Analyst Reading - Where to start?

There is so much reading to do in preparation to become an equity research analyst that it's difficult to know where to start.

My own opinion is there there is no single right way to analyze investments (although there are many wrong ways). Every analyst has his/her own investment style and will do things a little differently than everyone else. But I think it's very important that if you're going to be successful that you do have an investment style and are very conscious of it.

In addition, much of what you need to learn will be dependent on your investment style. A value investor will have a different set of core competencies than that of a momentum investor. For this reason it's very difficult to be a jack of all trades, and trade-offs are almost a necessity.

Therefore, I think that a good place to start is to give yourself exposure to as many styles as possible to help decide what makes sense for you. A good way to do this is through books that explore the investment styles and strategies of a number of successful investors.

My personal favorites are:
Investment Gurus: A Road Map to Wealth from the World's Best Money Managers by Peter J. Tanous

The Money Masters by John Train

The New Money Masters by John Train

The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns by Lois Peltz

In addition to being educational, these books are all VERY entertaining, with stories that are as fun to read as they are insightful.

The CFA Exam

One of the first things any budding analyst should think about is the Chartered Financial Analyst, or CFA, Exams. The CFA exams are offered by the CFA Institute and extensive information about the curriculum can be found at their website.

First, if you want to be an analyst YOU NEED TO GET YOUR CFA CHARTER. I'll say it again: REGISTER FOR, AND TAKE THE CFA EXAMS AS SOON AS POSSIBLE.

Once upon a time, the analyst field was full of successful analysts that didn't have CFA charters. This isn't true anymore. Breaking into the industry is difficult enough. Why handicap yourself by not getting the credentials that employers want to see? Even many successful analysts with years of experience under their belts are going back and taking the exams.

If you've been interested in the investment field for any length of time, you've probably heard how difficult these exams are, and I'll confirm this. These exams are not easy. The pass rates are often below 50%.

Now for the good news. They're not easy, but they're definitely passable and they're probably much easier than they used to be. The exams have gone to a multiple choice and fill-in-the-blank format that is much easier than the previous essay format. Even people that prefer essay exams hated these because they were designed to prevent candidates from bullshitting their way through.

If you're serious about being an analyst, register for the exam. Get the recommended curriculum from the CFA Institute as soon as possible. Then start looking at study materials available. There are two providers of study notes I recommend to people: Stalla and Schweser. Both have been around for years and offer a variety of study notes, tapes, flashcards, etc. Most of those are extraneous, but the study notes from one of them are an absolute must-have in my opinion. But which do you choose? It depends on your background and what you're after.

Stalla's notes tend to be lengthier and more in-depth in their explanations. The old joke was that Bob Stalla would summarize a 30-page reading in 29 pages. I recommend Stalla particularly for people that don't have a financial background or that really enjoy learning the material rather than just preparing for the test.

Schweser's notes tend to take the opposite approach. They're designed to prepare you for the test. Period. They tend to give you the bare bones of what you need to pass. If they don't think it will be on the test, they don't include it. If you're short on time, or waited until the last minute to study, these are what you want.

(Disclaimer: It's been a number of years since I used these. Since that time Stalla has been bought by DeVry Becker and Schweser has been bought by Kaplan. I've heard good things about both, but do not have firsthand knowledge of the materials since the companies were bought)

I do not recommend using the materials in the curriculum to study for the exams, and I'll tell you why. First, there's a ton of information in the readings that you don't need. If you try to follow the readings, you'll find there's often a 30-page reading, of which only a half page or so is necessary to learn for the exam. Due to the breadth of material in these exams, you just won't have time to read a bunch of extraneous information. In addition, there's often duplication of information in the readings so you're just reading the same information again.

Second, most of the curriculum materials weren't written as test prep materials. The authors of most are very well-known and are good writers, but they're not written in such a way as to make them optimal for exam study.

Third, the breadth of writing styles makes them difficult. You're trying to study and absorb as much of the material as possible. It's difficult to do when you're skipping from reading to reading with varied writing styles. Imagine trying to read a chapter from William Faulkner, then a chapter from Danielle Steele, then Dr. Seuss, then another chapter from Ernest Hemmingway and absorb everything. Having to continually adjust like this just isn't optimal for learning in my opinion.

As I said before the tapes, flashcards, and other materials are nice to have and I used some of them. The Stalla videos were nice to watch at work during lunch, or if you're just not in a study mood you can sit and watch and absorb. The CDs/cassette tapes work well if you have a morning/evening drive.

So just how much study time is required? It varies a lot from person to person, but I generally recommend starting your study in mid-February for the June test. This is what worked for me. I studied two hours/day during the week and about six hours total on weekends. I made a schedule for myself to get the readings all done by mid-April. The last two weeks of April, I'd shift to going back over topics I wasn't sure about. Then the entire month of May up until the exam I was working practice exams and flashcards. This is where the real meat of your study happens. This is what will get you through the exam. Get ahold of as many sample exams as you can. Early in the month you may want to just do a hlf exam each day, or take an exam one day, and grade it the next. By the end of May, you should be taking and grading a sample exam every day.

In my next post, I'll start working on a reading list for analysts. Good luck!

Welcome!

Soooo...you want to be an analyst.

I've been an equity research analyst for over 10 years, following a range of sectors for both the buyside and sellside. My decisions have directed billions of dollars worth of trades for clients. Sometimes it's a lot of fun. Sometimes it's not.

I run into people every day that want to be or think they want to be analysts. Some are looking for a new and challenging occupation. Others may have sizeable stock portfolios, and just want to do their own research. What ever the case, they often ask how one becomes an anlayst. With this blog I hope to answer many of those questions.

I won't try to tell anyone what I think fo specific stocks. I won't give opinions about what direction the market is headed. Partly because it's just not what this blog is for, and partly because I don't want to do anything to upset the SEC. What I will do is try to show you how professionals go about researching stocks, or at least how I do it. I'll also discuss the career path of an equity research analyst.