Equity Research Overview
Equity research is a great career path that combines deep industry analysis, financial modeling, and writing research reports. Equity research is a field that allows you to deeply learn about a specific industry and forces you to become a subject expert on a group of companies. Equity research is a popular field because professionals tend to work fewer hours than their investment banking / private equity counterparts and enjoy more stable career trajectories.
Equity research is a sell-side role that combines a unique blend of skills that includes writing, deep analysis, and client management. And in equity research, you spend your entire day looking at public stocks and the public markets, which is arguably better training for the hedge fund job than investment banking. As such, equity research is often a great precursor to hedge fund roles and investor relations roles.
What’s very interesting about equity research is that it is often the best entry point for people coming from non-finance industries. To be an excellent equity research analyst, you need to have unparalleled knowledge about an industry, which often makes people coming from that industry more suited for the job. It turns out that it’s easier to teach a doctor about financial modeling than it is to teach a banker about medicine. As such, if you’re in a highly technical field like medicine, engineering, or aerospace, equity research is probably the easiest way for you to lateral into a finance role.
If you're interested in breaking into equity research, check out our course, which will teach you all of the modeling, valuation, and recruiting strategy you need to get the job.
What is Equity Research?
Equity research is the sell-side function in which you develop investment recommendations, industry research, and company analysis for clients. You are responsible for covering a stock, in which you will report on quarterly earnings, financial filings, and all major news events. You are essentially like a news reporter on a particular stock – you study everything to do with the stock and give recommendations based on your research. You will also have direct access to the public company’s management, a luxury that many investors do not have.
Responsibilities typically include:
Building financial models to forecast out the performance of the stock.
Developing a comprehensive report on a new company (an “Initiating Coverage” report).
Writing update reports when a company reports earnings or has a financial event.
Liaising between corporate executives at public companies and investors.
Assisting investment banks with industry-specific knowledge during initial public offerings (“IPO”).
Educate investor base on new tradable securities that the company is going to issue.
Equity research teams typically either operate within an investment bank or as their own independent agency.
Each of the bulge bracket firms (GS, JPM, MS, etc.) has an equity research team and many of the elite boutiques also have equity research functions. Not every equity research team will cover every single industry and company. The larger bulge brackets typically do not directly cover small-cap companies, which are often the purview of small equity research shops. This structure mirrors that of investment banking, where industry coverage is dependent on personnel and client demands.
In terms of work/life balance, the equity research job has a high amount of seasonality. When public companies report earnings, the amount of work required by the equity research team is much higher. Companies report earnings four times a year during Earnings Season, whereby equity research analysts have to publish earnings reports, do investor calls, and update their models.
You might work 40-60 hours for most of the year, but during the period that your covered companies are reporting earnings, you could work up to 60-80 hours per week.
Why Equity Research?
Equity research can be a great career path for the right kind of personality. Some of the biggest draws include:
Pros of Equity Research
Become an industry expert in a specialization
In equity research, you get to go extremely deep into an industry vertical and learn about a couple of companies extremely well. You arguably get to learn more deeply about companies in equity research more than any other part of finance due to your access to company management and level of focus.
Understand the investment narrative of both sides of a trade
One of the most interesting parts of the equity research job is that you get to interface deeply with the company and with investors. As a result, you’ll get to learn about what management believes in, what the investor sentiment is, as well as the biggest concerns that investors have. Equity research analysts can assign buy or sell recommendations, meaning that you will be exposed to different parts of the investment narrative.
Develop a broad skill set that helps retain career optionality
Equity research is a career field where you get to do modeling, company analysis, as well as client management. It’s a rare job where you get to work on interpersonal skills and also learn all of the tools associated with financial analysis. As such, many people start in equity research and can move to hedge funds, private equity, corporate roles, business development, or business school.
Learn about public markets
The most distinct advantage that starting in equity research has over investment banking or consulting is that you have much more direct involvement with the stock market. As such, equity research is arguably the best training you can get t to work at a hedge fund.
Cons of Equity Research
Highly variable hours
Hours on average are better than investment banking or private equity, but hours can still be 60-80 hours during earnings season and when doing an Initiating Coverage report. The average work week is likely still in the 40-60 hour range, but the variability can be unpleasant for some.
News-driven work schedule
Like a news reporter, your workflow is highly dictated by what the companies and markets are doing. If your company is going through a lot of corporate events or a period of turbulence, you may need to spend more time writing updates and liaising with investors. Your life can be unpredictable in equity research as you have to be highly reactive to news.
Teams are very small, which may lead to you still doing grunt work as you progress
Equity research teams tend to be fairly small. Even at a large equity research firm, an industry team may only be 2-4 people. As such, even as you progress in the ranks, you will still likely have to do more of the execution grunt work such as formatting, building models, and working with editors.
Compensation is more stable but tends to be lower than investment banking
Equity research tends to have very low variability at the junior level, but salaries in general are lower than some other fields. It’s still entirely possible to make ~$300k with 5 years of experience, but it is relatively lower than fields like private equity and investment banking.