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!
If you liked this post, don't forget to subscribe to the Enterprising Investor.
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.
Image credit: ©Getty Images/TommL
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.
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 Jason
I appreciate ur effort nd thankfull to that u shared this topic. I have a huge interest in this field but don't know from where to start. I have just completed my graduation and now don't know what next, to do a job or to search a college for stock market degree.
Please help.
Hello Surendra,
Yes, these moments in life where we have come to the end of the paved road are always difficult. Paving roads is difficult work. Maybe as you consider options put preference on the chosen future whose reward makes paving the road seem less difficult.
Best wishes for success!
Jason
Jason,
First off, as many have done so, I'd like to thank you for your time and efforts in both writing this article and continuously responding on everyone’s comments.
I am a 30 yr old process engineer working in the personal care industry with an ongoing goal of one day being a great investment analyst. I love the idea of breaking down a company and finding its intrinsic value. Yet, saying that I love it and actually doing it, is much, much different, as you've touched on. When I realized I wanted to become an analyst, I began taking the CFA exams. I am currently a CFA Level 3 candidate - yes, I'm wasting precious studying time after work to bug you. The last three years I've spent January thru May studying for the CFA Level 1-3 exams. When I'm done with the exams in June, its summer, I'm burnt out from studying, and I’ve consistently failed at taking the next step – the real step – of doing my own real analysis and investing a small portion of my money based off that analysis. When I do sit down to do analysis, I feel extremely lost. So I turn to books. I’ve read a good number of books – though there are a lot more that I have to read. To name a few, I’ve read Peter Lynch’s books, Quality of Earnings, Common Stocks and Uncommon Profits, When Genious Failed etc. I’ve read some great biography’s – such as both of Buffets.
Bottom line, I’m one of those “I want to be a research analyst and I’m doing the CFA exams, but I haven’t analyzed or invested in squat” people. Your article and your responded comments are hitting right at home for me. It has made me realize just how important it is to stay focused and read, read, read, read, read, as much and as often as you can. I realize that the more I read, the more I learn, and the more likely I will be able to transition to the analysis phase, on my own time.
Once the CFA exam is finished in June, I plan to read Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective (with Thomson One Access Code), as I feel confident I have the tools to learn from this book. After, I plan to read your other suggested book - Financial Management: Theory and Practice by Brigham and Erhar. Thank you for suggesting these to everyone.
And now for my questions:
1. These books (Financial Management: Theory and Practice by Brigham and Erhar and Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective by Stickner) do not look like quick reads. How long would you suggest it should take to read and work through these books with a usual 40-50 hour work week schedule? Is company analysis suggested while reading, or after completing these?
2. You’ve mentioned on multiple occasions that it took you 5 years to gain the necessary qualities and to develop the tangible skills to gain a research analyst job. For those 5 years, how did you manage to gain these skills with work/school/social schedule requirements, assuming you had 40-50 hours of time obligated for work and/or school? You also mention keeping up with the markets from multiple sources (WSJ, FT, etc.). Could you share your daily and weekly schedule for managing your time to read the papers to a sufficient level, read text books to learn skills, and analyze stocks? Any suggested time management advice for those of use working a 40-50 hour work week and aspiring to become a research analyst? I feel like I went to the Derek Zoolander School for Kids Who Can’t Read Good and Want to Learn to Do Other Stuff Good Too when I read half the WSJ and it’s an hour later. If I did WSJ and FT completely, I’d need 4 hours every morning. How many hours per week should an aspiring research analyst be spending in addition to a 40-50 hr workweek on market reading, learning skills, and/or analysis? How much time did you spend per week during those 5 years analyzing stocks, learning and reading? Do you keep a strict schedule in terms of wake up time? What’s your favorite color?…just kidding
Sorry to fire off so many questions. There’s just so much to ask to learn from you.
Thank you for any feedback on any of my comments or questions. And again, thanks for your contribution to all of us for giving us a few bricks to build or own path.
Sincerely,
John C.
Hi John,
Good questions all. I am going to answer you in a way you probably did not expect. I sense in your story and questions too great a movement away from your innate skills. I have an exercise in my book, The Intuitive Investor, entitled, "Your Cousin Vinny." The exercise goes like this: imagine your iffy cousin Vinny approaches you to invest $50,000-$100,000 in a coffee shop he wants to manage; you provide the monied equity and he provides the sweat equity. What questions do you want answers to before investing with your cousin Vincent? I have done this exercise with hundreds of people over the years and you know what (?), they never fail to list out the relevant questions. Because you grew up in a capitalist society - I am guessing either North America or Europe based on your English - you already know what it takes to understand businesses. The reason that you read, read, read, read is to begin to develop an understanding of how individual mosaic tiles (GDP of Spain, price of rubber, demand for cacao, unemployment in the US, and so forth) contribute to form one big narrative picture, as well as many smaller images within the big picture. It is from your view of the mosaic that pictures begin to emerge; i.e. investment ideas worth pursuing. Then, and only then, do you apply your tools.
When I was an investment manager I spent 90% of my time reading, 5% on administrative stuff, and 5% on analysis. Though, in earnings seasons, the time spent listening to conference calls was a high percentage of my time. Maybe, 6 times a year did I ever go to the trouble of developing a model for a company. My goal was that if a picture emerged from the mosaic - i.e. a possible business worth investing my shareholders' capital in - I wanted to wage intellectual war on the idea. That is, I put myself in the shoes of a competitor company. If I could not imagine a way to 'defeat' the company then, and only then, did I break out the company's 10-K and/or annual report to learn more about the business. In your questions above it seems that you have forgotten your innate capitalist instincts which is what frequently happens when the words and ideas stock and stock-market enter into your mind. Those two words are distractions. Your focus should be to understand the business and how it is vulnerable to competition, economic head/tailwinds and so forth. You go to the trouble of doing financial statement analysis to see if your understanding and vision of the company is reflected in its financial statements and as a check on the authenticity, candor, and honesty of management. If the company makes it past that gantlet then you go to the trouble of valuing the business. The only thing standing between a great business and a great stock is price. If you overpay for a great business you likely have a lousy investment.
How did I do all of the stuff you ask about? I spent almost all of my time working doing something. To me it did not feel like work most days as I was singularly interested in elevating my future, my future pay, and opening up my life to bigger possibilities. The most important thing here is not to just blindly read, read, read, read, but to build a permanent context into your consciousness: How does this relate to the world of investing? Then any activity, including taking a break to watch a TV show, or watch a movie, or read a leisure book, or going for a walk, or going out to dinner with a loved one, becomes related to investing. Example: after changing my world context/lens to that of an investor, I remember going to the grocery store and buying tortilla chips. I noticed that for the first time in my life there was more than just Doritos available. This meant to me that consumer tastes had permanently changed, that the Hispanic population finally was catching the attention of food manufacturers, and so forth. Each of these observations, in turn, had relevancy for other parts of the mosaic.
When I used to give talks to undergraduate and graduate students a common question was: how much time do you spend working? What most of them meant by the question was: how much time are you in the office 'doing?' I would always answer, "I work all of the hours of the week, but only 45 in the office." This is a true statement. By the time I retired, I was only working 45 hours in the office, but even a casual night out dining was an opportunity to build my mosaic. If you eat at a hotel restaurant, what is the traffic like in the lobby? What does this say about occupancy rates at hotels? Are those trafficking the lobby in suits? What does this say about business travel? What does this say about the state of business and of the economy? Is your waiter an unemployed PhD? If so, what does that say about the labor market? And on, and on, and on.
All of this to say: you need to begin thinking actively with all of that knowledge you are accumulating.
My last words to you: forgive yourself for not being perfect or for not walking on water. You are a human being with emotional needs, including time for rejuvenation, reflection, and creativity. So relax a bit, and you will be surprised how much better you become at all of the tasks you are trying to master. I promise.
With smiles,
Jason
Jason,
Wow. Powerful advice. Thank you for giving such helpful advice in such a timely matter.
Your advice is really making me reflect. I'm not even sure I can fully process it all in just the few minutes after reading it. But I'll be sure to copy your response and look back on it again and again in the future.
Great call on forgiving myself. The competition of this field (ha - which I'm not even in...yet) makes you forget your innate abilities and skills. I need to get back to the core of why I began pursuing the CFA charter in the first place. Then harness that passion and let my creative, intuitive abilities take over. Your book sounds like it's worth the read as well. Thanks for taking an example from it to help me out.
Forgiving myself, putting back on my "Investor Cap," and looking for investment opportunities through creative and intuitive thinking at every turn. Simply, great advice. Thanks again.
John
Hi John,
I'm so pleased to hear that my advice was useful : ) Most of us understand what makes for a good or great company. All of the reading is meant to help identify more of them and also to better understand the issues that will affect those businesses positively or negatively. Stuff like what is in the CFA program is the toolkit used to understand those good or great businesses better, and then to craft a portfolio of such enterprises.
Go John, go!
Jason
Hello Sir.....it was indeed best article i have come across so far..i am 29 and awaiting L2 result...i have been reading annual reports and recently i have downloaded research report as well...but the only problem is I don't know from where to start..i want to forecast and want to check whether it matches with report or not..but cant find any clue....can you throw some lights on it..i will be planning to re read it...i am unemployed so have plenty of time...i would be indebted if you can be of any help..
Really Really Thanks from the bottom of my heart
Hello Darshan,
Thank you for your question and best wishes for success on Level 2.
In answer to your question about forecasting...I recommend checking out a library book or purchasing a book on corporate finance in which they teach you how to forecast a company's financial statements. If you look in the question thread above you will see a list of my recommended finance books. To find it quickly simply type and search on the name 'Gapenski' as that is my preferred book on corporate finance. My understanding is that the author has updated the book many times since I first read it; and I am guessing the book is now even better than before.
Once you have forecasted financial statements then you can use your CFA Institute skills to value the business. I recommend four valuation books but many like Aswath Damodaran's Investment Valuation.
With smiles!
Jason
Dear Jason:
This is an amazingly practical and at the same time inspirational article and series of followup posts. Is it possible to be paid for doing ER if one has Level 2 cleared? What about Level 1? I am talking about generating reports in one's own time. I live in one of the top financial markets in the US but am not connected to the industry at all (physician). I love your idea about starting a website with my ER and other writings posted there (any ideas on how one goes about getting started there?)
Awesome article and ensuing comments section too!!
Lawrence
Hello Lawrence,
Thank you for your praise, I am so pleased to read that you find this practical and inspirational!
Yes, it is possible to be paid for doing equity research if you have passed Level II - that was my own story. I had only just taken Level I when I was hired as a research analyst. Obviously every firm has their own hiring practices and some may insist on you having your CFA charter. Your work as a physician gives you a massive advantage over most aspiring analysts because of your depth and breadth of knowledge of a particular industry.
I was a bit confused by you asking if you can be paid for equity research pre-attainment of the CFA charter and then saying that you are 'talking about generating reports in [your] own time.' In my experience, getting paid for your equity research without having an analyst position would be very difficult. Just as you getting paid to do another form of medical practice would be very difficult outside of your specialty (e.g. osteopathy vs. oncology). Once you have several research reports created I would approach your local CFA society (i.e. attend an event) and see if one of the kind folks in your local market would consider reviewing your research reports and make recommendations for your next steps on the research analyst pathway.
As for your website...you can create a free blog on Blogger in about five minutes. All you need is a unique URL and a place to publish your thoughts, and Blogger provides all of these things. If you want your own website I would think about an inexpensive webhost (there are too many to name) and use a website template (of which there are many) to create your site. If you get very serious about it you are looking at about a US$2,000 expense to have someone create a site for you.
Best wishes for success!
Jason