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So, you’re interested in the public markets…
You’ve been trading your own portfolio and making investment recommendations since you were in middle school…
…and now you’re at a top university preparing to enter the finance industry.
You’re probably wondering: Is equity research right for you?
Or will it go the way of the dodo bird, driven to extinction by MiFID II, passive investing, and falling trading commissions?
We’ll address those questions and more in this article, but we’ll focus on equity research recruiting and interviews – since the industry is still alive, despite rumors to the contrary:
The Equity Research Job Description
“Equity research” in this article refers to the sell-side role at investment banks where you analyze public companies, speak with management teams and investors, and make Buy, Sell, and Hold recommendations on the stocks.
For example, you might cover the pharmaceutical industry in equity research at a mid-sized bank.
There’s a company that recently went public, and you believe it is undervalued.
You value the company, speak with management and other market participants (ex: institutional investors), and then you explain why the company’s stock price might increase from $100 to $150 over the next year, using the research and quantitative analysis you’ve done.
You then publish a report with your findings, and you also present them to institutional investors who read your research.
Now, repeat this process with 10-15 other companies in the sector, add update/maintenance work, conferences, and continued discussions with management and investors, and you’ve got the gist of the job.
This role is labeled “sell-side” because you do not invest your own money; you simply make recommendations to others.
If you predict that a company’s stock price will rise by 30%, but then it falls by 30% instead, you might look silly – but you won’t lose money.
Research teams are best known for the reports they publish, but the senior staff (“Research Analysts”) in these groups spend most of their time speaking with management teams and institutional investors and coming up with insights into the stocks under coverage.
Junior staff (“Equity Research Associates“) spend more time on the modeling and report writing, but the work split varies by team, industry, and location.
Equity Research Reports – Examples
If you want to see real examples of these reports, you can often find them through brokerages such as Fidelity, Charles Schwab, or TD Ameritrade, as well as services such as Capital IQ, Bloomberg, or FactSet, if you have access to one of them.
Here are a few real reports issued by banks in different time periods and industries:
- Morgan Stanley – Update on Lululemon Athletica
- Morgan Stanley – Initiating Coverage on Citizens Financial Group
- RBC – Initiating Coverage on Waddell & Reed Financial
- Lehman Brothers – REIT Sector Overview
- Lehman Brothers – Initiating Coverage on CBS Corp
And if you want imaginary-but-shorter-and-more-useful examples, check out our article on Equity Research Reports.
We include sample research reports in most of the BIWS financial modeling courses as well, typically in the valuation/DCF case studies.
Equity Research & MiFID II: The Death of an Industry
The most common question we get about equity research is whether or not it’s “dying.”
In the old days, equity research existed to encourage institutional investors to trade with the bank.
Investor A might place stock trades with Bank B, resulting in commissions for Bank B, and Bank B would provide equity research reports to Investor A “for free.”
This research would then incentivize Investor A to place even more trades with Bank B (in theory).
The commissions generated by Investor A would then contribute to the compensation of the research team at Bank B (in theory).
As of 2018, this has changed in the European Union because of the new MiFID II regulations there.
MiFID (“Markets in Financial Instruments Directive”) II does a lot, but the main provision that affects equity research is the one that prohibits banks from bundling their research with other products.
So, instead of receiving research “for free,” institutional investors must pay for it separately, disclose the amount they paid, and pass the cost onto their investors or absorb it on their P&L.
Technically, MiFID II only applies to Europe, but it will make an impact on other regions because large banks are global corporations that must consider compliance everywhere – and similar rules could eventually take effect in the U.S., Asia, and other places.
If you look around online, you’ll find a wide variety of opinions: Some people think these regulations will completely kill equity research in Europe, others think they will help the “star” Analysts and hurt everyone else, and others think the impact might be overstated.
The truth is, it’s too early to tell because the rules were only implemented in January 2018. But the industry will almost certainly decline; it’s just a question of degree.
But the other truth is that equity research is affected by more than MiFID II – headcounts had been falling even before these rules came into effect.
The rise of passive investing has hurt traditional asset managers and hedge funds, and that, in turn, has also hurt demand for equity research.
Commissions from equities trading have been falling, and sales teams have been shrinking, and those make a strong impact on research as well.
We doubt that the industry will “disappear” because the client interactions and management meetings that the best Analysts and Associates can broker are still quite valuable.
However, many average Analysts are likely to be marginalized, while the top ones will command higher compensation.
The bottom line is that equity research will not be an area of explosive growth going forward, but its prospects are less apocalyptic than many headlines suggest.
Research will still offer entry-level roles, and it can still be a good steppingstone for various exit opportunities, but it is less appealing as a long-term career now.
The Equity Research Recruiting Process
The equity research recruiting process is more random and unstructured than the investment banking recruitment process.
The large banks may do some undergraduate and MBA-level recruiting, but they fill many of their spots “as needed” – if an Analyst or Associate leaves, they’ll look for someone new.
They look for the standard qualities that bankers also seek: A well-ranked university or business school, high grades, at least 1-2 previous finance internships, analytical ability, and technical skills.
The main difference is that you must demonstrate your passion for the public markets because that is the major distinction between ER and IB.
That means coming up with 2-3 excellent stock pitches, following an industry in-depth, and taking part in equity research competitions such as those sponsored by the CFA Society.
In theory, it’s helpful to intern at small hedge funds or asset management firms before applying to ER roles at large banks.
In practice, it’s often quite difficult to find those roles, so it might be better to apply to equity research at smaller firms and then move to larger banks from there.
Investment banking or private equity internships could also work, especially if you win an offer at a large, well-known firm, but they’re a bit less relevant.
Another recruiting difference is that writing and communication skills tend to be more important in equity research because you have to present your own ideas consistently.
While you also write a fair amount in IB to create CIMs (for example), much of it is mundane and consists of copying and tweaking text from other sources.
By contrast, research requires more originality.
Equity research teams sometimes recruit candidates with significant full-time work experience, especially in industries where deep technical knowledge is required to understand the companies: Biotech, pharmaceuticals, or semiconductors, for example (see: our full coverage of biotech equity research).
In those industries, you’ll occasionally see Ph.D.’s or industry executives move into equity research – assuming that they’ve learned enough about finance to do the job.
Some people also move into ER from the corporate finance career path at normal companies, Big 4 firms, or even data providers like Thomson or FactSet, particularly at boutique and mid-sized firms.
Since equity research recruiting is less structured, it’s more feasible to get in through the side door or the back door.
Equity research internships do exist, but they’re somewhat different from IB and S&T internships and do not necessarily lead directly to full-time offers.
It’s hard to pin down the timing of the ER recruiting process, but it’s safe to say that it’s not quite as hyper-accelerated as the IB recruiting process.
You’ll still go through first-round interviews, often on the phone or via video, and then proceed to Superday interviews at the bank.
Finally, studying for the CFA and passing at least Level I will boost your profile when applying to equity research roles.
However, it shouldn’t be your top priority unless you’re already solid in everything else – grades, work experience, networking, technical preparation, and stock pitches.
The CFA can also be helpful if you’re coming from a non-finance background and need to prove that you know finance.
Equity Research Networking
As always, you start the networking process by finding the email addresses of industry professionals.
You can do that by searching for anyone working in “Equity Research” on LinkedIn and guessing their email addresses, or you can go through services like Bloomberg, Capital IQ, or FactSet if your school provides access.
Old equity research reports also have contact information, and some bank websites list email addresses and phone numbers for ER staff.
To verify that an email address still exists, you can use tools such as Email Checker.
It’s best to focus on groups with specific job openings, but you won’t always know that in advance.
Once you’ve collected names and email addresses, you can write a 5-6-sentence email like the one below to an Analyst or Associate:
SUBJECT: [University Name] Student – Opportunities at [Bank Name]
“Dear Mr. / Ms. [Name],
My name is [Name], and I’m a [XX-Year] student at [University Name] who found your contact information via LinkedIn.
Over the past few years, I’ve become increasingly interested in equity research as a career, and I have been learning as much as possible to break into the field.
I have completed previous internships at [Company Name 1] and [Company Name 2], two hedge funds focused on long/short equity strategies in the technology sector. I’m specifically interested in your team because of the technology companies you cover, such as [Company Names 1 and 2].
I’ve attached here an example stock pitch (and the accompanying model) I completed for [Company Name], as well as my resume.
I know you are extremely busy, but if you have a few minutes to speak so I could learn more about opportunities at [Bank Name / Group], it would be greatly appreciated.
Thanks, and I look forward to connecting with you soon.
Best regards,
[Your Name]”
A few notes:
- Length: Aim for 150 words and never go above 200. If you write a page of text, no one will read it or respond.
- Timing: Avoid contacting ER professionals during earnings season, and, as with all email networking, send your messages in the middle of the day (between noon and ~1 hour before market close).
- Directness: This email does not request an informational interview – the person asks about jobs and attaches his/her resume and work samples. Since ER has a less structured recruiting process, you should ask directly for the internship or job when you know the team is hiring.
Some people recommend against attaching work samples in your initial outreach.
If you don’t know how to value a company, structure a stock pitch, or present your ideas coherently, then you should take this advice and avoid sending work samples.
But if you don’t know how to do these things, you shouldn’t be participating in equity research recruiting in the first place!
If you have a solid 3-statement model, valuation, and investment thesis, a work sample should help you 90% of the time.
For more on this topic, see our equity research report examples.
Once you’ve made this initial outreach, you need to follow up and contact other teams using the same approach until you get positive responses.
Equity Research Interview Questions and Answers
Many of the standard “fit” questions will come up in equity research interviews: Your story, strengths/weaknesses, why equity research, team/leadership experiences, etc.
We covered these questions from an investment banking perspective in previous articles, but you can use nearly the same format and structure for ER interviews as well.
You need to emphasize your interest in the public markets and your communication skills more heavily, and you need to explain why you want to work in sell-side research if you have previous buy-side internships.
For example, you prefer research because you do modeling, research, and writing, and you also speak with investors and management teams. You like the relationship-building aspect, which you don’t necessarily get as much of at a hedge fund.
The “Why equity research?” question is just the last part of your response to the “Walk me through your resume” question: ER lets you combine your industry background with the public-markets analysis you enjoy.
Technical questions are largely the same in ER and IB interviews, so you should expect questions on accounting, valuation/DCF analysis, and M&A and LBO analysis.
You don’t work on deals in research, but you still need to understand them because the companies you follow will make acquisitions or be acquired over time.
The Equity Research Stock Pitch
The stock pitch is a separate topic that we covered in a detailed article, so you should refer to that for ideas and examples.
You should come up with one “Buy” and one “Hold” or “Sell” idea and avoid stocks the interviewer covers directly.
You will never know more about a company than an Analyst or Associate who follows that company for 12 hours per day, so you set yourself up for disaster if you pick a company they cover.
It’s better to pick stocks in “adjacent” industries so that the interviewer has some familiarity with them, but not deep knowledge.
For example, if you’re interviewing with a consumer/retail group, pitch a food & beverage stock – the industries are related, but the interviewer is unlikely to know your company in-depth.
If you’re writing your stock pitch, you can use the same structure we always recommend:
- Recommendation – Buy/Sell/Hold and what the company is worth.
- Company Background – Brief description of the company’s products/services/geographies, its revenue and EBITDA, market cap, and relevant valuation multiples.
- Investment Thesis – The company is mispriced because of these 2-3 key factors, and the market is wrong about these points for these 2-3 reasons.
- Catalysts – And key events in the next 6-12 months will cause the company’s stock price to correct itself.
- Valuation – According to the DCF and Public Comps, this company is worth $XX – $YY per share, but its current share price is $ZZ.
- Risk Factors and Hedges – We might be wrong for these 2-3 reasons, so we could protect ourselves with other investments, call or put options, etc.
You can use this same structure in a verbal pitch, but you’ll only have 60-90 seconds to present everything.
That equates to 200-300 words, about the same as our recommended word count for your story. So, you can’t go into the numbers in-depth and explain every last point.
Here’s an example 281-word verbal pitch for a REIT:
“AvalonBay, a U.S.-based multifamily REIT, currently trades at $165 per share, but it is worth closer to $190-$200 per share and could reach that level in the next 6-12 months. The company focuses on Class-A properties on the coasts of the U.S. and has $2.2 billion in revenue, $1.3 billion of EBITDA, and EV / EBITDA and P / FFO multiples of 22x and 20x.
The market has incorrectly penalized the company for several earnings misses in its last fiscal year and expectations of rising interest rates and a coastal multifamily slowdown; however, rising interest rates barely affect the company because 83% of its Debt is fixed-rate with 10-year maturities, and even in downturns, its rental income has never declined by more than 2% per year.
The company will be able to raise same-store rents above consensus estimates and realize more NOI from its Development pipeline than the market has given it credit for; Year 5 revenue might be 10-15% higher.
Catalysts to increase the company’s share price include the stabilization of its $1.9 billion in deliveries last year, at a 6.0% – 6.5% yield, same-store rental increases above guidance, and expansion into new markets such as Denver, South Florida, and Baltimore.
The NAV and DCF indicate that the company is 20-30% undervalued in the Base and Upside cases, and only 10% overvalued in the Downside case with a 2-year recession. It trades in-line with the Public Comps’ median multiples despite 2-3x higher EBITDA and FFO growth.
Risk factors include a coastal multifamily recession, development delays and lower yields, and lower NOI margins due to rising concessions; we could hedge against these risks with put options or by shorting a multifamily ETF.”
NOTE: For more on these topics, see our free videos on Comparable Company Analysis and Unlevered Free Cash Flow in our YouTube channel.
There is no “quick” method for creating solid stock pitches.
You need to put in the time to research an industry, get to know different companies, and understand how the market values companies.
If this process bores you, you should not apply to equity research, asset management, or hedge fund roles.
Equity Research Case Studies and Modeling Tests
Finally, some groups will give you case studies or modeling tests when you apply to equity research roles.
In most cases, these will be 3-statement modeling tests for public companies, similar to the example modeling test on this site.
Occasionally, they may ask you to value the company as well; M&A and LBO-related tests are unlikely for ER roles.
We prefer annual models, but research groups often use quarterly or half-year models, so you should practice with those as well.
The most common mistake in these tests is over-thinking the model and creating overly complex assumptions.
When in doubt, simplify, consolidate, and focus on the 2-3 key drivers that make the greatest impact on Free Cash Flow.
We often simplify complex Balance Sheets and Cash Flow Statements to ~5 or fewer line items in each section because many items are insignificant or non-recurring.
For an example of a valuation and model you could use to construct a stock pitch or complete one of these tests, see our Uber valuation.
This is more complex than what you’d be expected to complete in a time-pressured on-site test, but it is representative of a take-home case study.
Equity Research Recruiting: The Bottom Line
Equity research has seen better days – the 1990s or early 2000s, for example.
That said, the industry won’t “die” overnight because of MiFID II or the rise of passive investing; if buy-side firms are still willing to spend money on research, banks will still offer it.
There will be fewer opportunities in the industry in the future, but it’s still a solid entry point and it still offers a variety of exit opportunities – if you recruit successfully in the first place.
Want more?
You might be interested in Biotech Equity Research: The Best Escape Plan from Medicine or Academia?
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Numi Advisory has provided career coaching, mock interviews, and resume reviews to over 600 clients seeking careers in equity research, private equity, investment management, and hedge funds. With extensive firsthand experience in these fields, Numi offers unparalleled insights on how to ace your interviews and excel on the job.
Numi customizes solutions to each client’s unique background and career aspirations and helps them find the path of least resistance toward securing their dream careers. He has helped place over 150 candidates in leading buy-side and sell-side jobs. For more information on career services and client testimonials, please contact numi.advisory@gmail.
About the Author
Luis Miguel Ochoa has facilitated a variety of strategic initiatives from corporate acquisitions to new market development. He earned his B.A. in economics from Stanford University where he was a member of the varsity fencing team.
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To get into equity research if you already graduated from a non target what steps do we have to take? Go get an mba from a m7 and get the cfa 1,2, and 3? Or is there another way that someone that went to a non target can get in
You have already asked some variation of this question multiple times on other articles. The MBA does not help that much with equity research because recruiting is less structured, and the CFA may provide a marginal boost but more so for career changers. Your time is best spent on networking aggressively and coming up with very good stock pitches / sample reports and analyses.
Hi Brian,
Really great article. I work in the mailroom at one of the largest investment banks. Throughout lockdown i have been doing my own study around finance and what really appeals to me is ER.
I have applied for a few roles internally through the bank including entry level positions however I don’t seem to get passed the vetting process as my experience is Mailroom and not finance related. I have completed many online courses that i pass with flying colours. Do you have any tips for me on how to get pass the vetting process – is the next step doing my CFA Level 1 to show i do have knowledge? (as the online courses im doing are not recognized.
In saying this, I have an interview next week for a Research role within the bank. If you were in my position how do you go about it? Very broad question i know but i just feel as though the interviewers see mailroom on my CV and no 5 year finance or accounting degree and have no time. How can i stand out and show i have a lot of passion for the industry.
Thank you so much for your time, really appreciate it.
Steve
Thanks. I think you will have to network with people in ER groups to pass these screens. Otherwise they’re just going to rule you out based on work experience. The CFA will not help because the automated screens are still based on your experience.
Hi Brian,
Awesome article. Really appreciate your insights! I did not come from a finance degree background (but I am currently studying for CFA level 1 as advised).
I manage a 6-figure long only (equities and ETFs) portfolio on behalf of my close friends and had made recommendations to them before selling/buying.
May I ask how I should include this in my CV for a ER internship application? Should I mention it in detail re: some of the financial modelling I did and the sectors I follow even if it’s not ‘official’? Will I risk sounding pretentious? Like some Garage Band Hedge Fund?
Thanks. Many people don’t take accounts managed for friends/family seriously, so I would not emphasize that too much; maybe just list some of your analysis and recommendations as examples of the work you’ve done but don’t say that you were “managing a portfolio for friends.” Don’t even list the dollar amount. Just act as if they were companies you followed and invested in based on your analysis, and include them to show that you have more of a finance background.
What about internal research and analytics roles at buy side firms, PE, or VC funds? Do they still follow the same interview guidelines and do they offer the same experience/prospects?
Sorry, don’t know enough about them to say. Interviews are probably quite similar, but careers are likely to differ because they’re not affected by factors like MiFID II.
Hey Brian,
My end goal has been to get into equity research since college, but didn’t end up getting an offer. I did not go to a top business school, but I did graduate magna cun laude (doubled in Economics and Finance). At school participated in the CFA research challenge (placed 3rd), made buy/sell recommendations in a student managed fund managing ~$1.8 million (I was the Energy Sector analyst), and interned at smaller bank in loan origination. Since graduating I took a role in a rotational development program at a top 5 bank. My current rotation is in market risk supporting the securities business.
My question is in what areas do you think I should focus on to increase my chances of getting in?
-Thanks! I really enjoy your articles.
I don’t know, I think you have a pretty good background for equity research recruiting, and I’m surprised you didn’t get an offer out of undergrad (was it just your school’s reputation or something else?). You could just stay in your current role, network with research professionals via LinkedIn and email, and send your stock pitches and other work to them. Maybe focus on Energy or financial services so you’re applying to roles that relate to your past experience in some way. I don’t really think it would be worthwhile to get a “steppingstone role” here before ER because you already have club/work experience related to ER.
Hey Brian, thank you for this amazing guide. I would like to have your suggestion: My long-term goal is to become a portfolio manager in either a big IM firm or Hedge Fund. Currently, I’m working toward that goal by going for CFA, investing real money with university’s investing society and gaining all kinds of related experience as much as possible. Recently I just lucky enough to get 2 intern offers: one is an Equity Research intern at a local firm in Taiwan (no one knows this firm outside Taiwan); another is a Product Strategy intern at Invesco. I don’t know which to choose since although ER is apparently what I want to do yet the lack of recognition could be a problem during my future career search (I’m planning to work in HK or even EU, not Taiwan). However, I am also not sure the difficulty to leverage Product Strategy experience into ER after my graduation from MSF.
Really need your suggestion!
I just got one more offer from SC (Retail Banking summer intern). Now I’m more confused. Although retail banking is less related to what I want to do, the brand name of Standard Chartered in Asia is really tempting (I have no such brand name experience so far). What would suggest including this extra information!
If your long-term goal is ER, you should still accept the ER offer, especially if you haven’t had much relevant experience yet.
If you haven’t had previous ER or related finance experience, I would probably pick the ER internship in Taiwan. And then complete an internship at a better-known firm like Invesco later on. You ideally want a mix of 1 very relevant internship and at least 1 internship at a brand-name firm. I think it might be tougher to network and tell your story if you only complete a product strategy internship, even if it’s at Invesco.
Thank you for the prompt reply!
I do have other finance intern experience, including one local VC intern during which I researched on market trend and built one IPO valuation model. Would that be relevant enough? If it is a “no”, I will go for the ER offer :)
That is a tough one. I don’t know. Personally, I would still go with the ER offer as long as you have time to get more of a brand-name internship before graduation. If not, then maybe take the Invesco offer.
Got you! Thank you very much for all the suggestions!
Great article, but I have a few questions:
– I have been recruiting for ER for some time now, but have only been setting up informational interviews. Should I reach out to the contacts I have made and send stock pitches with formal questions about job opportunities?
– How do you know which groups are hiring? Where do you get this information?
Thanks in advance.
At some point, you need to ask more directly about job openings, so yes on the first question. You don’t necessarily need to send a stock pitch if you have already spoken with the person, but if you have something reasonably good, it would be a good idea to include.
To find out which groups are hiring, look on job boards and see which banks have posted recent openings in specific locations.
Do you have any tips for somebody hoping to land a full-time role in equity research after spending this summer working in India?
I’m working under a sell-side ER analyst but we cover equities that trade on the BSE/ NSE, not the NYSE/ Nasdaq. I’m confident I can offer a similar skillset, but I have heard of foreign work experience being discounted by employers.
Yes, emerging markets work experience tends to be discounted by employers in major financial centers. Your best bet would be to emphasize that you have experience in both developed and emerging markets (if true) and also point out somewhere on your resume that you’ve also followed or made recommendations for companies in developed markets. Even if it’s something you did as a personal or side project, turn it into work/leadership experience.
Hi Brian–
I may have an opportunity next summer to intern for a research firm that specializes in the healthcare sector. If I’m interested in breaking into IB or trying my luck with HFs out of undergrad, should I avoid this research internship (assuming it’s offered to me)?
I think I would enjoy my summer as a rising third year in New York, but I don’t want to be pegged as the “research guy.” Would this research internship help me transition into a HF role for the subsequent summer?
Thanks
It depends on what you want to do long term. If your long-term goal is a hedge fund, then a research internship will only help you. If your long-term goal is IB, you pretty much need an IB internship to get in right out of undergrad. A research internship won’t “hurt” you necessarily, but it means you’ll have to lateral or hope you catch a lucky break with accelerated recruiting.
do you have any advice for an incoming ER intern?
Many of the tips here apply: https://mergersandinquisitions.com/investment-banking-internship-preparation/
You don’t need to know as much about deals, but learning Excel, PowerPoint, financial reports for companies in your industry, etc. are all helpful.
Get the job first then ask about the exit options and plus you have to know is another uphill battle to placing and landing an exit.
??? This comment baffles me. You need to think about exit options going into any job, but obviously you don’t ask the interviewer about them or otherwise hint that you want to exit early on. No one wants to end up in a dead-end job that leads nowhere, so exit options are important. We will cover this in Part 2.
Other than IR and buy side, what are the other exit options when you decide to leave equity research? Thanks!
Corporate finance, corporate strategy, and other roles at the bank (investment banking, etc.) are also possible.