Understanding macro-dynamics and developing a future direction is the most important task for an analyst
SM Galibur Rahman, research analyst at IDLC Securities Limited, talks about what it takes to takes to be an equity analyst and the pros and cons of the job
TBS: You are currently working as an equity analyst. Why did you choose this career path?
SM Galibur Rahman (GR): When I was a graduate student, I had an inclination for analytical work. I loved investigating the stories behind the numbers. It came to me one day that the role of a credit analyst would be a more suitable career option for me than a traditional banker position.
So, I acted accordingly. I started my Chartered Financial Analyst course and simultaneously completed my MBA.
During my last semester of MBA, I joined a start-up that was involved in independent research, consultancy, and training. After a few months, I joined Asian Tiger Capital Partners Ltd as a buy-side analyst. I worked there for two years.
In October 2016, I joined IDLC Securities Ltd as a sell-side analyst.
TBS: How hard is it to work as an analyst?
GR: I would compare this with a game of chess. Either you like to play, or you do not. There is nothing in-between.
A research analyst does not have a specific job description. They need to have up-to-date knowledge, and be aware of every little detail of the company they are working on, such as how the company earns, who runs the business, how the industry is doing, and aspects of the company's operations.
At the same time, one must know the competitors and build a network with them to extract a more accurate picture of the market and to understand the full supply chain mechanism.
Besides, reading four to five newspapers every morning can also be boring at times. However, if you love what you are doing, then the going gets easy.
TBS: What are the pros and cons of the job?
GR: Let me start with the cons. It is not a traditional 9 to 5 job. Rather, it is a 24/7 job. Anything can change any time for the company you cover. For example, say, a client from the US starts his office at 9am but it is 7pm in Bangladesh.
So, to properly communicate with your client, you have to give time to your work at night as well. Besides, an analyst has to read and incorporate all the important news by the early morning. So, you have to balance between late-night work and early rising.
Another critical problem is that you will find it very difficult to explain to people what you do for a living. Since the concept of equity analysis is relatively new in our country, most people do not understand the importance or nature of the work.
Often people think it is the same as the job of a trader. However, I believe as time goes by, people will learn to understand the significance of this job and its effects on the capital market and the broader economy.
Now, let us talk about the benefits of being an equity analyst. Learning opportunities in this job are unparalleled. People value you for the knowledge you possess. It makes you think and work more analytically, and as you get to work closely with the company's top management from the beginning of your career, it enhances your communication skills as well.
Additionally, the job also helps you understand personal finance management in a better way.
TBS: When doing equity research, what is the role of developing a macro view?
GR: Understanding macro-dynamics and developing a future direction is the most important task for an analyst. Foreign fund managers are more interested on our macro front to understand our overall economic outlook.
Again, liquidity, money flow, interest rate, and economic outlook – everything is very important for the stock market. It is unfortunate that most people in our country fail to connect the macro story to the stock market movement.
TBS: What is the current state of the industry?
GR: This concept of equity analysis is relatively new even among local market participants. Mainly, different brokerage houses employ analysts (sell-side) to provide research support to their clients. Especially, top brokerages that deal with foreign clients are the main employers of analysts. Foreign fund managers always demand research support.
However, in the last few years, we have witnessed a significant level of fund withdrawal from frontier markets. As a result, foreign participation in the Dhaka Stock Exchange has declined. Besides, our retail-dominated local investors usually prefer short-term trading over long-term investment. As a result, the idea of building a career in equity analysis is not a very popular one yet.
Moreover, different asset management companies (AMC) employ analysts (buy-side) for mutual fund management support. Our AMC industry has not prospered so far. So, this industry will need to flourish in order for our local investors to understand the value of research-based investments.
I believe this profession will only thrive gradually as institutional involvement in the capital market increases over time and retail investors move towards mutual funds.
TBS: What books or resources would you recommend to understand the analysing process?
GR: There are hundreds of books and podcasts. Reading the same book several times can reveal new angles to you.
I would highly recommend "Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts" by James Valentine. It is one of the must-read books.
One can also read Warren Buffett's letters to shareholders. Moreover, you can also follow Aswath Damodaran's blog and read newspapers daily.
TBS: Do you have any advice on getting into equity research with a couple of years of finance experience after university?
GR: I teach finance at North South University and I face this question quite often. My first suggestion is to do the Chartered Financial Analyst programme if you really want to be an analyst or a researcher. It is a good training to become an analyst.
As an equity analyst, you have two roles to play – finding investment ideas and pitching them to your clients.
So, besides knowledge, having networks and good communication skills are a must.