Just some brief background about myself.
I started in Australia working as an Actuarial Analyst and moved to Hong Kong just before the Financial Crisis. My first job at an Investment Bank was at a Bulge Bracket doing Data Management for their Equities Research Department.
Eventually, I got an Equities Research position and covered Banks and Insurance for about 10 years in total. After that, I also worked at a Startup Hedge Fund as a Buy Side Analyst and a Credit Rating Agency.I am now focused on building Online Educational Programs in Finance and Personal Development as I found this is my true passion.
I am currently doing some research for what to focus on so this is part of the reason I am doing this post. I am looking to share my experiences and love to get your opinion as young professionals on the things you would like to know.
Yes, we do have that for experienced hires and I have seen successes especially when you are extremely passionate.
You would be bringing in knowledge that is currently not covered by most in the industry but where there is a lot of client interest. The person I knew that got in this way started out presenting at our conferences and client events. And he became so good that our team head hired him. He was also quite naturally gifted in serving investors, which is the other skill you have to learn quick to survive once you are in.
Great thread. Thanks for doing this.
I'm a PM at a $bn equity HF. I have historically limited my interaction with the sellside as a matter of personal preference, despite the fact that my firm has pretty good relationships with most of the banks across the Street. I'm looking to change that since I believe that the sellside can be a tremendous asset for me.
Curious to get your thoughts on how I can get the most out of my relationship with a sellside analyst? I suppose this is another way of asking what you think the sellside is particularly good at.
On the flip side, given that you know how the sausage is made, what do you think are the biggest weaknesses in sellside research if you were to be brutally honest? The reason that I ask is because understanding the structural limitations that a sellside analyst has to deal with can really help someone like me poke holes more easily in the sellside research that I read.
I would say you could start by going to the sales you know well at the banks, ask them for who are the top 2-3 analysts that they think you should meet at their firm.
That should be a natural filter in itself, given the size of your fund, the sales should diligently refer analysts that have helped him/her make money for clients or at least have a good reputation.
For this part, you would also need your sales to be senior otherwise, you may not get a proper referral (as in if the analyst has bargaining power, he/she could just ignore the sales) or the sales may just refer his/her best friend to you.
Best to arrange a meeting with the analysts at your office so you get a feel of that person as this is the subjective part and you may meet a wide range of personalities.
For me, the analysts with the most value add are the ones with best access to management, you could tell through whether they have done any roadshows with management, or have personal relationships with them.
Some guys would bluff a bit here and it is your skill to find out who is the real deal. Anyway, the result will tell sooner or later. Once you worked that out, you will have to track quite closely what that analyst say about that company in his/her reports. Are there any subtle changes in tone such as if he/she are usually very explicitly bullish in reports but suddenly turn more mild. They could still maintain Buy throughout to keep the corporate relationship.
Another value add from this analyst is that, if he/she is the real deal, he/she would have a lot of followers including the guys that actively trade the stock. You could then get much better colour from him/her than just some random analyst on the street.
Personally, those were the key value add to me because I was covering a sector I knew quite well just that on the buy side, I was not as close to the management and other investors anymore.
So it also depends on your knowledge of the sector and how close you are with management yourself.
There are analysts that diligently do modelling, data and reports and some investors value that as well.
As you can see, it can be quite a lot of extra time and effort if you are not doing it already so I am not sure if this is actually the best use of your time.
The biggest weakness is stock calls as they don't have skin in the game at all from both a personal perspective (ie, they don't own the stocks themselves) and professional (ie, their performance is dependent on you giving them a vote hence share of commission and not the actual calls they make).
I used to smile when I hear other buy side ask the sell side analyst if they would buy the stock now or not. People are not stupid and it could just become another counselling session if you know what I mean. I have also seen heated debates stemming from this question, I mean I could see a reason for it but it's just not necessary and there are more important things to do.
Also, I wouldn't ask questions like are investors overweight or underweight the sector. I mean, the answer is already in the fecking price. Asking that question is just asking for a verbal diarrhoea and I have seen it so many times.
To sum up, the sell side is useful if you know what you are doing, what your weakness is, where you are limited and exactly what help you need and you know whether they have the ability and willingness to provide it.
To be honest, if the sell side knows more about a stock than you, you ought to think whether it is wise for you to trade in that stock anyway.
Hey, these are great questions.
Ever since I started, there were question marks on sell side as a function. The fact is, as you mentioned, the algos, the quant are taking over in trading and signals, MIFID, commissions basically 0, free content, social media, Bloomberg producing AI written reports... I think there could be some major changes to how sell side is done like should they still be calling clients and leaving voicemails, spending time building Excel models. I don't have an answer but I believe there is still value in understanding the dynamics of the fundamental business model, client relationships. I think the change is more how this knowledge is communicated rather than being replaced completely.
Exit opportunities are not limited to buy side especially hedge funds. It requires a whole different skill set. I see people joining companies as CFO, IR, moving to the credit side, sales. Some continue to move up the ranks within the bank. Opportunities will come along and you will get to know what you enjoy doing over time so I wouldn't worry too much about exit for now given you are young. If you believe you would enjoy it, go give it your best shot. You can see and plan your step 70 much better when you are already at step 69 rather than step 0.
I think you have to put what he is saying into context. As discussed above, there is still a lot of value in understanding the dynamics of a business as such and that part won't go away. It is about how you would execute in the markets if you believe a stock has an intrinsic value of $15 but is trading at $10 now. The quant tools are there to help to say the stock could go to $8 first so we could wait now but you still need the human to tell the tool this stock should be worth $15. So what's happening is human using tools, which is like we use Excel to build a model, just now, there is a more advanced one.
1) Relationship management - I think people coming into the job don't realise most of the time but sell side is just a broker afterall so it's all about relationships, sales. You can skip that initially on the buy side but over time if you are looking to make it big, networking is still key. The artist with the best art don't sell the most, the artist with the most network does. That's just life. 2) Writing - you will write a lot. Communication is key. 3) Excel, Bloomberg - these are basic things you need to know to do the analysis but as you become more senior they are less important.