Wednesday, May 25, 2011

Summer Reading for Young Aspiring Equity Security Analysts

With summer approaching and time available for some reading outside of the classroom, the students in the  AIM program have been asking me about what books they should be reading to make them better equity research analysts. 

For those of you unfamiliar with equity research analysis here is a basic definition: it is the financial analysis of companies in order to evaluate them as possible investment opportunities.  Sell-side equity research analysis is when the researcher provides their fundamental research analysis to clients outside of their firm (i.e. a buy side firm or institutional/retail investor). Buy-side equity research is when the analyst does their own research to invest their firm's money (i.e. pension fund, hedge fund, or mutual fund).

To become proficient at security analysis it is important to read, ask questions, observe, and be curious. Good investment analysts follow global economics, politics, business, technology, and social trends. Again, the key is to be intellectuality curious and to be a voracious reader. Here are some reading suggestions (feel free to add more suggestions and comments to this posting):

·         The first two suggestions are not actually books, but are outstanding web sites where you will find essential material that should be examined:

o   The first is essential reading for an aspiring equity analyst. It is Warren Buffett's Berkshire Hathaway shareholder letters. Each annual letter is only about 20 pages, but it is classic fundamental investment analysis. Buffett is excellent and witty writer - you will be entertained and educated at the same time. You’ll learn a lot about basic investment equity analysis – so it is well worth the time to check out Warren’s ramblings:

o   The second is Aswath Damaoridan’s web site: Dr. Damaoridan is a Professor of Finance at the Stern School of Business at New York University and his on-line material (including his lecturers and readings) is outstanding. The site is a bit challenging to navigate; however, spending time on this site will be valuable to any student of finance. His valuation texts are very good as well.

·         Security Analysis by Benjamin Graham and David Dodd
o   Also: The Intelligent Investor, Security Analysis, and The Interpretation of Financial Statements by Benjamin Graham.

·         A Random Walk Down Wall Street: The Best and Latest Investment Advice Money Can Buy by Burton G. Malkiel

·         Fooling Some of the People All of the Time by David Einhorn

·         Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market by Daniel Reingold and Jennifer Reingold

·         Best Practices for Equity Research Analysts : Essentials for Buy-Side and Sell-Side Analysts by James Valentine

·        Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports by Howard Schilit

·         Applied Equity Analysis by James English

·         Financial Modeling by Simon Benninga

·         Valuation: Measuring and Managing the Value of Companies by McKinsey & Company (authors Tim Koller, Marc Goedhart and David Wessels)

·         Other interesting reads about Wall Street include: House of Morgan, Den of Thieves, Liars Poker, When Genius Failed, and Too Big to Fail

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