Why Equity Research & A Resource Longlist To Get Started

Summary

This is about why I want to get into equity research and how I think I can get there. If you're similarly minded, maybe the story of my interest in economic growth and making sense of the how the world really works can be helpful to you too - since it's good to have a narrative and you'll be able to assess if you're coming at it through the same angle. I also want to then breakdown the skills I think are needed to break in and practice that craft, which also leads to a longlist of links and resources that I think are pretty helpful.

Part I: Rationale

So the short upfront answer is that I think I want to get into equity research, and that it's my best bet. But why?

Well take my interests: I'm very interested in economic growth, institutions, and how we organise ourselves. In other words, it's something like political economy. I remember when I was young reading fantasy novels - and I was always so captured by stories of how the king and his court managed his lands. What is wealth? How do you get more powerful? Is it the land that generates agriculture, is it the organisation of the farmers themselves, and how might this plenty be translated into hard power and so on? All these things just seem so intertwined and approaching something like what political economy is.

Which in other words, could be said to be the inspection of how we organise ourselves and the interactions against our economic realities.

Now in the current day I think that I want to do something centred around generating that thing which gives us more prosperity. So take first: you believe in some humanist principle and in progress, right. So generally speaking there is some pretty standard argument for at least some good to be generated via the increased production of basic goods, reducing poverty, and making people better off. What we do after that can still be discussed but the point is that there's some reason enough to make things materially better off - or to focus on growth.

Now I think on how to generate economic growth basically comes down to actual economic activity. It involves the founding of firms, the creation of products, and the distribution to consumers. And this doesn't need to involve direct consumer goods, but can also involve infrastructure, energy, and productivity tools or housing.

Given that I don't really know what firm to found right now, I think one of the productive things to do that helps economic growth is the allocation of capital to productive economic activity. And I think, on reflection, that is what good investing does on some level. It assesses real activity and places resources towards those ends. If you end up making money because the firm did well, then hopefully it's also because the firm was pretty useful to society and people as well.

Mix this in with my personal interest and perhaps expertise with political economy or international relations, and I think there's a good case for something like good investing. And personally I'm very interested in the pace and workings of public markets, which comes close to real-time analysis of the flow of the world and the shaping of the future. There's another conversation to be had about my interest in research and how I think it may be too upstream and removed from the 'applied' work that the financial industry offers me - but that can be left for later.

So that's a first past take on why focus on markets, investing, and so on - and I think you can see the general story is something like getting to assessing what creates prosperity.

Part II: Tactical Next Steps

Now in part two we're going to cover the tactics and specific pathways that I've scoped out.

So I think that the work I want to do is something approaching a portfolio manager. I think this is subject to change, but some initial reasons are that it first seems to involve making good judgement calls on the flow of the world, second these calls could be put towards generating or assessing what is actually good or better for the world (I hope), and third the job itself has some pretty good pragmatic elements like relatively decent pay.

So if I were to re-formulate that it would be that there is first the abstract goodness that you could be working towards as seen in the previous point. Second, that the work seems interesting in the day-to-day and tuned to things I care about. And third, there are good backup options and general pay along the way.

So if you're convinced, the path from my time trawling some forums are in order: Portfolio manager from an analyst in a fund (which may be a hedge fund or in asset management), which come then perhaps from being an equity analyst on the sell-side or in some other institutional asset management firm.

(Portfolio manager > Investment analyst in the same fund > Equity research analyst on the buy-side > Equity research analyst on the sell-side)

Getting in as close to the start of that chain seems better, with odds increasing as you go down the chain at the trade-off of having to put in more time and starting further away from your end goal. If I had to give odds I'd say there's some chance of jumping in as an analyst in asset management and a good moon-shot to gun straight into a hedge fund or more likely some other buy-side fund as an investment analyst.

You also do have a side-conversation about whether to move into a hedge fund or commit to asset management, which are two different things. This involves the fee structure, compensation, and the pace of the work. But broadly speaking if we're thinking about how to even break in I wouldn't say this is the most pressing issue. You can also possibly just think of staying in asset management or making the jump when you have more information and you're actually in the role.

So assuming that's the goal and your optimisation matrix, you want to be geared towards being an equity research analyst (whose skills broadly overlap with the idea of being an analyst on the buy-side) - with focus on the skills of your formal academic credentials, your work experience, networking, technical preparation, stock pitches, and perhaps a CFA.

In my position, I'm not too worried about my formal academic credentials, given that I am already pursuing a masters by research. But there is some thought I could put towards optimising my thesis and gearing my research work into something that is relevant and places me in networking opportunities.

My work experience plan is to get to more interesting research projects that a university environment can afford me. For example, some think-tank work in applied international relations environments, which may be able to be tied to global macro strategies or some other analysis of the world, perhaps such as focus on China or the region of southeast-asia in particular.

I also think that this sort of work may be cohesive with networking, in that you get to work with interesting people and may be placed to enter conferences that rubs shoulders with people in the industry. But I am also thinking of better and more direct ways in to network. The goal is to meet people, but I also have this intuition and belief that being a personable, interesting, and person who is interested in others is the key. Which brings to mind some other forms of networking that may be more informal or perhaps even more audacious - like writing for known news outlets (If that is even possible, but may be as a graduate student if I can position myself for sufficient expertise. A key inspiration is Dan Wang.).

The most pressing and immediate would be getting technical skills, like modelling and valuation up, and that ties in with getting knowledge of the market and developing good stock pitches. I think good pitches naturally arise from consistent engagement in the market, so another idea to practice that craft besides managing a personal account is to write some summary sheets on the market at large.

Lastly, the guide by mergers and inquisitions states that the CFA is nice to have and show that you are serious, especially if you come outside from a non-finance background, but should really be prioritised below the above other skills.

So to rank them in importance to me personally, it would be to:

1. Get technical skills
   1. by practicing the craft of modelling and creating your own models to publicise
2. Develop some good stock pitches
   1. which are developed by following the markets, and may also be tested by write-ups
3. Work on interesting projects or work with funds themselves (somehow)
   1. which may involve a long-list of possible opportunities, either independent work, side-projects associated with certain funds, or niche applied research that some think-tanks may offer
   2. along the way, you should think of how to network into the field even more, and find ways to push yourself out there with a well-crafted story and angle of approach
   3. this section probably requires constant re-assessment and identification
4. Craft a good story to leverage your academic experience
   1. which involves finding a good master's thesis topic that can sound kind of hot
   2. think about what other work you may do in your candidature (the grade are not a concern considering graduate school is a whole different beast from undergraduate life)
5. Look into sitting the CFA level 1
   1. which may be manageable given that the first stage is fully multiple-choice

I think you should evaluate what part of this is useful and fit it to your own circumstances, since you know yourself better. Hopefully the rationale and structure is somewhat helpful.

Part III: Resources

These are resources I like and plan to refer to. It's not exhaustive and prone to a lot of change.

1. Technical skills of modelling and valuation
   1. Particular hard skills
      1. A simple sum, which provides lessons on valuation
      2. Aswath Damodaran, who is the literal text-book author and god of valuation at Stern in NYU, he has some very cool valuations that he puts up on his blog as well
   2. General
      1. Intelligent investor, the classic book
   3. Extras
      1. WSO academy, for a forum on first-hand accounts and people's advice to breaking in
      2. CFI, which has some offerings for valuation as well but is paid
2. Following the markets
   1. Sources of news and happenings
      1. The diff, for super nerdy amazing deep dives on technology and firms that make the future
      2. Matt Levine and John Arthurs from Bloomberg, the former for interesting events in finance and how it works like with mergers or securitisation, and the latter for broad snapshots of the macroeconomic environment
      3. Exec Sum, for deal-flow and daily market activity
      4. The Economist, for a good current affairs outlook that is my personal favourite for its analysis of society and the deeper movements behind current affairs
      5. Bloomberg and WSJ's daily news briefings, for market oriented news and events
   2. General societal wide look at things
      1. Adam Tooze, for a look at charts and movements in the market that indicate deeper movements within society
      2. Works in progress, for innovations and future oriented projects
      3. Palladium magazine, for social thought and the movement behind politics and another one of my favourites
      4. Dan Wang's blog and writing, who is a global macro tech analyst for China from Gavekal Research and is very well known - his yearly letters from China are amazing deep dives
   3. Opportunistic minded sources
      1. New money, for events and particular equities
   4. Other nice-to-haves
      1. Foreign policy, for pieces on foreign affairs
      2. Foreign policy research institute, for in-depth write-ups on international relations
      3. Financial Times, for another look such as what WSJ offers
      4. Various investment bank and asset management write-ups, like the research arms of JP Morgan, Goldman Sachs, Blackrock, and Bank of America - it's nice to read their outlooks for the year
3. Places to do interesting work
   1. Think tanks
      1. LKYSPP, Brookings, etc
   2. Funds
      1. If you're in Singapore, then the MAS website which lists all registered funds
4. Story telling, cold emailing, and advice on how to break in
   1. Mergers and inquisitions, for structured advice and cold-emailing templates
   2. WSO, for forum posts on how the industry works and people's impressions

I'll be updating this as I find more sources.