1. How has your team fared in the virtual environment?
The transition to an all-virtual environment was mostly seamless and almost a bonus as the team could spend more time on custom analysis and deep-dives which was formerly spent on travel. Pre-Covid, analysts were already working virtually, albeit from a corporate office, given the ubiquity of financial data, on-line and real time. The battle for market share and mindshare is now fought digitally on the fields of proprietary data and analysis rather than in-person.
The emphasis in equity research is now emphatically on field research to generate proprietary data which ranges from industry specific data gathered from drones flying over mines, oil tanks, ports, and parking lots as examples; conferences/trade shows, site visits, bespoke surveys, channel checks (supply chain, end-users and sellers), web scraping, and consulting with subject matter experts, among others. Much of this can be done in a virtual setting. The days of the retail analyst visiting stores in the Short Hills mall on Black Friday as a channel check are over, and not missed.
2. Follow up Q: Was there anything analysts missed?
People. This is a people business- that always was true and remains true. Analysts have missed the ad hoc conversations between meetings at conferences and trade shows. They have missed the chance, in-person encounters which can expand networks and generate out-of-the box ideas. Not to mention the ability to gauge sentiment and interest is not possible from staring at a ZOOM grid, and the lack of in-person connectivity hinders the ability to forge relationships with clients.
And again, people. Research runs on an apprenticeship model – the newer and/ or more junior research team members learn a large part of their craft and skills from shadowing their seniors, and from listening to the informal conversations of the group and the more formal interactions with clients. They have missed the ability to ask questions spontaneously when they need guidance. They have missed the opportunity to learn how to read body language and nuance, which is key to team chemistry.
3. What traits do you value in an equities research analyst?
The building blocks are: 1. Financial analysis, 2. Ability to write succinctly on what’s important, 3. Ability to communicate and connect with clients
- Financial analysis – it’s not about making Excel sheets “balance”, but the relationship between the income statement, balance sheet, and cash flow. It’s about what the numbers are telling you. Does it make sense? If not, why not.
- Writing – well-written reports matter, although we could all agree no research report will ever win a Nobel prize for literature. The best analysts are able to identify the most important item from the recent company quarterly report/update, and convey that succinctly and commercially – give or take a few dangling participles.
- Communication – it is my view that the more successful analysts are not necessarily the best forecasters or stock pickers, but those with good communication skills and an ability to connect with their clients. Equity analyst clients include external clients from the buy-side, hedge funds and long-only funds; public companies, covered and uncovered; private companies, venture capitalists, private equity firms, industry contacts, experts in their field, government officials. It also includes internal clients from sales, trading, banking, fixed income, and options. They all have differing needs and attention spans. The top analysts are able to adapt their style and content to the varied needs of their varied clients.
4. Is it better to be a good researcher or a good stock picker?
My advice to analysts is to know what you are good at and play to those strengths. Every analyst has something they excel at – it may be financial modelling, discerning the longer term themes, a deep roster of C- suite level contacts, an understanding of technology, of the emerging competitive landscape, valuation, sentiment and momentum. Clients will use a matrix of analysts consisting of those who excel at one or more of these aspects. Know what you are good at and play to those strengths.
5. What are you looking forward to most when we can move about freely again?
I look forward to being with the team – not big gestures, but more the small, daily interactions - the chat as we wait for the coffee machine, or silence depending on how early it is, the informal, overheard conversations about stocks and markets, what to have for lunch.