So You Want to Be A Games Analyst...After we put out the two part “So You Want to Be a Games Journalist...” articles, a couple of people contacted us independently to suggest another idea: what about “So You Want to Be a Games Analyst”? There's certainly no lack of interest in commentary on the business of gaming, and I know a lot of people would like to get a chance to do it professionally and not just on a gaming forum. So we contacted the one and only Michael Pachter, Managing Director of Equity Research at Wedbush Securities, to talk about his experience as an analyst and find out more of what it takes to get paid in his field.
More Education The Better
Being an stock analyst of any kind is a very high-brow job; you're dealing with millions of people's dollars and the degrees on the wall of your office matter to them. As such, if you even want to attempt to break in to the field, the more education you can bring to the table, the better. Getting a masters degree isn't mandatory but certainly doesn't hurt and having a doctorate could go a long way.
“I have four degrees: my undergraduate degree is in Political Science; I have a law degree and a master's of law in taxation; and I have an MBA,” said Pachter.
"If I have an opinion that more than half of people agree with, then I'm criticized for being 'Captain Obvious'. If more than half of people disagree with my opinion, I'm an idiot."
Analyst, Adviser or Consultant?
When putting together stories, the media has a tendency to label a lot of individuals an “analyst” of the industry (probably because “expert” sounds too pretentious). Many of these people, however, have very different jobs that they do in and around the industry. Even if you'd want to help provide insight into the industry in one way or another, your day job could vary from contract work for game developers to a person who looks at the earnings of companies to predict stock gains and losses.
“People in the media have different definitions of analyst, lumping guys like Jesse Divnich and David Cole together with me,” detailed Pachter. “Jesse works as an adviser to a firm that consults with game publishers, and he helps investors understand the mechanics of game development, predictors of success, and costs associated with development. David is a consultant to the games industry, and writes periodic research on the industry for his clients, who are primarily games companies. I advise institutional investors on the suitability of game publisher stocks for their portfolios. We have different clients with some overlap, but our roles are completely different. However, we're all called 'analysts'.”
“My job primarily involves forecasting earnings for the stocks I cover, and advising investors on the appropriate value of each investment,” he added. “That means I must understand the financial side of the business. Given that my career prior to this involved a heavy dose of M&A, I am able to apply valuation metrics and understanding of income statements and balance sheets to my daily work.”
Realize How Hard it Is To Break Into Being an Analyst
Part of the reason I wrote my previous articles on being a game journalist was that I wanted to make sure anyone who was interested knew what they were getting into. While being in the fraternity of those who get paid to write about video games every day is a small one, being a paid stock analyst for games is harder still.
“There are around 30 video game analysts working for brokerage firms, out of 200 firms that employ analysts and out of around 2500 analysts altogether,” informed Pachter. “As the skills set required is quite modest, the number of people who are qualified to do the job is great, meaning that supply is high and demand is low. In other words, it's a hard job to get. It's also hard to get one of the 2500 stock market analyst jobs.”
Don't Be Shy... And Don't be Thin Skinned
Michael Pachter is a fountain of opinions for the media. He's been quoted by dozens of outlets and isn't afraid to go out on a limb. It's helped raise his profile professionally, but it's also resulted in a lot of flack, particularly when it comes to the AAA games industry. However, he's willing to be the “man in the arena” and deal with the slings and arrows that come with it, and anyone who offers his opinion publicly in the way he does will have to do the same.
“I don't advise anyone for free, but am happy to respond to press inquiries,” said Pachter. “Most of the inquiries I receive involve opinion. The press is a powerful tool for me to establish myself as an expert. If you come to me more than once, it suggests that you find my opinions of value. Most members of the press come back often enough to lead me to conclude that I am helping them to get the answers they are looking for. If I appear in the press often, it reinforces my clients' belief that I must be good at my job.”
“People who make public comments have to be prepared for criticism,” he continued. “If I have an opinion, it's likely that a number of people approaching 50% of all people who care will disagree. That's just the way the world works. If I have an opinion that more than half of people agree with, then I'm criticized for being 'Captain Obvious'. If more than half of people disagree with my opinion, I'm an idiot. It's really not worth any effort to respond to this type of criticism.”
Being an Analyst Involves So Much Work
Over the years, I've joked with colleagues on more than one occasion that Pachter must have a clone or two. I say that because the guy is always quick with his responses and those responses are often quite substantial. The courtesy that he's provided to us over the years, however, isn't even his job – the thing he gets a paycheck for involves more labor than most of us would like to imagine, but in the competitive world of stock analysts, you can't come in late and clock out early.
“Most people probably don't know that I work around 70 - 80 hours a week, spend 60 nights a year away from home, fly over 125,000 miles a year, and start work at 4:30 a.m. every day. They also don't know that I publish around 160 notes each year (three per week, on average),” said Pachter. “My notes average around 4 pages of text, so I write a lot. The notes involve setting out my expectations for future events, meaning that I make a lot of 'predictions'. For example, I wrote a note published last Monday that set forth my expectations for NPD results. I had expectations for console unit sales by platform, for console software sales by platform, software sales by publisher, and for individual game sales. Overall, there were around 50 'predictions'. I did this to help my clients determine whether there was an opportunity to make money before or after the data hits. I'm sure that I was wrong on all 50 estimates, but when it all adds up, I'm close enough. Of course, I could provide a single estimate (software sales = $1.5 billion), but if I don't show clients how I get to that figure, it has less value. Thus, I'm going to be criticized for 'predicting' that a given game would sell more or fewer copies than it actually ended up selling, and will have to live with it.”
Now, granted these comments are exclusively from the perspective of Michael Pachter and surely not every stock analyst would say the exact same thing, but he makes many good points about the field. To sum up: be educated, be available as a source as much as you feel comfortable and be willing to work your tail off. If you make it, however, there is one definite advantage over being a journalist – pay day. It's hard to break into, but there's potentially a much bigger windfall for those who prognosticate about company futures to those with lots of money to invest. Good luck to all prospective analysts out there... you're going to need it.
