The best equity analysts routinely use their influence to be more effective. In almost any task of an analyst’s job -whether speaking to management, investors or portfolio managers one-to-one or just sending an emailing to a random potential information source-, there is an influencing element involved. There are a number of important skills required for all types of influencing, and it’s critical to possess or develop these skills in order to succeed as an analyst:
• Communication skills (both speaking and writing)
• Awareness of others’ needs
• Listening skills
• Network building
1) Self-Awareness. Unless you’re superhuman, you’ll likely have deficits for some of the important influencing skills. The first step in correcting these shortcomings is being aware they exist. It’s for this reason you should regularly be asking friends and trusted advisors about your performance. After you’ve made an important presentation to a group of people, contact at least one from the meeting and ask for advice. To ensure you get useful advice don’t just ask, “How did I do?” but rather, “Rank me on a scale of one to five on these areas”:
-Ability to be understood and heard
-Logic in my thought process
-Information to support my points
-Body language, such as eye contact and posture.
Sell-side analysts should always ask salespeople who participate in their presentations to provide feedback afterward. Being specific is also helpful here: “What could I do to be more like [insert the name of a successful analyst at your firm who has mastered the skill]?”
2) Communication Skills (both speaking and writing). Do you speak and write the language of your stakeholders as though you were raised in their culture? I’ve met successful analysts who didn’t meet this criterion, but the quality of their work had to be well above average to get noticed. If you can’t be understood, you’ll have a tough time influencing others. As with many of the other areas discussed in this section, make sure to get candid feedback about your abilities so as to correct deficits. In a case like this, there are speaking, language, and writing coaches who can help cultivate one’s ability to be understood.
3) Awareness of Others’ Needs. This is probably the secret ingredient for being a great influencer. Highly intelligent analysts usually miss opportunities to gain insights because they plow through discussions with almost no regard for others’ needs. Before beginning a discussion, the analyst must have in his or her head the answer to these two questions in order to influence the other person:
• What’s in it for them?
• What are their concerns?
If you are meeting one-on-one with a company executive and ask “Do you think you’ll hit your quarterly target of 10% revenue growth?”, what do you think is going through that executive’s mind?
Probably something along the lines of “I want this analyst to think more highly of our firm so we’ll get a more positive stock recommendation, but I don’t want to risk losing my job by violating Reg FD (Regulation Fair Disclosure)”. So, he or she answers the question with a generic response that adds no value such as, “We have not made any changes to the guidance we provided a month ago.”
The executive would likely provide a more insightful answer if the question was asked in a way that was sensitive to his or her motivations and concerns. For example, it could be asked as, “Could you discuss some of the factors that would lead your company to exceed or fall short of its 10% revenue growth target?” In this example, the executive has much more latitude to answer the question without being concerned of violating Reg FD. It’s the analyst’s job to note how much emphasis and time the executive spends discussing positives versus negatives in order to provide a better indication about the company’s progress.
4) Listening Skills. Analysts can’t possess skilfulness in being aware of others’ needs if they don’t hear other people’s concerns. While being inquisitive is important for an analyst, are you doing significantly more than 50% of the talking when having a conversation? Do you find you interrupt others to help finish their thoughts or to interject yours? If so, you’re probably not a good listener, which will ultimately hurt your ability to influence others. It’s not only that the analyst misses part of the message, but there is a decreased sense of control from the other person’s perspective. As control is lost, so goes the desire to provide helpful insights. There are numerous programs available to help assess one’s ability to listen and make improvements if necessary.
5) Adaptability. If you’re going to do field research, be prepared to adapt. Individuals are more likely to open up to those who are similar to them. If you are travelling to a conference of truckers, you probably don’t need to wear a tie or cufflinks. And adaptability goes way beyond appearance. Get in the mindset of the person you’re trying to influence. You’ll regularly come across company middle managers who are reluctant to speak to Wall Street analysts because they’re concerned about not being smart enough about the topic at hand. So adapt to the situation by sharing an anecdote on a common industry topic that they’ll likely be comfortable discussing. For example, if you met a grain shipper at a conference, open by saying something like, “I hear there’s been quite a shortage of railcars for grain this year.” It’s something so basic and universal to the industry that it’s likely to bring down anxiety the other person might have about speaking.
6) Network Building. One of the primary reasons analysts with more experience are better than those with less, is the vast network of contacts they’ve developed over time; and I’m not just talking about industry information sources. The network includes other people in their firm, such as those who don’t work in their department, clients, salespeople, traders, and friends. Don’t lose sight of the fact that you need information to develop unique stock insights, and the best way to get this information is through word-of-mouth; in this way there’s a better chance it’s not already in the market. (If you could build a mosaic by speaking with four colleagues in your network or learn about a new concept by reading the Wall Street Journal, which is more likely to help generate alpha?). Keeping in mind that time is your most valuable resource, and that you can’t possibly get to know everyone, cultivating opportunities to make connections is crucial. If you’ve been invited to a meeting, internal or external, make an effort to get to know the individuals well enough that you could follow up with a phone call at a later point if necessary. Make sure to add them to your contact list when you get back to your desk. Don’t dismiss any contact as too insignificant. A frontline employee can be extremely helpful in confirming congestion problems, for example.
7) Confidence. People are more likely to follow those who demonstrate confidence. If you want to take someone down the path of a discussion or try to convince them to act on your stock recommendation, you’ll need to do so with confidence. Some of the wars to demonstrate confidence include:
• Be prepared (know the topic you’re going to discuss well).
• Demonstrate interest by being enthusiastic, and have a high degree of energy.
• Appear relaxed.
• Be an optimist when discussing challenges you might face.
While confidence is important, don’t take it to an extreme by becoming blindly confident. There are instances where analysts become more confident in their thesis as the stock goes the wrong way, all in an effort to convince themselves it will come true. Just because you say something with confidence doesn’t mean it’s going to happen; do the research to increase the probability you’re right. Some analysts constantly express a high degree of confidence in any recommendation or forecasts, but this has more to do with being naïve rather than confident. Being aware of the counter arguments for any recommendation and being ready to change your view when the facts change is a key criterion in being a balanced analyst.
8) Credibility. People will avoid being influenced by those they don’t trust. As such, you’ll want to develop trust with individuals you seek to influence. Unless you walk in the door with 10 years of experience on the topic at hand, it will likely take time to develop credibility with those you want to influence. It usually takes much longer to establish credibility than to lose it. As such, be calculating when opening your mouth or putting a thought in writing, ensuring it’s helping you move toward establishing credibility rather than away. When you have an initial meeting with a new client, the client will often take you on a test drive by asking questions to which he or she already knows the answer, just to see if you know what you are talking about. Some sellside analysts are offended by this type of questioning because they want meetings with the buy-side to be all about selling their new ideas, but it’s important to understand that the road to developing that client relationship often needs to be paved with trust before getting to other topics, like favourite stock picks.