Dr. P.V. Viswanath

pviswanath@pace.edu

Interview for Full Time Equity Research Junior Associate Position at Top-tier Securities Firm

Donald Joseph

In late November 2001, I participated in the Equity Research Final Round Interviews Day for the renowned bulge-bracket, pre-eminent, and global securities firm: Morgan Stanley.  The program was broken into two separate sessions, comprised by twenty-eight students in all.  I participated in the first day session along with thirteen other finalists.

In the meeting room, we were welcomed to the firm by the Research Manager and the Head Recruiter of the division.  First, they briefly ran down the agenda for the day.  They said we would be contacted the following with feedback from the interviews and their decisions for new hires.  We were to be interviewed by four different associates within the company.

FIRST INTERVIEW:

My first interview was with an associate who covers enterprise software companies. The interview began with a review of my past work experience. This person had a keen interest in my knowledge of the field, the firm, and my level of sophistication in regards to the financial markets.

Several questions stem in my mind from this specific interview:

Interviewer’s Question 1: If you were to look at the balance sheets of a utilities company and a software/pharmaceuticals company, what differences would you expect to see?

My Answer 1: A balance sheet for a utilities company would have a significant concentration of cash in its fixed assets while a pharmaceuticals/software company would possible have research and development projects as a component of its working assets.

Interviewer’s Question 2: Let’s suppose you were an analyst. What valuation methods would you use to assess the revenues or earnings streams for these companies?

My Answer 2: Because a utility company enjoys a constant revenue stream from its consumers, I would take a more short-term view on its earnings prospects. Secondly, these companies are so large and established; there is less opportunity for significant growth in its business. On the contrary, a pharmaceutical company or software company usually partakes in research and development (R&D) projects that may decrease its revenue in the short-run. It is important for the analyst to take a more long-term on its future cash flows and earnings streams.

The interviewer then agreed when analyzing a software company, he has commonly seen fluctuating revenues from quarter to quarter.

Towards the end of our interview, I took control and asked a question I anxiously wanted to ask a sell-side analyst.

My Question 1: I’ve been reading the papers, and I have noticed that regulators and managers of the most well-know securities firms have been clamoring over analysts who but stock in the companies they cover. Does your company allow its analysts to do so?

Interviewer’s Answer 1: Good question. There are deliberations over analyst holdings. I feel that an analyst should state on their holdings on the research reports when necessary. I believe this does not leave anything in secret and in a way gives credibility to their recommendation.

SECOND INTERVIEW:

Next, I interviewed with an analyst who focuses on specialty pharmaceuticals. He first grilled my past work experience. Then asked the following questions:

Interviewer’s Question 1: Why do you want to go into equity research?

My Answer 1: Considering the close ties the research department has with the investment banking, trading departments, and its relationship with the general public, I feel that this division has the most important role. It serves as the backbone of any financial services firm, whether we are talking about an insurance company or brokerage firm.

Interviewer’s Question 2: In your opinion, what qualities should a research analyst have?

My Answer 2: They must have a good understanding of financial fundamentals. It is essential that he is able to write in a clear and concise way because he will be expected to present his work to the senior analyst of his team. They must have a keen ear and eye for detail. When this person is at client site or on a teleconference call, it is important to listen to details and specific facts. Most importantly, this person should have a genuine love for the markets. This person must be interested in the financial news and markets.

Interviewer’s Question 3: Let’s hypothetically say you were to begin working here next week. What industry would you like to cover and why?

My Answer 3: I have always been interested in war games. Nuclear weaponry and systems has intrigued me at a very young age. I would love to cover an aerospace/defense company. I am interested in finding out what assets these specific companies have and how much financing they need to operate. I also want to know the specific products they sell.

My questions at the end of this interview:

My Question 1: You cover specialty pharmaceuticals companies. My financial analysis professor said we are in for an increase in mergers between pharmaceutical and biotechnology firms. Do you agree with this outlook?

Interviewer’s Answer 1: Yes. I definitely agree. Mainly because there are patents and resources that a biotechnology firm will have that is lacking by pharmaceutical companies. It makes logical sense.

My Question 2: What attracted you to the field of equity research?

Interviewer’s Answer 2: I worked for Merck as a sales representative. I believe I was hired for my knowledge of the industry. I believe I bring that extra twist to my analysis. You could have asked my 10 years ago what is equity research and I would not know. In many ways, I stumbled into the field but I enjoy it very much. The hours get hectic at times, but the rewards are endless. You get so much indispensable knowledge from this field.

My Question 3: What is the most interesting company you cover?

Interviewer’s Answer 3: I would have to say King Pharmaceuticals. It is a pretty large company and has been putting out great products to the public. I also cover seven other specialty pharmaceutical companies.

My Question 4: What is your 5-year goal?

Interviewer’s Answer 4: I definitely enjoy what I am doing here, but I am working to become a senior one-day.

THIRD INTERVIEW:

My next interview was with an analyst who covered business services.

Interviewer’s Question 1: Why do you want to work for this company?

My Answer 1: I feel this company would be committed to providing me with challenges and opportunities for growth. I know that the training program is excellent and it seems there is a very friendly work environment here.

Interviewer’s Question 2: What would be your goal in you were given an offer?

My Answer 2: I would definitely make every attempt to learn from some senior analysts. I would like the opportunity to learn how they think. They are on top of their game not only because of their hard work, but because they are very detailed. I have read transcripts of teleconference calls between executives and analysts. One could see how detailed these analysts are.

When I was free to ask questions:

My Question 1: Do you participate in any internal or development programs?

Interviewer’s Answer 1: There are many programs here that allow us to keep up with the new technology. I’ve participated in presentation programs and internal education courses. I believe will we continue to see improvement in the trading industry as well. The technology advancement and financial feasibility of systems will only increase the ability of operation groups to compete on broader scales, for example the volume of account, processing trades. This environment will raise the bar on candidates recruited for operational positions. Operation will have to recruit higher skilled individuals who are diverse in academic and job experiences. One needs to continue to learn and improve one’s skill set to thrive in the increasingly competitive market.

FOURTH INTERVIEW:

Interviewer’s Question 1: Where do you see the market and economy going in the next year?

My Answer 1: I have look at the Fed’s Flow-of-Flows Data for 2000 .I understand companies across the broad have leveraged themselves since 1999. I believe you will see more bankruptcies declared. More reported profit evaporation and operating losses should continue. More layoffs will take place. I do believe that a U.S. recovery is imminent though. A significant recovery won’t occur until the end of 2002.It’s very ugly right now.

Interviewer’s Reply: I definitely agree with you. The other interviewees believe the entire economy will recover by mid 2002.We see eye-to-eye on that forecast.

Interviewer’s Question 2: What was your least favorite class in college?

My Answer 2: I would have to say Asian civilizations because history is always someone’s perspective on an event. I am not doubting these events did not occur, but in reporting, journalism, and history, someone puts their spin on the information.

Interviewer’s Question 3: What class do you feel prepared you most for this job?

My Answer 3: I feel my Advanced Financial Analysis course at Pace University has given all the tools to understanding what a financial analyst does in comparison to an accountant. They value operating and capital leases in a more practical way. Secondly, this class has brought light to my personal education. The jargon and issues I encountered in my first readings of the journal have been deciphered. I understand, now, the markets tend to be myopic and overreact to financial news.

Interviewer’s Reply: I was formerly an accountant before I entered the equity research field. I just got tired of the dryness of the field. It was very boring.

My Reply: There are considerable differences in the way a financial analyst will value a firm in comparison to an accountant. I learned in my financial analysis class that an accountant would treat operating leases as operating expenses when in fact they should be treated as financial expenses. It makes logical sense that R&D expenses be treated as capital expenses rather than operating expenses. This is why financial analysts are capable in identifying firms who attempt to mislead the financial community by increasing their profitability on paper.

Interviewer’s Reply: I could not deal with that fact as well, hence why I entered this field.

Conclusion: On my first day in Professor Viswanath’s FIN 320, Advanced Financial Analysis course, I concluded I would learn a great deal about financial markets and the realm of securities analysis. I feel this class provides much needed information to those who are pursuing a career in financial services whether, fixed-income or equity analysis positions, and consulting.

Professor Viswanath also gives several lessons on regression analysis and econometrics. In today’s competitive and shallow job market, I believe all students who are looking into entry level positions will increase their value to employers by developing skills in regression and quantitative analysis. With these skills under their belt, they are more likely to be considered strong candidates because they bring needed skills to the table prior to formal job training programs.

FIN 320: Advanced Financial Analysis in arguably the most useful and meaningful course to all finance majors. Enjoy the course and recognize the value of each lesson.