I was motivated to write this article because I had been googling a lot of ER stuff online; to no bliss. Therefore, I am writing one which would be easier to understand. In this article I shall talk about Equity Research.
Equity Research is a department that works for a brokerage firm, Investment Bank, Pension Fund. It is a revenue producing group that a firm owns. Their job is to figure out which sector, industry, company, share will be outperforming or should be sold off. They generate information necessary for the firm to decide how to allocate their funds.
BUY SIDE and SELL SIDE:
Sell Side Analysts often work for a brokerage firm and give *blanket recommendations* to mass clients. They are not answerable to the clients; but the firm they work for. This could also mean that he might give trade signs to benefit the firm than the clients; as any sell/ hold/ buy movement benefits the firm (trading commission).
Good models and financial estimates have more value to a Buy-Side Analyst because they are chosen by their work and research. They have a lot of pressure to be right, give good fund suggestions. They usually work for Pension Funds or Mutual Fund firms and give right stock recommendations.
Calculating a share's attractiveness:
Take for example, Facebook. So Facebook's Share price (as on 6th April 2014) is $56.75
You can just search the EPS of a company from search engines, if you dont want to calculate it. It's EPS (earning per share) is 0.61.
Therefore, P/E Ratio of Facebook is Share Price/EPS, viz, 56.75/.61
= 93.03
P/E Ratio is of no use unless you compare the same with P/E Ratios of other competitors.
There's argument to whether low P/E Ratio is good or high; but don't forget Warren Buffet made fortune by finding shares with low P/E Ratio and investing in them. This is also called Value Investing.
Future of an ER Analyst:
Once you have worked as an ER Analyst, you are skilled to analyze a share. You can fit well as a Wealth Manager later or with any other buy-side firms.
So much for today, will keep writing!
Equity Research is a department that works for a brokerage firm, Investment Bank, Pension Fund. It is a revenue producing group that a firm owns. Their job is to figure out which sector, industry, company, share will be outperforming or should be sold off. They generate information necessary for the firm to decide how to allocate their funds.
BUY SIDE and SELL SIDE:
Sell Side Analysts often work for a brokerage firm and give *blanket recommendations* to mass clients. They are not answerable to the clients; but the firm they work for. This could also mean that he might give trade signs to benefit the firm than the clients; as any sell/ hold/ buy movement benefits the firm (trading commission).
Good models and financial estimates have more value to a Buy-Side Analyst because they are chosen by their work and research. They have a lot of pressure to be right, give good fund suggestions. They usually work for Pension Funds or Mutual Fund firms and give right stock recommendations.
Calculating a share's attractiveness:
- Industry Overview
- Company Fundamentals
- Company Business
- Key Strengths
- Key Financial Indicators
- Peer Group Performance
- P/E Ratio
P/E Ratio:
You can just search the EPS of a company from search engines, if you dont want to calculate it. It's EPS (earning per share) is 0.61.
Therefore, P/E Ratio of Facebook is Share Price/EPS, viz, 56.75/.61
= 93.03
P/E Ratio is of no use unless you compare the same with P/E Ratios of other competitors.
There's argument to whether low P/E Ratio is good or high; but don't forget Warren Buffet made fortune by finding shares with low P/E Ratio and investing in them. This is also called Value Investing.
Future of an ER Analyst:
Once you have worked as an ER Analyst, you are skilled to analyze a share. You can fit well as a Wealth Manager later or with any other buy-side firms.
So much for today, will keep writing!
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