Original version of this writeup can be found in The Asif Khan Blog
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.
The knowledge of macro-economics is very important to understand what is happening to corporate profitability. 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.
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.
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.
Even though equity analysis is supposed to be a pure finance job, I feel that the main application of finance is the valuation part.
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.
Can’t build a financial statement forecast with knowing how to use Excel. I usually use very basic Excel functions to make financial models.
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.
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.
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.
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