Skills needed to become a good equity analyst

In my experience as an equity analyst for the last 5 years I somewhat came to realize that a good equity analyst needs to have diversified knowledge and skills. I have tried to identify these over the years and in this writeup I will list them.

Economics

The knowledge of macro-economics is very important to understand what is happening in the macro economy. At the end of the day, the broader economy will play a very large role in shaping the direction of a company. GDP Growth, Inflation, Interest Rates, Exchange Rate etc will influence corporate profitability some way or the other.

Strategic Management

The role of strategic management would be to primarily understand business models. Things like SWOT analysis, Porters five forces analysis etc can usually explain why one industry/company has higher profitability while another does not.

Financial Accounting

Accounting knowledge is required to decipher the financial statements. Particularly, in industries going through changes in accounting treatment, knowledge of financial accounting will come in very handy.

Finance

Even though equity analysis is supposed to be a pure finance job, I feel that the main application of finance is the valuation part.

Statistics

You do not need to be an expert on statistics for the purpose of equity analysis. But simple statistical analysis is always used (knowingly or unknowingly) by equity analysts.

Microsoft Excel

Can’t build a financial statement forecast with knowing how to use Excel. I usually use very basic Excel functions to make financial models.

Networking Capabilities

If you don’t have great networking capabilities then you wouldn’t have an edge over other analysts. You need to develop ‘unique’ proprietary information sources to get the upper hand over the market.

Psychology

The role that human psychology plays in asset price movements have received a lot of interest in recent years. This led to the invention of the field of finance called behavioral finance.

Other Skills

Another useful skill includes time management and prioritization skills as there is always a lot to do and very little time. Analysts also need to interview corporate management and the ability to glean out the greatest amount of information (aka interviewing skills) also separates a great analyst from an average one.

Asif Khan, CFA

Asif Khan is presently a Research Analyst (Financial Sector) for Exotix which is a frontier market focused investment bank. He has more than 6 years of work experience as equity analyst in both buy and sell side roles across Asian frontier markets. Asif is a CFA Charterholder and has a dual major in Finance & Economics from North South University.

7 thoughts on “Skills needed to become a good equity analyst

  1. I thing psychology is a very big part of being a good equity analyst. Think of how cool you have to be when prices are dropping and you know that you should stay put.

  2. I think to value a company, understanding the key variables of the business is pretty important. Besides numbers, some non-financial indicators should also introduced (like NFI used in Balanced Scorecard). An intelligent analyst deals with a few relevant tools out of hundreds of factors. We should look at the factors those are most relevant & influential for a company. The factors can be a mix of people, process, monies, government etc.

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