renewable energy company. This is a completely new area to me. However, I know this is an opportunity to demonstrate that I can do it. Therefore, I put in every endeavour to complete this research task.
After I submitted the research report, they invited me for an interview, to present my research report and answer their questions. Then at the end, they said they have another investment manager who was travelling overseas and would like him to have a separate meeting with me upon his return.
After three rounds of interview, they decide not to hire me because they think my experience is not enough for this very senior analyst role. I feel frustrated at that time- I believe I have the analytical competency, but just no company can provide me a platform to allow me to build up the required experience.
But to my surprise, a few months later, they called me again, asking if I want to do on a casual basis, primarily helping the business manager with the trading/reconciliation and daily fund performance pack and potentially some analysis if the investment team need. I am very excited to accept the offer. Though this is casual, I am very devoted to this role (at the meantime, I lose my part-time accounting job). But I feel it worth my effort.
Unfortunately, this role didn’t last long- 2011 is a very bad year for renewable energy sector, the fund didn’t make money. But the bigger reason is that the business manager didn’t see my value in supporting the trading/reconciliation and fund performance pack. In other words, she would rather do it herself (She taught me the process from the very beginning and after 2 or 3 month she feel she was still not confident to leave me alone to complete the task).
Therefore I lose the job after 4 months trying. So back to the end 2011, I have no job-no accounting, no finance. I come back to the normal job hunting process- searching from the internet and send resume for both accounting and equity analysis. I quickly find an accounts payable job-though I am not interested in this low level data entry job at all, I need to make a living. After two years since I graduate from my master degree, I find myself no progress- starting from the entry-level accounts clerk role again, but just a bigger company, a global company.
Now another two years past, I am still in this global company, doing a role which involves some financial accounting and analysis, but it’s still more about an administrative natured job. Meanwhile, I feel I still have the dream of coming back to the equities research area- I continue with my own investment in the stock market, but I always feel that as a freelancer, I don’t have the access to as much information as those work in this area- I don’t have the license to many research resources such as Bloomberg, nor do I have access to research reports from the sell side analysts (where you can learn from the professional analysts on how they conduct their researches). Also, because I am not in this area, I don’t have the chance to attend the industry/company meetings where you obtain the first hand information and exchange ideas with people in the circle. Therefore, my buy/sell decision in my own portfolio is very amateurish, without the rigorous research process to back it up.
So as time passes, I feel I am far away from my dream. I don’t know if I still have the chance to build a career in the equities analysis. Do you have any advices to me? Is CFA charter still matter to me?
Thanks Jason for your time. I am much appreciated.
Sincerely,
Ruthy
Hi Ruthy,
My advice is that you have to make your enthusiasm for this work much more tangible. You need to be creating research reports about a company each and every month to demonstrate your competency at being a research analyst.
When I was looking for work as a research analyst I did not base my research on a sell-side research report and I did not have access to Bloomberg either. Primary data sources are free and available on the Internet. For example, here in the US the Securities and Exchange Commission requires all US publicly traded companies to make their annual reports available. In turn, the SEC makes these freely available on their website. As a professional I never used anything other than primary data; so no sell-side reports were used. I occasionally used Bloomberg for things like yield curve data to help build costs of capital. But now that same information is available on Yahoo! Finance.
If you engage in the above process, you not only make your skills tangible to a prospective employer, you also will make yourself a better investor. You will learn more how to see the world in such a way as to take advantage of your innate abilities and your skill set.
The process described above can take a very long time. I have a friend who engaged in this very same process for three years before landing his first job as an analyst. When I began my quest I was a lower level employee than you are now - I was a customer service representative - and I had fewer credentials.
My next piece of advice is to ask your previous employer - the renewables firm - what you could have done to better demonstrate your ability. If they simply reply "have more experience" then investing for your own personal account and making your investment track record available to them should eliminate those sorts of questions going forward.
Best wishes for success!
Jason
This is a great article for someone coming from a non-finance background (I was a math-major), but with an interest in breaking into ER. Having never taken a finance or accounting class where would you recommend that I start when it comes to learning the material? I am hard-working and usually understand concepts/theories fairly well - just curious of the best place to self-learn the required skills
Hi Josh,
I am so pleased to read that you enjoyed the article. I have several recommendations for books that may teach you the skills necessary, and I would start with the accounting works first because accounting is the language of finance.
Accounting books:
How to Read a Financial Report by John Tracy
http://www.amazon.com/How-Read-Financial-Report-Wringing/dp/0470405309/…
This book is a godsend: concise, yet thorough, and very sophisticated in how it teaches how to analyze a financial report. Specifically, it shows the interrelationships between each of the financial statements and the various accounts on each financial statement. Indispensable.
Once you have mastered the skills in this book I would move on to something more complex, say:
***
Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective (with Thomson One Access Code) by Stickney
http://www.amazon.com/Financial-Reporting-Statement-Analysis-Valuation/…
The edition of this book that I read 17 years ago is not available any longer, but this is the more recent edition. Note: this book has quite a few STRONG negative reviews on Amazon. Yet, there is one glowing review by a CFA Level III candidate whose views on the book echoed my experience with it. What makes this book very useful is that the author compares two similar companies to each other all the way through the book. Having the real live case studies makes the information much more applicable.
***
After you are comfortable with accounting I would move on to finance. I would not start with "high" finance. Why? If you want to be an equity research analyst then you need to learn to see financial management from the perspective of companies first. This requires learning corporate finance first. My favorite book here (and one of my favorite books ever, specifically because of its additional funds needed analysis) is:
Financial Management: Theory and Practice by Brigham and Erhardt
http://www.amazon.com/Financial-Management-Practice-Thomson-Business/dp…
Note: I read the fifth edition of this book, again way back in the day, and the co-author was Gapenski, not Erhardt. So I cannot vouch for the edition listed above.
After mastering the lessons in the above three books a whole world of possibility opens up to you in terms of future direction. Earlier in this blog post's comment thread I listed a number of my favorite books that cover investing. I would start with the books I starred.
Best wishes for success to you!
Jason
Hi Jason,
Thanks for the insightful article.
When you initially started doing your own equity research for your website did you focus on a particular sector or industry or did you take a more broad brush approach?
Thanks again.
Kevin
Hi Kevin,
I chose very complex companies so as to demonstrate my breadth and depth of knowledge. The only company I can remember explicitly was Time Warner, alias TWX. Every data point in the model was calculated by me. So, for example, I based the terminal growth rate on an estimate of long-run US GDP growth; and I calculated the GDP figure in a worksheet within the Excel workbook. There is a discussion about how to do this in Graham and Dodd's Security Analysis, 5th Edition. Put another way, these reports were chosen as a racetrack for me to show off the specs of my (hopeful) sports car.
Hope that helps!
Jason