7 traits of a successful equity research analyst

By | July 27, 2013

Unlike most financial roles, being an equity research analyst is an exciting and stimulating career with the added bonus that it can also be quite lucrative. However, not everyone is cut out for the job. Here are some attributes of great equity research analysts:

• Intelligent: You don’t need to be the smartest person in the room, but given the intense competition, great analysts need to have above-average intelligence. Those analysts who retain what they learn, and can recall it at a later point when needed, are likely to generate more alpha than those who can’t.

• Innately inquisitive: As children, their parents may have complained that they were asking too many questions or taking apart things that weren’t broken. Friends ask, “Why do you want to know that?” Great analysts are always asking why in an effort to determine where consensus could be wrong.

• Self-motivated: There are tens of thousands of other professionals all looking for the same alpha-generating ideas, which means the winners need to be naturally motivated to jump out of bed before 6 a.m., be at their desks by 7:30 in preparation for their morning meetings, and willing to work evenings and weekends to develop an edge.

• Self-directed/resourceful: Akin to reading all of the books in the library, the daily tasks of financial analysis can go into infinitesimal directions, most of which are dead ends. Great analysts don’t wait for their managers to tell them the next steps to take or to notify them when they’ve reached a dead end.

• Focused: There are many distractions in the world of equity research that can consume an entire day but add nothing to the pursuit of alpha. Learning to stay on task and ignore distractions is a big part of the job.

• Risk-taker: All great stock calls require the analyst to be out-of consensus, essentially telling the rest of the world it’s wrong. Waiting for a more comfortable situation, when additional information becomes available, is usually too late because it immediately gets incorporated into the stock price. Great analysts are not uncomfortable when their well-researched thesis is in disagreement with others.

• Influential: We spend a lot of time on spreadsheets but being an equity research analyst isn’t just about the numbers. It’s also about the people behind the numbers. Much of financial analysis is obtaining good information to make future assumptions, which is facilitated by having an extensive network of contacts. The three areas where it’s needed most are (1) getting information from management, (2) getting information from industry sources, and (3) conveying stock ideas to portfolio managers (or clients and salespeople for the sell-side). In general, the more influential (charismatic by some definitions) an analyst is, the broader his or her network is, leading to better analysis.

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