Careers in Equity Research

In Career Guides, Investment Management by Chi TsangUpdated On:

Do you want a career that pays you to learn about new things every day? A career that rewards you to
predict the future and capitalize on market dislocations? A career that requires you to study global
events, leaders and government policy, corporate history and fundamentals with the goal of valuing a
company? A career that pays you to apply that knowledge and finance skills to make big bets? A career
where you can be a specialist or a generalist? A career that allows you to travel the world to discuss
strategy with CEOs and policy with government officials? A career where each day is different? A career
where you get to work with and meet some of the sharpest minds in the world?

That career is equity research.

Getting a Seat at the Table

Getting an MBA was an opportunity for me to change careers. I was a financial advisor and I thought it
would be more interesting researching stocks and investing in companies than advising investors. In
business school, I had classmates that wanted to run a consumer brand, others pursued management
consulting, some saw themselves as investment bankers. These are great careers and most became very
successful. Some of the smartest people I know do marketing and manage brands, “creating” demand.
But none of this was for me.

I was inspired by a book called “Investment Biker” by Jim Rogers published in 1994. Rogers is a
legendary investor, having co-founded Soros Fund Management with George Soros. He was in his early
50s when he rode his custom BMW motorcycle for nearly two years, visited 52 countries and traveled
100,000 miles. There’s nothing like first-hand, on the ground knowledge of culture, demographic trends,
meeting local entrepreneurs and policy makers to help identify investment opportunities. Rogers
famously predicted the commodity super cycle which lasted from the late 1990s to about 2010, driven
by demand in China and India. He’s called the Indiana Jones of Finance. While I didn’t envision myself
riding a motorcycle around the world, I was hooked on the adventure of traveling the world to find
investment opportunities.

Summer Interns are Serious Jobs

Earning an MBA was transformative in my career and networking helped me land my dream summer
internship. My big break came when I was offered an internship at a large asset management firm on
the international equities team. It was 1998 and wireless internet 1.0 was emerging and European
technology companies were the leaders in putting Internet content onto mobile phones. I was actively
researching companies and questioning CEOs and CFOs and learning about this exciting technology. I
never expected this to be the start of a 20-year career investing in and advising technology companies.
Summer internships are critical to an MBA education and the key to getting full-time roles at graduation.
At that time, my firm had one of the largest international equities portfolios in the US. Despite my role
as a summer intern, the size and importance of my firm gave me the opportunity to meet with company
management teams and sell-side research analysts daily.

One highlight for me was a meeting with the CFO of Volkswagen. The company had just announced a
significant new platform strategy aimed at streamlining its production and cutting costs by sharing
components, using a modular design and global standardization. This was revolutionary at the time and
is now widely adopted in the auto industry. I was given a 1-hour meeting with the Mr. Bruno Adelt and
the goal was to understand the financial projections, challenge him on his assumptions, home in on the
execution risk and discuss the outlook for autos and the competitive landscape. Then I had to
incorporate my learnings, along with my research (e.g., discussions with sell-side analysts, other auto
manufacturers and supply chain partners and customers), into my proprietary financial model, value the
company and create a compelling narrative to pitch my portfolio manager.
After two decades, I still remember that meeting vividly. Mr. Adelt was a seasoned auto executive, in his
mid-50s. I was a shiny new MBA student that knew little about the auto industry. To me, this is what
makes equity research so rewarding. It’s intellectually rigorous. You are paid to learn about the sector,
history and trends, eco-system, risks, government policies, historical valuation and the market outlook.
It’s also one of the few jobs where you can have a serious business discussion with the CEO or CFO of a
Fortune 500 company, even as a summer intern.

Find Your Passion

Passion is the difference between jumping out of bed to go to work or hitting the snooze button
repeatedly. Passion is finishing the Wall Street Journal on the subway and sitting at your desk at 7am.
What’s happening in the world? Read the Economist cover to cover over the weekend. You crave
investment knowledge. Read the investment classics such as “The Intelligent Investor” and “Security
Analysis” (written by Warren Buffet’s professor at Columbia Business School) and One Up on Wall Street
(written by Peter Lynch, the most famous portfolio manager at Fidelity). Read Warren Buffet’s annual
letters to shareholders. Study “Principles” by Ray Dalio. Passion and fire distinguish success and failure
in equity research.

Finance is only a part of it

As an equity research analyst, my job is to connect the dots. Which tech companies are the most
vulnerable when there’s an earthquake in Taiwan? Which technology companies are best positioned to
capitalize on an aging population? Which companies win or lose when the US government restricts
technology exports to China? Which stocks are best positioned when interest rates decline? The best
investors and analysts track domestic and global affairs and markets, politics, business trends,
demographics, commodity prices, interest rates and trends in different asset classes (such as real
estate). All this, plus an expertise in building financial models, financial statement analysis and finance.
Investors and analysts are the Renaissance men (and women) of business.


The Smell Test

Equity research analysts are inquisitive, know a little about several sectors and usually have domain
expertise in one or two sectors. I was the global sector head for telecoms, media and technology and
the in-house expert on these companies. The portfolio managers I worked with were usually generalists,
with historical knowledge of many companies and sectors over time. Some were sector specialists and
levered their analytical capabilities to understand how to generate alpha in other sectors. Perhaps most
importantly, top equity research analysts have common sense. After all, equity research is about
analyzing businesses. Can you distill the company and business model into a few simple sentences that
make sense? Are the forecasts reasonable given trends, patterns and assumptions? Are the assumptions
themselves realistic and consistent with the sector metrics and fundamentals?

Read the management team. Scott Sullivan was the brilliant CFO of WorldCom and the highest paid CFO
in the US in 1997. He impressed investors with his knack for remembering figures, like pulling them from
the air. Little did we know Sullivan was literally making up numbers. In 2005, he was convicted of
accounting fraud and sentenced to five years in prison. I met Sullivan on many occasions but never
recommended WorldCom to my portfolio managers. But he was the financial mastermind behind a $3.8
billion accounting fraud, at the time, the biggest scandal in US history.

Hardest Exam in Finance but Worth it

Work all day, take classes at night and study on weekends. Not as glamourous or interesting as meeting
with CEOs but that is the journey of a Chartered Finance Analyst (CFA) charter holder. It is difficult to
prepare for and pass all three levels while working as an analyst, and that is what makes it a significant
achievement. It’s a valuable distinction and others will recognize your expertise in finance and
investment, dedication to the field and expect a professional code of conduct. Success in equity research
or the buy-side does not hinge on passing this test, but I highly recommend it.

The CFA program started in 1962 and is administered by the CFA Institute. Globally, there are
approximately 200,000 charter holders. To put this in context, there are roughly 700,000 CPAs in the US
and another 240,000 Chartered Certified Accountants globally.

These are very rigorous exams. Last year, 25,000 candidates sat for the Level I exam and 36% passed.
Level I topics include the foundation of investment such as economics, equities, fixed income and is
heavily focused on financial statement analysis and accounting. 12,000 candidates sat for the Level II
exam last year, which had a 44% pass rate. This exam emphasizes the application and analysis of
investment concepts and is a deep dive on finance and valuation. 16,000 candidates took the Level III
exam in 2022, which had a 43% pass rate. The third level emphasizes portfolio management and is in
essay format.

Ethics and professional standards are tested at each level. Further, exams are just one part of the
process. CFA charter holders need to pass all three levels, have direct work experience in investing and
provide reference letters.

I passed the CFA Level I exam while I was in my second year of business school and passed Level II the
following year. I remember falling asleep in class for Level II, even though I drank a large coffee and sat
in the front row. Not easy juggling a demanding job and listening to a finance lecture until 8pm. Level III
was a challenge, mostly due to work commitments and I had to take it twice!

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About the Author

Chi Tsang

Chi (LinkedIn) is a global finance executive, with experience as a senior analyst and portfolio manager at a very large US asset management firm, and sector head in sell-side research and head of investment banking at a top global bank. He has a global perspective, having worked on Wall Street and lived in Asia for a decade. His career spans decades at various roles in GE Asset Management, Neuberger Berman, Lombard Odier and as Managing Director at HSBC. He currently runs a tech venture capital firm investing in early stage US companies. He also has a pdocast where he talks about financial markets.