Choosing Between Buy Side vs Sell Side in Equity Research?

So I want to do equity research. I know that there is sell-side and buy-side and, so far, I have a few distinctive arguments for both (see below). What I would really appreciate to find out is your views in terms of the experience quality that both offer.

P.S.: Not trying to touch on things such as pay, promotion chances, job security, etc. Just arguments pro- and con- for someone that just wants to do genuine equity research. Obviously those count, but trying to leave them aside for now.

sell side vs buy side ER

There are numerous differences between working on the sell side and buyside of equity research. Sell side equity researchers must always consider their relationships with company management and buyside researchers must put an intense level of thought into their models in order to continue to receive business or to make money for their funds. Our users shared their experiences below:

What is the Job of Sellside Equity Researchers?

  • Work for an investment bank or a shop. Job consists of analyzing companies and selling detailed research and investment recommendations to the buy-side (i.e. AM, HF).
  • Job involves spending huge amounts of time writing reports and making nice looking charts. The commercial aspect is often in conflict with the research process itself. Sell side researchers are often tasked with constantly marketing ideas and looking for ideas that are commercial rather than purely fundamental.
  • Sell-side researchers tend to focus on a more limited number of companies so this could lead to a more in-depth analysis which is a good educational field for someone who is starting out.

What Do Buy Side Research Analysts Do?

  • Work for HF or a AM fund. Analyze companies from two sources: independently and by talking to the sell-side researchers. Generate actionable ideas and communicate them to the Portfolio Managers who actually invest.
  • The research process is more genuine - there is no commercial aspect involved and all the effort is on finding investment opportunities. Intellectually more rewarding as the idea generation process involves independent research but also access to many views from the sell-sides (trick being to disseminate them from value-add vs noise).
  • Job security is lower than it is at a sell side bank research position due to the fact that you will be judged by the performance of your research.

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Comments (35)

Aug 19, 2016 - 3:15pm

Before we get to which is better or any pro/con list, just know that it is overwhelmingly difficult/border-line impossible to come out of undergrad with a FT offer at a reputable BS shop. There are people who have done it but they are the exception not the rule, 9.99 times out of 10.00 you do your SS stint for a couple years then make the jump. Just something to keep in mind as you begin contemplating your future career path.

To your actual question, it honestly depends on what you feel best aligns with your interests and skill set.

Plenty of people stay on the SS to be senior analysts with your own coverage. That being said, SS has a sales component to it and that ramps quickly once you hit the senior level as you begin marketing/establishing your brand. There are also multiple different avenues one can take to become a successful SS senior. There are people in my firm who put out very little product and prefer to spend all 12 ish hours of their day on the phone, smiling and dialing and not caring about valuation or stock picking. And you know what? They get paid well for it. So there are various approaches to the SS but it is a pro that once you hit senior level, you can more or less run your business in a way that suits you best.

I don't know as much about the BS given I personally am SS. I have been told the sales component is much less for analysts at HF/LOs. I find the BS to be incredibly interesting as you are taking the research, developing your thesis and eventually putting it to work by establishing positions in the fund. Teams are generally leaner so you are expected to contribute in a meaningful way in a shortened time frame and have the opportunity to learn from some truly gifted and fiercely intelligent people who are driven and passionate. The challenge of being a successful investor is something I look forward to meeting should I be fortunate enough to make the jump myself.

In no way is this a comprehensive overview to SS/BS research but hopefully it gives you some clarity.

Best Response
Aug 19, 2016 - 6:15pm

I will say that if you want to learn to be a great stockpicker, I think the buyside is a much better training ground. Since there is no marketing component to the role, you are spending your time wherever you think it is most effective and likely to lead to actionable/differentiated ideas. You don't need to waste time formatting models except on names you are actively pitching. Instead you are able to take the time necessary to go extremely deep on an idea that you are pitching to PMs. This creates sort of a dual-track skillset... first you have to be very good at sifting through a lot of ideas, consuming tons of news flow, focusing on what actually matters and ignoring the rest. But at the same time, when you identify something that could potentially be an opportunity, you need to be able to switch gears and get deep on a name, fast. Travel to check out some assets, do the expert calls, talk to as many sellside guys as you can to get a sense for where "the Street is", talk to different layers of management/competitors etc, and spend a decent amount of time thinking about how different scenarios might unfold over whatever your relevant time horizon is. This is where I think most of the sellside is a bit weaker... they have to be prepared to answer questions on every company in their coverage so they will anchor on three or four "bullet points" for each stock that drive the thesis, but they are the same bullets that every other sell-side guy is emphasizing, and they rarely have the time to go deep on any of these and develop a non-consensus view.

I think the sellside is probably better if you like organizing events and connecting with people. Connect this hf guy to that long-only guy and see what sort of conversation develops around XYZ. Connect management teams to investors they may not be talking to. Organizing big conferences and generating buzz around a group. It takes more of a "sales" skillset to be honest. The analysts who are great at this are handsomely rewarded for it. For what it's worth I think a lot of the good SS analysts have the capability to be great researchers as well, but they just don't have time for it given all of the other demands on their time.

I haven't worked on the SS before but suspect that earnings season is a complete clusterf*ck. They have to publish on literally every company, and often will do a "preview" note, an "earnings flash" first reactions, and a more comprehensive review note after they've digested the quarter. That's 3 notes / co every quarter and just seems brutal to me. I guess this is why they have associates. On the buy side (at least in long-only land), you will usually publish a note on names that are owned in a portfolio, and/or 'buy'-rated names that you are trying to get on PMs radars. The rest you can just ignore. Yes, you have to keep up with the newsflow, but if it's not a name you care about, don't blow up PMs inbox with junk. Hell, I'm at the point where I don't even publish on owned names a lot of the time. If the q was in-line and the stock was +/- 1-2%, who cares...

Aug 24, 2016 - 9:54am

I just faced this question in a SS interview. I said that I want to work SS because I have a particular interest in the specific industry I was interviewing for (i work in the industry now) and that I would rather become an expert in that industry and cover a few names rather than much broader coverage while not necessarily mastering a particular business or industry.

Aug 24, 2016 - 10:22am

I am in sell-side ER as an associate and I heard another analyst sum up the differences perfectly.

On the sell-side your job is to know every little spec of information, while on the buy-side your job is to know as little information as possible in order to make an investment decision.

I would also say that on the buy-side the "truth" matters more and on the sell-side how you talk about/skew the "truth" is more important. Basically do you want to be an information broker or treasure hunter. On the sell-side your strategy is deciding on how you are going to run your business/coverage/brand. Are you going to be a valuation/model guru (very rare), produce a lot of reports, always talking to clients, provide quality/value add information, how are you going to breakdown your coverage, what is your criteria for making a stock buy, neutral, underperform and so on. On the buy side strategy is purely based on investing and generating returns.

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Aug 27, 2016 - 2:34am

Either route will get you the experience and exit opportunities. I agree with jank that buy side is ideal if you want to be a stock picker, although I guess that's sort of obvious. Maybe a little underrated is the buy-side will hire the sell-side in decent markets (i.e. most market, i.e. non-recession) if you have the name pedigree. At the end of the day though if you want to learn stocks I think buy side is better, and that skill is the most valuable for most people on these forums. Never forget though that marketing and sales is a close second.

Mar 17, 2018 - 1:34pm

As someone with both buy-side and sell-side experience. Street Smart and Janky are pretty spot on in their responses.

IMO if you have the rare opportunity to start on the buy-side, definitely take it. It is much harder to move from sell-side to buy-side than buy-side to buy-side in most situations. Sell-side teaches you to do research, but it doesn't teach you how to be an investor. Buy-side does both.

May 19, 2018 - 8:34am

To me the main difference is thought process and differences in incentives.

A good sell-side analyst is looking to find data points or views about a stock that can be commercialized. It is about creating talking points and debates around stocks that creates more time with clients. Performance on your ratings means very little on the sell-side because if you provide good access to management and industry experts, provide commercial views and talking points, and have an in-depth knowledge of the coverage list you will be successful and get paid. My analyst is a top ranked sell-side analyst but I would never trust him investing my own money.

On the buy-side all that truly matters is performance. You are trying to find stocks that fit your fund's investment philosophy and offer a strong risk-reward skew. Often only a few ideas in your fund's invest-able universe will fit all the criteria and offer an attractive skew. Buysiders will lightly cover everything but only do a deep dive when catalysts form that could make this an investable idea. This is contrary to the sell-side where you are actively seeking to create debates to talk about your stocks even if not much is actually happening. Thus, sell-siders can often make a big deal about small changes in a business that don't drive the stock, but it is a talking point with clients. For an investor, alpha generating ideas almost always deviate from consensus. You make significant money if you have a differentiated view that the stock will outperform consensus expectations on the long side or significantly underperform on the short side and then your view turns out to be correct. The other way to drive performance is in portfolio allocation. Should you be overweight/underweight a sector or industries within a sector. Portfolio allocation is actually the largest contributor to returns.

On the sell-side, you will rarely get fired for following consensus because that is the popular view in the market and it is hard to be penalized for being wrong because if you are wrong, the whole street is also wrong. Since you are hyper focused on one sector coverage, portfolio allocation doesn't exist.

Bottomline
Sell-side analysts are good at creating talking points and views that can be commercialized. They get paid by time with clients.

Investors are able to find strong ideas that fit a firm's investment philosophy and often have a nonconsensus view. They get paid based off of performance.

Apr 13, 2018 - 5:07am

You can make a good living, at least pre-MIFID 2, on the sell-side without being a good stock picker. We used to use a research shop called NewStreetResearch who specialised in telco research. They had the best reports, most indepth analysis, and fantastic models, but they were also terrible stock pickers. The joke was to always take the opposite view of what their analyst recommended. However, that didn't matter to us as we didn't care about their price targets, we just wanted their indepth analysis and knowledge on the sector.

On the buy-side either you generate good ideas or you're out. No one cares how much work or analysis you do on names if you keep getting the calls wrong. Some guys like this pressure and some guys don't.

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Apr 13, 2018 - 5:08am

Does all Buy Side ER (Long Only) pay less than Sell Side ER? (Originally Posted: 02/15/2015)

-I have 4 years of experience doing Sell Side ER (currently at BB) and just cleared $175k all-in in my most recent year.
-CFA Charterholder
-I have been trying to make the move to the Buy Side for over a year now and just finally received an offer at a large, name brand Long Only (not in NYC) for an Associate role.
-While excited about the offer, comp is well below expectations. I was offered $10k signing + base of $90k with a $20k guaranteed bonus. Yes, $120k all in.
-I reached out to the hiring manager and HR and both said terms are non-negotiable. And apparently the bonus in the offer letter is what you end up actually getting.
-During the entire, lengthy interview process, I viewed this as a dream job type of opportunity.But now, I can't imagine accepting and taking that kind of pay cut. I figure I'm better off to keep interviewing with Hedge Funds that will pay 100+% of this offer.

Is this type of pay the norm at Long Only's? If so, why would people ever work at them over Hedge Funds or even Sell Side? Am I crazy for considering turning this down?

Apr 13, 2018 - 5:10am

$120k is your all-in guaranteed comp, but what is the range of your performance bonus? That could put you in the low 200s once all is said and done.

It sounds like you interviewed for an associate position which, as you probably know, is entry level in investment management (whereas an analyst position is more senior). You probably should have clarified how senior the role was when interviewing.

In any case, having worked on the buy side, I would take that lifestyle any day of the week over sell side, even if the comp were slightly lower.

Apr 13, 2018 - 5:11am

I work for a large long only in Boston as an associate and just finished my first year. I have one year less experience coming in but that offer was just $5 k below mine. Bonus ended up marginally higher than promised as well but I expected higher given my reviews. My firm typically hires associates with a lot of experience and I am the youngest by 3 years. I am surprised how low the pay relative to sell side or hedge funds but I think you have to weigh the benefits of working with a really experienced buy side analyst. Will you be able to learn a significant amount about stock picking from your senior? What is his or her track record? Or if you feel you are ready to generate consistent alpha with a differentiated process continue to recruit for hedge funds.

Input from associates at other shops would be helpful.

Apr 13, 2018 - 5:12am

This is also a shop in Boston but not Fidelity. After thinking it over, I turned down the offer. My rationale is that I'm better off shooting for NYC hedge funds that will pay better and offer quicker potential to run money. At this long only, the next step would be analyst and making PM is a long shot. If I can't convert a HF offer, I'm still better off getting an MBA and then recruiting for a Long Only analyst role than starting as an underpaid associate.

Apr 13, 2018 - 5:13am

Sell-side outperforms buy-side? (Originally Posted: 11/10/2012)

I found this working paper very interesting on the HBS working knowledge website so thought I'd share.
The paper mentions that total $ spending is not too far apart on both sides:
"In 2006, U.S. and U.K. investment firms spent $7.7 billion on buy-side research versus $7.1 billion on sell-side research. Further, as we discuss below, there are important differences between buy- and sell-side analysts that are likely to affect their behavior and performance."

Interestingly, the author uses bonus payouts to gauge the performance:
"It focuses on a metric that is directly tied to the buy-side analysts' bonus awards, indicating that portfolio managers consider their recommendations to be important. Fifty percent of the bonus awards for buy-side analysts at our sample firm is based on the performance of their Strong Buy and Buy recommendations. In contrast, the buy-side analysts receive no direct reward for issuing accurate earnings forecasts, potentially explaining the earlier finding of their forecast inaccuracy. Recommendation performance also appears to have little direct relation to sell-side analysts' bonus awards or job mobility."

The paper talks about how buy-side recommendations are better for two key reasons:

  • The fact the buy-side recommendations aren't disclosed to everyone makes them more profitable than sell-side recommendations
  • Buy-side analysts are not subject to conflict of interest from brokerage units

It makes sense that buyside analysts covers a lot more stocks than sell-side. I'm guessing that is partially because that they don't have to invest a lot of time publishing research:
"Interviews with managers at buy- and sell-side firms indicate that buy-side analysts typically cover more stocks than sell-side analysts, presumably reducing the depth and value of their analysis on any given stock. During the sample period, the buy-side firm employed 46 analysts who on average each recommended 17 stocks. In contrast, the average sell-side firm employed 86 analysts who issued recommendations for 12 stocks."

The paper goes into detail and talks about four factors which account for most of the difference in performance:

  • Firm Scale and Scope of Coverage
  • Return Volatility of Recommended Stocks
  • Liquidity of Stocks Recommended
  • Conflicts of Interest

The even goes far enough to emphasize that sell side performance is better than buy side for buy / strong buy recommendations:
"In summary, during the sample period Strong Buy/Buy recommendations for the average sell-side firm generated higher returns than those for the buy-side firm. This difference is both statistically and economically significant. Results of annual performance differences indicate that the sell-side returns beat those of the buy-side firm in six or seven of the eight sample years."

Even though the authors only considered larger buy-side firms and used extensive non-public data, these findings are still something to think about.

Download the working paper here:
hbs.edu/item/6976.html">HBS

Apr 13, 2018 - 5:16am

Sell-side or buy-side to get into L/S HF long-term? (Originally Posted: 07/04/2011)

I just got my MBA (worked in tech before, no finance pre-MBA) and have 2 offers I'm considering:

-sell-side tech equity research at a reputable BB (think GS, MS)
-graduate rotation program at $100bn+ asset manager (mostly long-only, some absolute return). I would rotate through ER, PM, and trading through 2012 and then select what group/area I want to go into.

I ultimately want to get into L/S equity investing. I have some hedge fund connections and have mostly been told that buyside-to-buyside transitions are much easier to make than sellside-to-buyside. The one advantage I can think of for Sell-side is more exposure to hedge funds and ability to network directly or through the sales team (once I've networked with them). Pay is similar, so that's not a deciding factor.

Any thoughts are much appreciated. Thanks!

Apr 13, 2018 - 5:17am

This is a tough one. I think there are merits to both jobs.

Sell-side tech equity research will help you getting into to hedge funds. Since most hedge funds are aggressive growth, most have holdings in tech stocks. Having experience in that field will help your resume. However, if you can focus on tech or some other high growth industry in your graduate rotation program at the asset manager, that'll also help.

--Death, lighter than a feather; duty, heavier than a mountain
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Apr 13, 2018 - 5:19am

Those both sound like strong options, I personally would take the buyside rotation program so as to have some exposure to all three legs of the stool (research/trading/PM) and to get a better feel for being "in the market." A $100bn asset manager will have good name recognition too so you don't need to worry as much about not having a bank on your resume.

The points about not having the specialization a fund may want is valid but I think you can overcome it, plus if you go through the rotation and pick research presumably you'll have a sector or product focus at that point.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
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Apr 13, 2018 - 5:20am

How quickly do you need to be at a L/S HF? I think you should more stronglyl consider which one of these paths you would rather spend 5-7yrs at (if need be)...since both jobs are relevant to your ultimate goal, why not choose the one which you would rather be IF you didnt get the L/S offer soon after

i think either option could set you up nicely -
What does the rotation through the PM group entail? what is the progression?

I ask, because it will be much easier to go from Long-only PM -> HF PM then it will be to go from Sell side research -> HF PM....what kind of trajectory is there to running money at the big Long-only?

---I actually think it would even be eaiser to be hired as a HF PM as an outside Long only PM, then it would be to get promoted at a HF, as an analyst (after you moved from sell side to HF). (there are buy side analysts ALL over the place, just beggin for their own PL, but its often tough to get that type of trust/responsibility)

So, if you just want to be a HF analyst, I think that Sell-side first could be the right move, if you want to be a HF PM, (and have a shot at that at the Long-Only) then I would definitely choose that route.

Apr 13, 2018 - 5:21am

Thanks everyone for your inputs; special thanks to Wannabe - very good insights.

I turned down the GS ER offer and went with the buyside offer. I spoke to a few PMs at HFs and they all said go with buyside. An analyst also told me that sell-side to buyside transitions are getting harder, more competitive.

Just to clarify, after the rotation is complete, I select which role (trading, PM, ER), location (US, Europe, HK), and hopefully which group/fund I want to be in (provided it's based in the location of my choosing). The PM route leads to associate PM for 2-3 years and then decision making on small funds (

May 17, 2018 - 12:27pm

That a good journey specially since you did not have finance experience prior to the MBA, well done.
Can you give me an overview on how you are doing right now? It's been 7 years since you first posted the message, do you have your own book yet? run any money? how was the learning curve?
In a comment below you mention "learning to invest as early as you can in your career", what would that entail for someone from the "outside"?
I might bag a role in equity research (sell side covering the Pharmaceutical sector) as a junior analyst and my long term goal is to be a money manager/ work in a HF and have my book, what would you recommend?
Thanks

Apr 13, 2018 - 5:27am

Noob question - Historically, has the buy side always been "superior" to the sell side? (Originally Posted: 05/02/2016)

College junior here, looking for historical context on the pre-crisis financial world. I didn't really pay attention to 2008 when it happened, and didn't care about finance at all until 9 months ago. I still don't have a clear picture of how things were pre-crisis. Today all of the young hotshots go into IB using it as a stepping stone towards PE/HF. Was it always this way? My understanding is Dodd-Frank and all of the regulatory crackdowns on investment banks made it much less lucrative and forced a lot of job cuts (especially S&T). That makes PE/HF pay much more attractive, but has this disparity of salary/bonuses between the two always existed? And have the most motivated undergrads always had buy side as their end goal? Was it always more "prestigious"?

Less important question here. I'm interning at a BB for S&T this summer. Am I fucked? So many banks are firing huge %'s of their trading divisions. Should I look elsewhere for FT?

Apr 13, 2018 - 5:28am

I think (and am interested if other people can back this up) that S&T saw the most aggressive changes. Most starry-eyed college kids went into S&T for prop, and the shift towards agency trading models made S&T much less lucrative (and attractive) as a whole.

I'm quite new to IB, but I'd be curious to know if long-time salespeople/traders have seen a drop in the talent applying to S&T SA/FT positions. I'm not one of the WSO monkeys to think that S&T has no future, but no one really denies that the industry has been on decline as a whole.

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