15th June 2013: Requiem For Equity Research Analysts?

In 2003, I did Masters essay post-mortems on the 1995-2000 dotcom bubble (PDF) and the 1998 collapse of the hedge fund Long-Term Capital Management (PDF). It was a turning point: then-Professor Richard Slaughter and I had discussed the more subcultural material I had written for Australia’s 21C Magazine and New York’s Disinformation website. The new material was like a requiem for the 1990s stockmarket, and for equity research analysts, in particular.

 

I kept reading about the dotcom era rise-and-fall of sell-side analysts like Jack Grubman, Henry Blodget, and Mary Meeker. I had my first taste of what being an equity research analyst might be like when I worked on the Smart Internet Technology CRC report Smart Internet 2o10 (PDF). We didn’t get any formal training in security analysis but I did some MBA classes in accounting, strategy, and opportunity evaluation. Our research team developed a qualitative screening methodology using expert consensus and thematic criteria. We did client briefings where we were sometimes asked for market views and stock picks. Then, Blodget wrote some Slate columns; came out with The Wall Street Self-Defense Manual (New York: Atlas Books, 2007); reconciled publicly with Eliot Spitzer; and launched Business Insider as a second act.

 

Still, no-one talked about equity research analysts in the same way as they did when Grubman, Blodget, and Meeker were dotcom stars. Securitization and ‘know your customer’ had replaced disintermediation as industry watchwords. Boris Groysberg’s Chasing Stars: The Myth of Talent and the Portability of Performance (New Haven, CT: Yale University Press, 2010) shifted attention from the foreground of dotcom era sell-side stars to the investment research organisation that the equity research analyst was in.

 

Equity research still featured prominently in CFA Institute training. But the dotcom scandals around Grubman and Blodget changed the public image of equity research. Turney Duff‘s excess-driven and somewhat derivative book The Buy Side (New York: Crown Business, 2013) appeared more attractive than examining analyst buy ratings or developing quantitative factor models. The public glamour of analyst-driven sales has diverted attention from the shift over the last decade to Bayesian probability and other structured analytic techniques that came from intelligence analysis. Buy-side analysis still remains secretive compared with sell-side analyst reports, which now get leaked to internet trading sites.

 

There are a bunch of core books around if you still decide to pursue a career as an equity research analyst:

 

  • The CFA-oriented Equity Asset Valuation (Hoboken, NJ: John Wiley & Sons, 2010) gives some of the core skills needed. Jeffrey C. Hooke’s Security Analysis and Business Valuation on Wall Street (Hoboken, NJ: John Wiley & Sons, 2010), and Martin J. Whitman and Fernando Diz’s Modern Security Analysis: Understanding Wall Street Fundamentals (Hoboken, NJ: John Wiley & Sons, 2013) give further details on security analysis and valuation methods that equity research analysts commonly use.
  • Jeremy Bolland’s Writing Securities Research (Hoboken, NJ: John Wiley & Sons, 2010) discusses the securities report as a writing genre, and the research methods involved.
  • James J. Valentine’s Best Practices for Equity Research Analysts (New York: McGraw-Hill, 2010) is the most encompassing and detailed of the career guides available. Gillian D. Elcock’s How To Get A Research Analyst Job (Herts, UK: 2010) covers the buy-side and asset management. Roy Cohen’s The Wall Street Professional’s Survival Guide (New York: FT Press, 2010) gives a coach’s perspective on how to move from buy-side to sell-side roles; how to format a curriculum vitae that is achievement and results-oriented; and how to prepare for interviews.

 

This suggests that in 2008-10, the equity research analyst role underwent a post-dotcom re-evaluation, during the 2007-09 global financial crisis. Or, equally likely, publishers decided enough time had elapsed from the dotcom era scandals to publish some new books for the next generation of financial professionals.