Mary Meeker. Henry Blodget. These are just two equity analysts (one famous, one infamous) on Wall Street who have at one time or the other been household names in the United States. Another who briefly became famous was Ashok Kumar, a fixed income analysts at Lehman (now owned by Barclays) who correctly predicted the 2000 collapse with a sell on Amazon. The work of Research analysts is critical because it guides the direction of flow of money on Wall Street. Experts in the field supply analysis, information, advice to clients, and predict future trends.
Some analysts on Wall Street are followed very closely and hugely respected for predicting markets and stocks correctly for years. Equity Research analysts are sector experts, and spend their entire lives covering up to 20 companies in one or two related sectors at any point in time. The workload is cyclical, and revolves around the quarterly earnings announcements that are so closely watched. Analysts often appear on CNBC and MSNBC, giving their impressions about a stock. Well respected analysts have a lot of clout in the marketplace, and make the stock move up or down depending on their ratings. Fixed Income Research analysts are the less glamorous peers.
These analysts research the publicly traded debt of companies, which is an enormous market in itself. Fixed Income Analysts analyze company fundamentals. The work becomes more exciting in distressed situations (when companies approach bankruptcy ? a common phenomenon in recent times) and hedge funds place bets on where these companies will end up. Small bits of news can cause large fluctuations in price. The issuance of debt, changes in capital structure or newsworthy events trigger reports from the analysts. Up to four All-Star analysts in every sector are named by IDD and the Wall Street Journal every year.
Analysts have high stress jobs. Bold calls on companies, good or bad, can create instant recognition, and trigger the flow of billions of dollars. Henry Blodget made a $400 price target call on Amazon which came true and made him the most famous equity analyst of all time. In July 2005, Matt Simmons appears to have made a wrong call that oil would hit $100 per barrel, but it put him on every newspaper, TV station and channel in the world. Can you handle that kind of pressure? Analysts create financial models to value the companies they cover, and try to calculate the quarterly earnings per share, which drives the share price. Since investors, many of whom are large financial institutions, depend on these reports, there is a great deal of stress not to get this figure too far wrong.
Investment banks hold investor conferences all year round, where CEOs and CFOs come together with investment managers and other analysts to talk up their companies, and provide a short and long term outlook for their business. Analysts spend a lot of time talking to the market as they move further up in their career. They talk to industry experts, CEOs and CFOs of the companies they cover, and competitors as well to understand how the dynamics of the industry are shaping up. The ability to connect with powerful and influential people, build a meaningful relationship and provide intelligent insights is a very useful skill.
There is a lot of writing involved. Short reports are produced once a quarter on each company, and significantly longer ones at least once a year. When coverage is first initiated on the company, the report can contain very interesting details on the strategy, markets and products of the company, running up to 100 pages. One analyst said he spends the whole day talking to people. Come 6 PM, he unplugs his computer and starts writing late into the evening.
Research is a good area for Indians especially those who have specific domain expertise, and/or are looking for a switch. Research is a way to build strong domain expertise. The industry offers flexibility to move over to the Money Management or Hedge Fund side of the business, like Arun Kumar. There are many Indians, especially in the high-tech sectors such as Software, Hardware and Semiconductors.