Equity Research Analyst - Stuart Jeffrey

Investment Banks have the most extraordinary number of jobs within them - it can be completely mind-boggling. Every time we went near one, we found a whole new department or group of people that did something we’d never heard of. This seems to be due to the immense specialisation within banks, where it can be quite possible to sit next to someone but have no idea what they do.

There are a couple of major distinctions worth highlighting. Investment Banking or ‘IBD’ tends to be the department which most people imagine when thinking about an investment bank. They are the ones doing huge M&A deals, putting in incredibly long hours (14 hours plus each day - including weekends, for months at a time - is not uncommon) and schmoozing with business leaders. Work/life balance is not easily found, but on the flipside the work you do will likely be high-profile and give you an enormous breadth of business and finance experience. This means that if you want to leave London or Investment Banking at some point you shouldn’t have a problem, as the skills gained are very transferable. We've met ex-bankers in companies ranging from renewable energy start-ups to large pharmaceuticals.

Capital Markets is where you’ll find the traders, salespeople and research analysts. They’re market-based and are the ones you see on TV shouting down phones and pacing frantically in front of five flickering computer screens. They’re monitoring market activity and reacting immediately to any changes. It’s noisier and a bit more adrenalin-fuelled than IBD. One of the big perks of Capital Markets (other than the actual job), is that the hours tend to reflect those of the market. That means early starts, with most people in the office by 6.30am, but it also means you tend to be out by six in the evening - and there is almost never weekend work. So if you’re an early riser the work/life balance is pretty good, especially compared to IBD. One limiting factor is that you’re in a highly specialised, role usually in a very specific market area, so there’s not much in the way of transferable skills. If you’re an FX institutional salesperson it’s not that easy to move into another product area, and you’re going to be tied to working in London (or another major financial centre).

Beyond these two areas you have a massive range of middle and back office functions. There’s Technology, Operations, Legal, Finance, Marketing and HR for a start. So if banking interests you then it’s definitely worth looking at the breadth of what’s on offer. The other thing that struck us about banks was just how diverse they were. Without doubt, they had the most mixed workforces we saw, with every member of a team often from a different country. While this makes for a really dynamic and interesting work environment, it does mean that when you’re applying for a job, you’re not just up against your peers in this country but across the whole world - so that application form had better stand out!

Who are you and what do you do?

What is Investment Banking?

The way I see investment banking is that it is targeted at companies, not at individuals. It is helping companies to raise money to finance their activities and also provides a feedback loop for the people providing that money to understand what the companies are investing that money in. So if you are a telecom operator in the UK and you needed to buy more equipment to build a new network, you need to borrow that money from investors, and investors will be happy to give you that money if they see that you can generate a good return on that money in time. Also banking provides the information flows and the financing touch points to make sure the investors get the information they need to make sure the money is in the best place and the banks get access to capital at the best possible rate.

What attracted you to this career?

It is one I fell into, so it wasn’t one that was planned in advance. My family has a history of being in telecom space and I was offered the opportunity, when I was about 23 or 24, to move into telecom research, and it was either work in industry or look at it externally, and it was the opportunity to look at it in a research capacity. It is a little bit more cerebral in research, you are thinking a little bit more broadly about what is happening to industry and what is happening to a company. You get fantastic access to the senior management of a company, so you are talking to some very smart people on a very regular basis, and it is a little bit like consulting in many ways - but you’re not delivering to the company, you are delivering a report to institution investors. And it’s the ability to really look at the industry and become expert in that industry, and perhaps be recognised as one of the top people in that industry. There are some nice external surveys that get done every single year and you can pop out as number one, number two, number three, and that kind of gives you a little boost as well.

What does your job involve?

There are multiple parts of the job. Obviously first of all you are calling stocks, so is the share price going to go up or is it going to go down? You try and communicate that to three different classes of audience - the first is the Generalist Sales desk, who will talk to Fund Managers, quite Generalist people. You will have your Traders on the desk who do the actual buying and selling of the stock and so they have to make sure they are well positioned when they make the call. Then the third is really external clients which are Analysts at big institutions who are specialist in my sector, which whom I will go into much more detail. What I basically do with these guys is take them through, and hopefully get an understanding of, what is happening in the overall industry, how the different industries are facing the upcoming trend, and then try and work out who is going to be a winner and who is going to be a loser.

What do you do on a typical day?

The job is quite varied but the one constant is that it is early mornings, so six forty-five a.m. is when we tend to get in the office. We focus very quickly on collating as much news as we can from the internet itself, there are specialist websites. We push out an email within half an hour or so to all our clients then we work on whatever else might be happening in the markets - anything could happen, you could have a profit warning from one of your companies that forces you to have to change forecast, change your recommendation - but hopefully things calm down a bit by about nine-thirty, then you get down to the nitty gritty of proper research, i.e. what is going on. Then we’ll be trying to call clients for one to two hours a day to make sure we are in dialogue with these people.

Outside of that we probably travel for forty or fifty days a year, so we are regularly on the road, regularly meeting customers, regularly meeting the companies that we are covering. So it is not all based in front of the desk, but when it is in the office, it is one to two hours of phone calls, quite a lot of time in front of the computer mixed between Excel modelling and writing reports.

Do research analysts need to specialise in one area?

There is a strategy department that we have - ultimately we are hiring ourselves out as are experts. We know our space better than anyone else, which means you do have to specialise to some degree. There is a strategy team that looks at a broader portfolio issues - will the broader market go up or down? They also pick a basket of stocks across the market, so they will talk to all of the teams in Research and try and come up with the best ideas to put into their portfolios. So they are a bit more generalist but again they have the tricky job of trying to forecast if the markets in general are going up or down, which is a specialist and difficult subject in its own way.

What are the best bits about your job?

There are times - and it doesn’t happen that often unfortunately - when you really understand what is going on, you understand why stock is moving the way it is, you understand what the investor’s concerns are and you are just that little step ahead. And it doesn’t happen very often but when it does happen you feel you are just perfectly in your zone, and you are doing your job the best possible way you can, and you are helping lots of people make a lot of money. Outside of that, it is a bit of a scrabble to get to that position where everything seems to make sense, and so for most of the year it doesn’t make a lot of sense but it is quite interesting digging in trying to understand what the next trend is. When you get bored of modelling you can get on the phone and start talking to clients, most of whom can become friends, and most are pretty intelligent and you have interesting conversations with them. So you get a good variety and when you are sick of being in the office for too long, you can get out on a plane, see clients remotely, go to other companies, go to conferences - that sort of thing. So you get a good mix of things driving you throughout the whole year and ultimately you know that whatever you were expecting to do that day, there is a ten to fifteen percent chance it is all going to be thrown apart and you are going to be doing something totally different.

What are the worst bits about your job?

The worst bits are when you don’t get it - you come up with a strong idea that you should be buying this stock and then over the next few months the stock falls by 30-40% - at which point the Sales are pretty upset, the Traders are pretty upset, the clients are giving you grief and you have got to work your way through it. And the percentage that you are right and wrong tends to be quite similar; hopefully you don’t get the really bit mistakes coming through but working through that period can be tough, it can be quite character building. One of the challenges in a role is you really do need to have courage in your convictions, come up with a view and stick with it until it is obvious it is wrong. But if there is any doubt in your conviction, you have to go against consensus and there’s a lot of intelligent people out in the markets believing the stock is maybe worth £30, and you think it is worth £50 even as it is falling down to £25, and if it turns you look like a superstar - but that first £5 where it falls can be pretty painful.

What has been your greatest achievement?

There is always the perfect call, the perfect recommendation when everyone else says ‘This is the worst in the world’ and you say ‘Now is the time to buy’ and it takes everyone else about five or six months to follow and by then the stock has doubled. And we have had a few of those over the years that have gone down very nicely. But ultimately it is the reviews at the end of the year by your clients - if you come up first or second those are particularly good times, and the first time you get into these recommendations and you are seen as one of the top people in your sector. That gives you a huge buzz as well.

Any regrets?

It is difficult to say because you don’t know what would have panned out, but I didn’t go through the traditional way that perhaps one would now to get into this job, in that I kind of fell into it by accident and I didn’t have a determined plan that right the way through university this is the area I want to get into. The net effect of that was that I ended up firstly with a small bank, a Japanese bank, and I had to work my way out of that. So it is always hard to know whether that process is character building - and therefore very positive for you - or if you have wasted five years somewhere small, not really getting the global exposure that you want. Ultimately it gave me responsibility at an early age, which worked out very well, but I suspect these days it would be easier going straight into a big organisation through the graduate scheme and work through that way.

What is the pay like and are there any perks?

Investment banking is famous for paying pretty well compared to most industries out there. I think the most important thing is that it is very meritocratic, it is not the case of trying to work your way up and earn lots of money when you are in your forties when you have made partner status. It is the kind of role where if you are generating value people pay for that value, and you can be generating quite clear value at an early age. Late twenties, early thirties, you can be generating significant amounts of value for the bank and if that is clear the bank will pay you accordingly to reflect that value, so it is not a case of having to work your way up to very serious positions of responsibility - obviously the more you do that the more you do get paid. But the key thing here is if you do it early you can get paid a pretty good wage at an early age.

How long is a working day and do you have to work out of hours?

It is a pretty independent job, I have a boss but I only bump in to him occasionally. So there is no reporting to him on a daily, weekly or even on a monthly basis. We are run largely as franchises - I am in charge of technology, so the technology Research team has to be ranked with all our clients and external surveys and generate lots of money for the business. How I do that is pretty much up to me. So what happens is, my competitors are pretty smart and driven so I do inevitably work twelve or twelve and a half hour days; I do travel a fair amount; but I can structure it as I want to structure it and so if I need to spend half a day working from home or taking some time off, I have the flexibility to work around that as long as there is nothing going on in the markets. So it’s pretty flexible, pretty free from politics - performance is what counts and if performance doesn’t work then life looks tough but if you continue to deliver you can do it how you want.

Is there much in the way of travel?

Obviously we need to meet our clients face to face. We have about 40% of our clients in London, but 60% are outside, and that means principally in the East or the US, but also heavily in Frankfurt, in Paris, in the Netherlands and in Italy. So we regularly travel to see those clients, probably two or three times a year.  On top of that we will see companies in their respective countries maybe once or twice a year. We also do an Asian trip where we try and see as many telecom-related companies in one week as we can in Asia, which is exhausting, but interesting, and we will do something similar in the US, where we have a big conference. So all told I am probably out of the office for forty or fifty days in the year; again much of that is up to me as to how I drive that and how much time I dedicate to that, but you get times when you are sick of being on the road and others when you are sick of being in the office, and you can mix it up and get a healthy balance.

Do you have to be based anywhere in particular?

It is a job that tends to be better suited to New York or London, and then there are opportunities in Tokyo and Hong Kong. That is, working for an investment bank - there is more flexibility if you are working for a fund manager as you tend to be sited more regionally, so you get a lot more of them in Paris, in Frankfurt and the Netherlands, rather than on the investment banking side. It is one of the restrictions of the job that there are not that many financial centres in the world, and it makes a big difference to be based in them. Having said that, we have people in Research who are based all over the place. If you are generating the value and you are important to the firm, then the firm will stretch to do whatever you want.

What is the working environment like?

We sit in an open-plan office - which contrasts with the US where everyone sits in offices - but it is open plan, pretty spacious. It has been compared to a library at times because it tends to be reasonably quiet because people are analysing things, but then you have individuals who are a bit louder and get on the phone for an hour to two hours a day, so you get a bit of a mix - but it tends to be quite quiet. Then on the trading desks themselves is where all hell breaks loose when there is something exciting happening. So it is quite quiet generally, but you can talk to lots of people. People tend to be quite friendly and there is no politics involved, so it tends to be a relaxed environment. People are looking to add value, rather than perhaps beat each other to specific ideas. Sometimes I compare it to a game of golf - you can’t really put the other player off by hitting a good shot at them. You are playing your own shots, getting a good game of golf, and hopefully in doing so you might put pressure on your competitors, but there is no upside to trying to smack the ball at them as hard as possible. And so that dictates the atmosphere - people tend to be quite relaxed, very focused - but there isn’t any antipathy or any nastiness or anything like that.

Historically there is more a shift towards more boys than girls. It is not the kind of job that is easy to do at 40-50% time - when things happen you need to be around - so sometimes it has challenges when girls perhaps go for families and we have a number of girls working part-time and a number of women with children. You have to put a lot of work in, so it is not an easy balance I guess. That is possibly why we have a slight premium of boys over girls. It depends on the sector; some sectors tend to be a bit drier than others. In technology, tends to be more boys playing with their little geeky toys, whereas consumer tends to be more girl-centric.

How did you get into your job?

I think it has really become much tougher to get into the industry than when I started out. I graduated in 1993 with a business degree. I chose to go to Japan for four months to get some work experience of what Japan was like. I ended up working for one of the Japanese telecom companies and spent a short amount of time with one of the Japanese investment banks. They offered me a job back in Europe, which I took and it was straight into Research, and it has panned out very nicely. But when I look at the CVs of people applying for jobs these days, I would say the standard is a little higher, the amount of extra curricular activities that people are expected to have on their CVs is significantly higher. I think the profile of the job has increased significantly since 1998, 1999, 2000, and so people are a lot more aware of what an Analyst is, and therefore there seems to be a lot more demand for people trying to get into the industry.

What are the key skills required for your job?

To be a good Analyst, there are a few things you are going to need. You really need to understand your industry - ideally you need to understand your industry better than anyone else. You need to understand companies better than anyone else, and then you need to come up with ideas that no one else has thought of that might cause the stock to move in a way that is different to everyone’s expectations. But just coming up with good ideas isn’t quite enough - you need to market those ideas. So you need to be able to communicate clearly, you need to be a marketeer, you need to speak clearly, have a good idea and be punchy with your delivery and have that thick skin because the best call is when everyone else disagrees with you and when you end up being right. But when everyone disagrees with you initially, you need to have the determination to push through that, and a thick skin to cope with any criticism and comments that come your way when you first launch the idea. So for example, I covered Nokia making handsets and people were hoping - as more smart phones were sold, higher-end phones - that the average price for Nokia would start to increase, and then you would get uni-growth and growth in average selling prices of the devices. Then in fact what happened is the emerging markets decided to adopt mobile phones in a massive way, quite unexpectedly - people thought mobile phones would be too expensive for the average person in the developing markets to buy and the average selling price of phones just collapsed in a significant way. And that took Nokia’s share price down with it. If you could have identified that trend early and spotted it and communicated it, you would have looked like a hero at that moment in time.

What's your top tip for breaking into your industry?

One of things that people look for is some interest in the financial services - so if you are not interested in investment banks to start off with, it makes it a little tougher to get through the interview process. So you need to show some interest, in that you need to have good numerical, excellent writing, good communications skills, and you need to demonstrate on your CV that you have done some public speaking, that you have got some very good grades in your degree - it doesn’t have to be maths or physics or anything like that, but it does help if you have shown a good analytical starting point. There are other ways of going through as well. Many people in Research go through the accountancy firms, so after graduation they do their three years in accountancy and that gives them a very solid basis and understanding of accounts - because we do spend a fair amount of time looking through reports - and then after going to the four five top accountancy firms, then apply subsequently to go into Research. I guess across Research you probably have 30-40% entrants that have gone in that direction. So a lot of people come straight from undergraduate straight into the graduate scheme, but also a large amount of people come via the accountancy firms. There’s a small number of people who come in via the industry and there are some organisations who will only hire from industry - you have ten, fifteen years of experience, so therefore you know the industry well - and so if you do decide to join British Telecom, ten or fifteen years down the road, if you have the requisite skills, it is still possible to come in via that direction.

What's the career progress and how quickly can you move up the career ladder?

There is a two-year graduate scheme, during which time things are pretty much set up in a structured way. The first four to six months, you are very much doing generalist-type projects - working in different areas, getting experience in the bank - after which you apply to join a certain team. The next year and a half, you are within that team, and hopefully at the end of that time you graduate into an Analyst role. At that point you are not likely to be an expert in the industry and so the chances are you will take another two years or so to really build up that expertise, at which point, depending on the complexity of the industry, you are likely to start being given coverage of some smaller stocks. So if the stocks aren’t that important it is a good opportunity to get your teeth into understanding numbers - talking to managers, talking to investors about them - and the damage if things go wrong can’t be too high, so that is a good starting point. So you will probably be doing those smaller stocks for a year or a year and a half. Then things pretty much depend; it can take another couple of years before you make that transition to senior Analyst and eventually take over the team. But much depends on when your boss leaves, and so if there is a high turnaround at senior level then gaps can open up, and if you are lucky and you have just the right experience and you have got the confidence of your peers, then you can be promoted at a very early stage into a senior role and it can give you the ability to grow into that in the following twelve to eighteen months. If you are unlucky and you are not seen as being up to it, then they might bring someone else in and at that point things could take a little longer, but for most people they should be covering stocks properly in their late twenties and looking to be in a position where they are senior Analyst at the age of thirty to thirty-four.

The challenge of being an Analyst is to be the most knowledgeable person in the industry in your space, and it is a long road to get there. So when you first start out in this industry you are going to be given some tasks that will basically help you understand the basics of what you need to be looking at. Initially that focus will be on making sure you understand accounting, that you understand how to model, that you understand how valuation works. So when you first come into the job, the chances are you will be given a lot of tasks that entail building specific models or maintaining those models, looking at valuation methodologies and making sure you have all the facts at hand to make sure you compare the relative valuation of one stock compared to another stock. Then also a lot of writing to be done - as your expertise builds, the type of writing you do changes significantly, initially from quite generic to gradually more in-depth reports than you might produce when you first start. You might be given specific projects, to research this specific area for the team - and it’s going to be part of a bigger report, and maybe you are contributing 5-10% of that report - but you are asked to investigate, during which, hopefully, you will not just understand that specific segment but start to understand the drivers across the industry and how that subject impacts the rest of the boards of industry. The more projects you get given, the broader your knowledge base will be in time, the better your accounting will get to the point where you will be given your own stock coverage, so that could be two three, four years out. So the starting point is, I guess, Excel and Word-driven, and in time you move up the value chain to be more client-focused and company-exposed and being able to talk as well as write a model.

Where do you see the industry going?

Anyone who reads the FT or The Economist will see that anything to do with energy will be particularly interesting right now, and so the energy team tends to be quite big and there are more roles available within energy. Financials has also been an area that has had turbulence recently and it is about 30% of business that is done in the banking markets for us, so that is another area that is worth focusing on. In terms of being an Analyst itself, anything to do with accounting is always worth looking into, any technological changes or regulatory changes are worth looking into. But it very much depends on which industry you are looking at. I would say, as a starting point, you need to demonstrate that you understand accounts, understand how you value a company; there is an industry exam which tends to take people three years to do, which pretty much any graduate or anyone coming in to the industry really needs to go through to make sure they can tick all the boxes when it comes to technical parts of the job.

Is there scope for movement during or after this career?

So within the firm there are plenty of opportunities to move up and also on to different areas. Also lots of Analysts move out on to the Sales desk or on to the trading environment, specialist Sales, into banking, into Equity and capital markets - there are a whole lot of businesses where people have made that transition to. I think the key skills that you develop as an Analyst are, you understand the industry, you understand the companies, you understand how to communicate with senior management, so in a number of ways, if you are talking outside the industry, it is quite an easy step to go from one of the companies that you cover to then go and work for them. An easy step is that each of these companies then has a customer relations department and that is the point of contact for any investor or Analyst, and many of those roles are then filled with Analysts, who then if they do well, move on to more strategic roles within that company.

What are the industry resources that someone interested in joining must know about?

I cover technology principally and all things telecoms and equipment. There is no historic database of information to look at in any particular way, it is mostly about what is happening in terms of news flow. So the web is a hugely important area for us to focus on, there are a lot of white papers published by all the companies in the industry, there are a lot of specialist websites that talk about the emerging trends, and a lot of those websites also have interviews with important people. Other websites are good at leaking product launches and things like that, so most of our reading is generated by going on the web. Then, of course, annual reports tend to be the main focus once a year; maybe four times a year we go through the annual reports in detail and read what the company is saying about its past performance and try and extrapolate from that what they are likely to do over the next four quarters.

If you weren't in this career, what would you be doing?

My initial dream was to become a Marketing Executive at Unilever and the interview didn’t go quite as well as I had hoped, and so I ended up falling into this, and I am quite glad I did to be honest. The only downsides I can see here is that you are geographically limited as to where you can work. Outside of that, geology was always a passion and I always hoped to do something in geology, but I can’t find a way of making that pay. Maybe these days it would have been easier, with the energy prices the way they are. So for the moment I am stuck in this, and maybe if I leave the investment industry I would try and go into telecoms or technology specifically.