How to prepare myself for a career in financial analysis?
July 20, 2011 4:43 AM   Subscribe

I'm going into financial analysis soon -- how and what should I do to prepare myself for it?

I will soon begin my training in a local investment firm (a rather large one).

I specifically applied for its research department, because, as far as my understanding of the various careers available in the finance world goes, it's sell-side financial analysis that attracts me the most, and it's this firm's research department where all the financial analysis is done. The idea of poring through the various details of companies and industries, and of using hard data and models and forecasts to find great investments appeals to me greatly, as I've always been more of a technical person than a people-person. (i.e. I know it's unavoidable, but I'm trying to put off the marketing aspect of my training until a later stage.)

And hence, my woes: I come from a legal background. I have no knowledge of accounting (which will be remedied very soon) or of financial analysis itself. Of course, I could learn what I should do on the job, but I've always liked preparing beforehand so that I can already be at my very best (which may not even be much) as soon as I start the job so that I can keep on improving from there.

Hence, I would appreciate it if you could:

1) Recommend me good books to read that serve as thorough introductions to the world of financial analysis; i.e. those books that illustrate the current situation in the world of finance, and which lay out the the past few decades of historical development as well. I'll take both simple/here's-the-big-picture books and also in-depth books.

2) Recommend me books on accounting, financial analysis techniques, etc. I'd also appreciate it if I were given some sort of 'reading level' to go by, i.e. "read this first, then this, then this". (E.g. if this were programming and I wanted to learn Python, I'd like to know what the staple books are (like "Learning Python") and what the more esoteric books for advanced specialists are (like "Programming Collective Intelligence" or "Natural Language Processing", etc).)

3) Tell me what other relevant or ancillary knowledge I should study that would benefit me in my field, so that I can become a very competent (and hopefully, well-paid) financial analyst with time and several years of hard work.

4) Recommend me software/apps/tools that I should play around with and learn in my free time, that would help me in my professional work.

5) Recommend me MetaFilter users in related financial fields whose profiles I can follow and pick up knowledge from.

6) Tell me what other options are available to me if I don't want to purely stick to the world of financial analysis. (E.g. What sort of banking work might be somewhat relevant to it?)

I've always been a very motivated person, so I am willing to spend as many hours as it takes to pore through as many books as necessary in order to learn as much as I can, over the next several months. So feel free to recommend me anything or to advise me in whatever way you see fit; as a fledgling in the finance industry, I'd really appreciate all the help I can get.
posted by wz to Work & Money (10 answers total) 13 users marked this as a favorite
 


I'm working towards my CFA at the moment, the CFA programme basically assumes zero finance and/or accounting knowledge to begin with and builds it up fairly slowly.

Apart from that I've benefited from reading Michael Porter's books on strategy to try and understand what companies being analysed are trying to do with their businesses.

Find out what software your employer is using. I'd love for that to be R, but 90% chance it will be built as Visual Basic on top of Excel sheets.
posted by atrazine at 4:56 AM on July 20, 2011


CFA, mentioned above, is what you want.
posted by dfriedman at 5:02 AM on July 20, 2011


yeah yeah, get your CFA - but that is just sort of giving you a tool box. I'm a CFA charterholder, but you can't convince me that this somehow makes you intrinsically better at evaluating investments. Its more important as a credential than anything else.

Your question is weird. Why do you want to do this? Do you see yourself being a money manager? Career Sell-side job is not something someone starting out today should be considering - or if they are they should be aware the declining economics of the traditional cash equities business are structural rather than cyclical, and therefore the comp situation is going to get less attractive. Not to mention there are all other sorts of issues surrounding what "sell-side research" actually means. Its really not about "research" and stock-picking.

I think you have this weird misconception about what financial statement analysis is - it isn't anything - its just a language people use to help them organize their thoughts and ideas about a potential investment. Making a P&L, B/S and CF work together doesn't make you a good investor. Its just mechanics. Don't lose sight of that. Newb analysts get way too worried about that stuff. Don't sweat learning it. You'll figure it out by doing it. The main books on the subject are textbooks - just crib the ones off of the CFA reading list if you insist on doing this (I don't think you should)

Software - really its very basic - for your actual day to day work it will be .xls, and you'll have a few of the data packages out there (Bloomberg, FactSet, Capital IQ) - doesn't matter who, those guys will happily train you however you want. (Guys would only use R/SAS/whatever to do portfolio construction and/or database work related to that. I doubt that even if you were at a place that used them, you as a junior analyst would ever touch them.) I wouldn't worry about this until you show up. You need to know what they use before you can start learning how the packages work.

Books - Figure out why you are doing this and its easier to give ideas.

Ancilliary knowledge - good analysis is basically applying economic principles to forecasting the business. Focus on this. The Porter books, etc. I personally think there is a lot more value-added in industry analysis rather than company analysis.

Then there are the big investing books - gotta sorta know what your interests are to point you there. I mean Graham or Klarmann aren't where someone obsessed with web 2.0 should be spending their time.
posted by JPD at 5:54 AM on July 20, 2011


Response by poster: nickrussell/atrazine/dfriedman: First time of I've heard of the CFA -- thanks for the recommendation! But I don't live in the US, so I wonder whether the CFA will be of any application where I live. (Still, I'm sure that the materials will help.)

JPD: For the moment, I just hope to learn as much as I can. I have no idea yet what career paths will open for me with this, but I'll least learn a lot about how the finance industry works so that I can be versatile enough to move into other related industries later down the road. Thanks for the thorough explanation (though I'll be honest in saying that I don't know quite a number of the abbreviations you've used).
posted by wz at 6:36 AM on July 20, 2011


wz: have you already run into the beginner's guide How To Read A Financial Report by John A. Tracy? Or are you past that level?
posted by brainwane at 6:39 AM on July 20, 2011


Honestly, I'd avoid any self-guided learning until you've gone through your firm's training program. These large firms are known for their high-quality training and you'll want to go in with an open mind.

Have you actually read any sell-side research reports? It might be helpful to have a general understanding of what the work product looks like. If you want, you can send me a mefi-mail with your email address and I can send you a couple examples.
posted by mullacc at 6:53 AM on July 20, 2011


CFA is a global credential. Actually anecdotally I think people value it more outside of the US than in the US.
posted by JPD at 6:53 AM on July 20, 2011 [1 favorite]


Response by poster: @ brainwane: No, haven't gone past that level yet ; thanks for the recommendation! Google's first result gives me a PDF file from Stanford University, which on a cursory glance seems very helpful. I'll read it in-depth tomorrow.

@ mullacc: I'll definitely keep an open mind as I go through the training program, but I'm thinking that a bit of preparation on my part might also be helpful; at least it'll reduce the chances of me being completely lost once I start. Also, unfortunately, no, I haven't yet seen a sell-side research report before. I'd be grateful if you could send those examples to me. (Will mefi-mail you in a while.)

@ JPD: Will definitely look into CFA!
posted by wz at 8:54 AM on July 20, 2011


Yup, the CFA is global in nature. It's less common in Europe, more common in Asia.
posted by dfriedman at 9:44 AM on July 20, 2011


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