Two skill families
Everything in this chapter has pointed at the same pair of abilities. The analyst has to be comfortable with numbers, because financial factors have to be analysed, trends identified and the relationships between different factors seen. And the analyst has to be methodical, curious and discerning, because knowing where the relevant information lives is half the work. On top of both sits the ability to understand a business model and the competitive dynamics around it.
Put the two families together and the analyst can reach the conclusion the job exists for: whether to favour or avoid investing in a particular industry or company.
The seven qualities
The syllabus lists what a good research analyst should have. Learn the list as a list; a question can ask for the one item that is not on it.
- 1Good with numbers.
- 2Good with Excel or other spreadsheet and data-analysis tools.
- 3Clarity in financial concepts.
- 4The ability to read and comprehend financial statements and reports.
- 5The ability to ask pertinent questions.
- 6Attention to detail.
- 7Communication skills, both written and verbal.
A balance sheet shows a comfortable cash balance. The notes reveal that most of it is a loan to a company owned by the promoter's family. The number was never wrong; the analyst who reads only the face of the statement simply never sees it. Reading the notes, and asking why cash is sitting with a related party, is quality four and quality five working together.
"Always optimistic about companies under coverage", "persuasive with management", "aligned with market consensus": each sounds like a strength and each is a distractor. Optimism is bias; persuasion runs the wrong way (management is the one to be questioned); consensus is someone else's view. The syllabus wants neutrality, and anything that leans is out.
Why spreadsheets are on the list
The second quality is more practical than it looks. NISM notes that workstations at the test centre are equipped with Microsoft Excel or LibreOffice Calc, and advises candidates to be comfortable with both for the numerical questions. A comfortable analyst computes a ratio, a CAGR or a discounted value in a few cells; an uncomfortable one loses two minutes and a mark. Practise the formula sheet in a spreadsheet, not only on paper.
Where to see the craft
The stock exchanges publish sample research reports on their investor education pages. Reading a few is the fastest way to see the seven qualities in finished form: numbers handled cleanly, financial statements interpreted, assumptions stated, jargon explained, and a clear recommendation at the end. Chapter 13 sets out what a good report contains; chapter 14 sets out the rules it must follow.
How chapter 1 feeds the rest of the paper
This chapter is worth a single mark, and yet it seeds three others. The conduct principles return in chapter 14 as regulations with penalties attached. The three lenses become chapters 5 through 8. The communication rules become chapter 13's anatomy of a good report. Treat this chapter as the vocabulary and the rest of the course as the grammar.
- The job needs both quantitative skill (comfort with numbers, spotting trends and the links between factors) and qualitative skill (being methodical, an enquiring mind, knowing where to look, understanding business models and competitive dynamics).
- Seven listed qualities: good with numbers; good with spreadsheets and data tools; clarity in financial concepts; ability to read and comprehend financial statements and reports; ability to ask pertinent questions; attention to detail; written and verbal communication.
- Traits that compromise neutrality (always optimistic, deferring to management, following the crowd) are not qualities of an analyst, however positive they sound.
- The exam centre provides Excel or LibreOffice Calc for numerical questions, so spreadsheet comfort is tested directly, not just listed.