standard method for learning more about a specific sector? (particularly biotech sector)
The important piece here is not necessarily understanding intimate details of biological engineering per se, but rather understanding how the business operates as a singular unit. It is also important to understand the business case for a firm, the evolution of demand for its products/services and the cost of its revenue. To understand a particular sector of the market, you should begin by studying how that sector interacts with and is influenced by the larger market and economy as a whole, both domestic and abroad. From there, you should study individual companies and again see how they interact with one another, the sector, market, etc. Many biotech firms have a different offering and meet different business and consumer demands. Some are near term solutions to existing problems, some long. It is important to see how the firms collectively interact with the consumer base and then differentiate on an individual level.
"In any technical field practitioners have difficulty explaining general/abstract concepts to outsiders. They're accustomed to using a particular set of concepts and ideas that make communication fast and easy between their colleagues, but make communication difficult with outsiders who don't know that language. It's usually easy to come up with a mediocre analogy that communicates the gist of the idea, but finding analogies that capture the complete essence of the concept is extremely hard (and maybe impossible).  Have you studied mathematics? Try explaining the concept of a ""continuous function"" in all its generality without talking about epsilons and deltas or open sets and inverses. You can talk about ""drawing a line and not picking up your pencil"", but that's not quite what a continuous function is. Likewise, if you've studied law, try explaining what a ""security interest"" is in its full generality without talking about liens or pledges. You can come up with specific examples, sure, but it'll be tough to find one that captures the whole concept. I'm sure you can come up with examples from whatever field it is you specialise in.  Added to this is the problem that the skill-set needed to be a good translator across disciplines isn't really valued in most corporations, including banks.   EDIT: I accidentally a word." I use 10-K and 10-Qs to understand to read the disclosed risk factors related to a business. Sometimes they are very comical. But when you see that risk factor materializing you can understand how it will effect the company. For example, one microlending company's risk factor stated that if Elizabeth Warren becomes head of the Consumer Financial Protection Bureau we will have a hard time... so we are expanding in Mexico and taking our politically unfavorable lending practices there. I like seeing how many authorized shares there are or if there are plans to issue more. An example was where I heard from former employees of a company how gullible the other employees at that company were and how they all thought they were going to get rich or were being told so by upper management. Poor/Quirky/Questionable/Misleading management is one of my favorite things to look for in a company so I started digging into their SEC filings and saw that they were going to do a reverse split which would make the share prices trade higher (while experiencing no change in market cap), but then digging further I saw that they were only changing the already issued shares, but keeping the authorized shares at the much larger amount of shares, and that they planned to do financing by issuing more of the authorized shares. I exclaimed that this would mean the share prices would drop by 90%-99% after the reverse split and you mean to tell me that nobody realizes this (employees or the broad market). I was almost tempted to stand outside their office and ask employees if I could borrow their shares to short, because there wasn't enough liquidity on the stock market! This was almost the perfect short but it wasn't liquid or have any options so not perfect after all. It traded from $20 after the reverse split to $1.27 I like understanding how much debt a company is in and the structure of that debt, like if a loan shark has large payments coming up soon. This is generally what I use those particular forms for. But they contain a lot of information A lot of companies are able to act they way they do because people do not read. I appreciate all the responses, but again, I have NO experience or education in the field.  I haven't started any major related college courses yet and do not have a job in the field. I am looking for beginner, introduction level reading material to start reading up on to start understanding the field before I even start school. Institute of Supply Management, specifically their Report on Business. Good forward looking indicator.   As far as the weekly report, I'd probably read it, maybe even contribute, but I more of a lurker on this sub. I saw your question and have had some similar experiences so I thought I could help you out. "1. Transcript: http://www.henrygeorgeschool.org/uploads/Smart_Talk_Transcript_Interview_Roberts_v02.pdf      Source: http://www.henrygeorgeschool.org/Smart_Talk_TV.html  2. (a) ""[The Social Responsibility of Business is to Increase its Profits](http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html)"" by Milton Friedman, published on 13 September 1970: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html       Mirror: http://web.archive.org/web/20030130073709/www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html      (b) ""[Maximizing shareholder value: The goal that changed corporate America](http://www.washingtonpost.com/business/economy/maximizing-shareholder-value-the-goal-that-changed-corporate-america/2013/08/26/26e9ca8e-ed74-11e2-9008-61e94a7ea20d_singlePage.html)"" by Jia Lynn Yang, published on 26 August 2013: http://www.washingtonpost.com/business/economy/maximizing-shareholder-value-the-goal-that-changed-corporate-america/2013/08/26/26e9ca8e-ed74-11e2-9008-61e94a7ea20d_singlePage.html  3. http://www.reddit.com/r/politics/comments/1kpbd6/oligarchic_tendencies_study_finds_only_the/cbrhf0y  4. http://www.reddit.com/r/technology/comments/28yio0/tech_industry_job_ads_older_workers_need_not_apply/cifoej1  5. ""[The West on the wrong path: In view of the events in Ukraine, the government and many media have switched from level-headed to agitated. The spectrum of opinions has been narrowed to the width of a sniper scope. The politics of escalation does not have a realistic goal -- and harms German interests.](http://www.handelsblatt.com/meinung/kommentare/essay-in-englisch-the-west-on-the-wrong-path/v_detail_tab_print/10308406.html)"" by Gabor Steingart, published on 8 August 2014: http://www.handelsblatt.com/meinung/kommentare/essay-in-englisch-the-west-on-the-wrong-path/v_detail_tab_print/10308406.html      Source: http://www.handelsblatt.com/meinung/kommentare/essay-in-englisch-the-west-on-the-wrong-path/10308406.html      Via: http://www.handelsblatt.com/meinung/kommentare/politik-der-eskalation-der-irrweg-des-westens-/10308844.html" Look, I'm not an expert in what assets DB has in transportation companies, or to what industries DB's banks lend money. DB is a multinational corporation that probably has its fingers in hundreds of markets and industries. All I am trying to say is that DB is largely disinterested. Just because DB invests marginally in transportation and logistics does not mean that it should be trusted as a significantly invested (and informed) party, any more than I should be trusted as an interested informed party in regards to technology sector because I own shares of a mutual fund that owns shares of Apple and Alphabet. Regardless of the hearsay component, which is inherently untrustworthy, DB is not a market player such that its word should be taken as anything other than with a grain of salt. I'm a commodity trader. The only degree I had when I started trading was a BS in Bioinformatics from Loyola University Chicago.  If you take initiative and can sweet talk your way into an interview, that's all you need. "If you are interested in a career in algorithmic trading, I strongly encourage you to formally study math and computer science.  Algorithmic trading firms have no need for employees with financial knowledge; if they did, they'd just be called ""trading"" firms.  Rather, they need experts in machine learning, statistical modeling, and computer science in general. Of course there are other avenues of employment at an algorithmic trading firm, such as accounting, clearing, exchange relations, etc.  If that's the sort of thing you're interested in, again you'll probably want a formal education in those areas as opposed to just reading about finance in the news. If you edit your question or add a comment below with information about your particular background, I could perhaps advise you in a bit more detail. ::edit:: Given your comment, I would say you have a fine academic background for the industry.  When hiring mathematicians, firms care most about the ease with which you can explore and extract features from massive datasets (especially time series) regardless of what the dataset might represent.  An intelligent firm will not care whether you arrive at their doorstep with zero finance knowledge; they will want to teach you everything from scratch anyway. Nonetheless, some domain knowledge could be helpful, but you're not going to get ""more"" of it from reading any mass market news source, whether you have to pay for it or not.  That's because  Some non-mass-market news sources in the industry are  These are subscription-only and actually discuss real information that real professional investors care about.  They are loaded with industry jargon, they're extremely opinionated, and (in my opinion) they're useless.  I can't imagine trying to learn about the industry from them, but if you want to spend money for news in order to be exposed to the innards of the industry, then either of these is far better than the Financial Times.  Despite requiring a subscription, the Financial Times still does not cover the technical details of professional trading. Instead of trying to learn from news, then, I would suggest some old favorites: and, above all else, Read everything in the navigation box on the right side under Financial Markets and Financial Instruments." "It is indeed, mostly because the various factors you need to take into account will change depending on the company. An Australian mining co funding a new settlement or harbor has nothing in common with a small European packaging company looking to acquire a competitor, except they both need to raise money.  As far as I know, to become ""proficient"" in that field, the only way is to go through heaps of case studies, which won't be found easily outside of the financial world (sell side research, conversation with experienced buy side analysts/PMs/traders or sell side cap markets pros).   It is niche knowledge with a narrow focus and a high potential for value added, hence, not really widely shared.  The good news though is that it isn't really that complex, it just takes (lots of) work and being in the right place (internship or entry level position in a market or M&amp;A oriented bank)." "It is great that you want to learn more about the Stock Market. I'm curious about the quantitative side of analyzing stocks and other financial instruments. Does anyone have a recommendation where should I start? Which books should I read, or which courses or videos should I watch? Do I need some basic prerequisites such as statistics or macro and microeconomics? Or should I be advanced in those areas? Although I do not have any books or videos to suggest to you at the moment, I will do some more research and edit this answer. In order to understand the quantitative side of analyzing the stock market to have people take you serious enough and trust you with their money for investments, you need to have strong math and analytical skills. You should consider getting a higher level of education in several of the following: Mathematics, Economics, Finance, Statistics, and Computer Science.  In mathematics, you should at least understand the following concepts: In finance, you should at least understand the following concepts: In Computer Science, you should probably know the following: So to answer your question, about ""do you need to be advanced in those areas"", I strongly suggest you do. I've read that books on that topics are such as The Intelligent Investor and Reminiscences of A Stock Operator. Are these books really about the analytics of investing, or are they only about the philosophy of investing? I haven't read the Reminiscences of A Stock Operator, but the Intelligent Investor is based on a philosophy of investing that you should only consider but not depend on when you make investments." I'd love to do something in the style of Nassim Taleb (fat tails, black swan events, and so forth)  He's a mathematical geniues, despite his controversial personality.  How useless is the VaR as a risk management tool would be a great topic.  Or something regarding policy/regulation (hot topic now). "I want to elaborate on some of the general points made in the other answers, since there is a lot that is special or unique to the biotech industry. By definition, a high P/E ratio for an industry can stem from 1) high prices/demand for companies in the industry, and/or 2) low earnings in the industry. On average, the biotech industry exhibits both high demand (and therefore high prices) and low earnings, hence its average P/E ratio. My answer is somewhat US-specific (mainly the parts about the FDA) but the rest of the information is relevant elsewhere. The biotech industry is a high-priced industry because for several reasons, some investors consider it an industry with significant growth potential. Also, bringing a drug to market requires a great deal of investment over several years, at minimum. A new drug may turn out to be highly profitable in the future, but the earliest the company could begin earning this profit is after the drug nears completion of Phase III clinical trials and passes the FDA approval process.  Young, small-cap biotech companies may therefore have low or negative earnings for extended periods because they face high R&D costs throughout the lengthy process of bringing their first drug (or later drugs) to market. This process can be on the order of decades. These depressed earnings, along with high demand for the companies, either through early investors, mergers and acquisitions, etc. can lead to high P/E ratios.  I addressed in detail several of the reasons why biotech companies are in demand now in another answer, but I want to add some information about the role of venture capital in the biotech industry that doesn't necessarily fit into the other answer. Venture capital is most prevalent in tech industries because of their high upfront capital requirements, and it's even more important for young biotech companies because they require sophisticated computing and laboratory equipment and highly-trained staff before they can even begin their research. These capital requirement are only expected to rise as subfields like genetic engineering become more widespread in the industry; when half the staff of a young company have PhD's in bioinformatics and they need high-end computing power to evaluate their models, you can see why the initial costs can be quite high. To put this in perspective, in 2010, ""venture capitalists invested approximately $22 billion into nearly 2,749 companies."" That comes out to roughly $7.8M per company. The same year (I've lost the article that mentioned this, unfortunately), the average venture capital investment in the biotech industry was almost double that, at $15M. Since many years can elapse between initial investment in a biotech company and the earliest potential for earnings, these companies may require large amounts of early investment to get them through this period. It's also important to understand why the biotech industry, as a whole, may exhibit low earnings for a long period after the initial investment. Much of this has to do with the drug development process and the phases of clinical trials. The biotech industry isn't 100% dedicated to pharmaceutical development, but the overlap is so significant that the following information is more than applicable. Drug development usually goes through three phases: Drug discovery - This is the first research stage, where companies look for new chemical compounds that might have pharmaceutical applications. Compounds that pass this stage are those that are found to be effective against some biological target, although their effects on humans may not be known. Pre-clinical testing - In this stage, the company tests the drug for toxicity to major organs and potential side effects on other parts of the body. Through laboratory and animal testing, the company determines that the drug, in certain doses, is likely safe for use in humans. Once a drug passes the tests in this stage, the company submits an Investigational New Drug (IND) application to the FDA. This application contains results from the animal/laboratory tests, details of the manufacturing process, and detailed proposals for human clinical trials should the FDA approve the company's IND application.  Clinical trials - If the FDA approves the IND application, the company moves forward with clinical trials in human, which are themselves divided into several stages. ""Post-clinical phase"" / ongoing trials - This stage is sometimes considered Phase IV of the clinical trials stage. Once the drug has been approved by the FDA or other regulatory agency, the company can ramp up its marketing efforts to physicians and consumers. The company will likely continue conducting clinical trials, as well as monitoring data on the widespread use of the drug, to both watch for unforeseen side effects or opportunities for off-label use. I included such detailed information on the drug development process because it's vitally important to realize that each and every step in this process has a cost, both in time and money. Most biopharm companies won't begin to realize profits from a successful drug until near the end of Phase III clinical trials. The vast R&D costs, in both time and money, required to bring an effective drug through all of these steps and into the marketplace can easily depress earnings for many years.  Also, keep in mind that most of the compounds identified in the drug discovery stage won't become profitable pharmaceutical products. A company may identify 5,000 compounds that show promise in the drug discovery stage. On average, less than ten of these compounds will qualify for human tests. These ten drugs may start human trials, but only around 20% of them will actually pass Phase III clinical trials and be submitted for FDA approval. The pre-clinical testing stage alone takes an average of 10 years to complete for a single drug. All this time, the company isn't earning profit on that drug. The linked article also goes into detail about recruitment delays in human trials, scheduling problems, and attrition rates for each phase of the drug development process. All of these items add both temporal and financial costs to the process and have the potential to further depress earnings. And finally, a drug could be withdrawn from the market even after it passes the drug development process. When this occurs, however, it's usually the fault of the company for poor trial design or suppression of data (as in the case of Vioxx). I want to make one final point to keep in mind when looking at financial statistics like the P/E ratio, as well as performance and risk metrics. Different biotech funds don't necessarily represent the industry in the same way, since not all of these funds invest in the same firms. For example, the manager of Fidelity's Select Biotechnology Portfolio (FBIOX) has stated that he prefers to weight his fund towards medium to large cap companies that already have established cash flows. Like all biopharm companies, these firms face the R&D costs associated with the drug development process, but the cost to their bottom line isn't as steep because they already have existing cash flows to sustain their business and accumulated human capital that should (ideally) make the development process more efficient for newer drugs.  You can also see differences in composition between funds with similar strategies. The ishares Nasdaq Biotech Index Fund (IBB) also contains medium to large cap companies, but the composition of its top 10 holdings is slightly different from that of FBIOX. These differences can affect any metric (although some might not be present for FBIOX, since it's a mutual fund) as well as performance. For example, FBIOX includes Ironwood Pharmaceuticals (IRWD) in its top 10 holdings, while IBB doesn't. Although IBB does include IRWD because it's a major NASDAQ biotech stock, the difference in holdings is important for an industry where investors' perception of a stock can hinge on a single drug approval. This is a factor even for established companies. In general, I want to emphasize that a) funds that invest more heavily in small-cap biotech stocks may exhibit higher P/E ratios for the reasons stated above, and b) even funds with similar mixes of stocks may have somewhat different performance because of the nature of risk in the biotech industry. There are also funds like Vanguard's Healthcare ETF (VHT) that have significant exposure to the biotech industry, including small-cap firms, but also to major players in the pharmaceutical market like Pfizer, Johnson and Johnson, etc. Since buyouts of small-cap companies by large players are a major factor in the biotech industry, these funds may exhibit different financial statistics because they reflect both the high prices/low earnings of young companies and the more standard prices/established earnings of larger companies.  Don't interpret anything I stated above as investment advice; I don't want anything I say to be construed as any form of investment recommendation, since I'm not making one." I don't know what you are asking. Can you give me an example of what fits the question?   That you use phrases like profit extraction make me think we have a different assumption base, so I think we have to find common syntactic ground before we can exchange ideas in a meaningful way. I would like to do so, though, so I hope you respond. Well, it also discusses other traditional valuation techniques such as the economic profit model and it has a chapter on real option valuation. But I would not label those exotic valuation methods. However, I would say that the CFA challenge is much about standard valuation methods due to the limited page limit and considering that there should properly also be an analysis of the external and internal environment to determine the future prospects of the given company. Well, you should have something that you are passionate about, but you don't necessarily need to choose a coverage right away. Many enter as generalists for IB, buy side and sell side.  However, if you are going to create a buy side report, you should tailor it to what sectors or criteria the firm selects from. If the firm you are talking to invests in consumer staples, energy and financials, a tech buy side report makes little sense.  At the same time, if they are interested in tech, try and narrow it down. Are they interested in tech mfg such as chips or electronics? Or are they interested in internet companies, service firms, BPOs, etc?