They must understand financial accounting and securities valuation and know how to apply these skills to the analysis of industries and companies. They have to be creative in finding useful sources of information, while earning the respect of company executives and institutional investors.
While very few analysts excel in all of these areas of proficiency, new analysts can "make their bones" by showcasing their talents in a particular performance category. During my career on Wall Street I observed several types of high-performing analysts stand out. The following professional profiles might be instructive to those trying to break into the competitive field of equity research.
1. The Channel-Checker: In the wake of the SEC's passage of Regulation FD in 2000, companies must disclose financial information to all investors at the same time. That regulation spawned new "expert network" services. It also impelled analysts to scour their network of company vendors and customers in order to obtain insights not available from traditional corporate sources. Technology analyst Brian White at Cantor Fitzgerald made a name for himself by hosting regular tours of Apple (AAPL - Get Report) suppliers in China. He does this to fine-tune his understanding of tech hardware supply chains.
Independent consumer analyst Brian Sozzi at Belus Capital Advisors (and a Street.com columnist) uses Twitter to pair photos of store displays with commentary about retailing companies. Sozzi uses his Tweets and on-site photos to punctuate sometimes-controversial calls about the fate of certain retailers, like Sears Holdings Corporation (SHLD - Get Report). (Note from Brian Egger: Having the first name, Brian, isn't a prerequisite for being a successful analyst).
2. The C-Suite Schmoozer: Regulation FD requires that communications between company executives and analysts be carefully monitored, in order to ensure that certain investors aren't accorded preferential access to information. Even in the wake of that regulatory ruling, certain analysts have continued to demonstrate a unique ability to interpret the words and actions of CEOs and CFOs. The value of their corporate contacts, and the insights they gain from those relationships, still looms large.
Needham & Company analyst Laura Martin became well-known, in part, because of her ability to facilitate meetings between investors and senior executives in the entertainment industry. New analysts must be aware of the potential pitfalls of speaking with mid-level corporate managers. Those relationships can become problematic if these company employees overstep the information barriers imposed by Regulation FD.