Equity Research sell side: how do you think the buyside should do better to interact with you?

monkey_brood's picture
Rank: Chimp | banana points 15

going to be starting in equity research at a mutual fund. i'll be be covering companies and so wanted to ask the wso community (specifically those working on the sell side) what are the characteristics of buyside analysts that you like to work the most with? what is your ideal relationship with buyside clients? what do you wish was different? what do buyside analysts do that annoy you most?

Comments (20)

Best Response
Jul 4, 2017

Just an intern, but I've heard that when buyside analysts really just string sell-side analysts along and use them just for their research - with no intention of trading with the firm - is super annoying. At some point, the sell-side analyst will just cut the buy-side folks off if they don't end up doing any business with the bank.

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Jul 6, 2017

hey rz - that's interesting i hadn't heard that before. is this a concern for the shops that use a broker-voting system too? my impression is that we pay for the research at quarter-end with broker votes.

unfortunately, i won't have any control of where orders go haha

Jul 7, 2017

I think so, because it's not like the buy-side shops will just pay out a certain sum of money to each sell-side guy they decide at the end of the year was helpful. It's a very grey area, right; I've heard stories about how some sell-side traders/analysts simply need to remind buy-side folks, "Hey, I've helped you out right? Quid pro quo", and the buy-side guy might have honestly forgotten and will then send a trade our way. Other times, the buy-side people may not like our trader or knows a better trader elsewhere on the Street, there are just a lot of factors going into it.

Of course, this table's going to be flipped over with MIFID/unbundling, so who knows what your experience will be like. In that scenario, I'm sure the broker-voting system would work quite well because you're deciding exactly how much each sell-side analysts' thoughts are worth to you.

Jul 7, 2017

Every ER department I have worked in has cut off a client or two at some point for not paying.

Jul 8, 2017

Share ideas/data points. Guys at smaller buy side shops are able to sustain dialogue with sell side analysts by creating a two-way convo. Generally, being easy to talk to and polite helps as well.

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Jul 10, 2017

The most obnoxious thing I've noticed is some guy straight out of school who is on buy side being condescending to a senior analyst with like 20 years of experience.

Can guess whether the sell side analyst picked up the phone the next time. Also can guess how long it took before the buy side dude got pushed out (hint: less than 6 months).

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Jul 10, 2017

This is an interesting spin given the question is most often asked in reverse (e.g. how can the sellside analyst be more helpful?). Buyside after all is the client in this relationship. I do think we're at the cusp of a huge shift in the sellside research model, and there will probably be 1/3rd to half as many firms in this business in the next five years.

I personally couldn't care less whether the conversation is "two-way". Frankly the Street has no business knowing what my true views are on a business, industry, etc. I'm paid to develop and share those views with my firm, not the broader market. They ultimately will be able to interpret things and make an educated guess based on the names that we own and what we are actively trading, but usually they aren't going to know in real time. There are a few sellside analysts that I know well, have traveled extensively with, and have a great relationship who will obviously be more familiar with where we are actually spending time, but the goal is for these guys to not be force feeding information about our positioning to their long/short clients.

But yeah, generally try to be respectful, don't pretend to know everything, and take care of them in the vote and you should get good service.

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Jul 11, 2017

No one really cares about a long only's (or l/s even) positioning. The exception being activist funds.

Jul 12, 2017

Interesting but i'm gonna have to respectfully disagree. I have friends on the long-short side who cover the same industries and they'll jump at any chance to discuss how I'm actually thinking about a name, what we own and in which portfolios, are we "active" anywhere etc. I've even had guys keep tabs on which 1x1's i'm going into at conferences by spotting me in the hotel hallways (which is a terrible strategy btw because we tend to meet with everyone.) I work for a large AM complex so perhaps it's asset dependent? But for example, I am certainly keeping tabs at what my peers at Capital/Fido/TRowe etc are doing on the names I care about. That's the shit that actually moves stocks in the medium term, not the quarterly noise out of the pods.

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Jul 12, 2017

I think you are on the wrong side of the chicken-egg here. Obviously you know this, but estimate trajectory vs expects and sentiment around long-term sustainability of growth/margins move stocks over MT. Longs buy stocks where they have confidence in above two. They typically (almost never in my experience) are not the first to recognize an inflection point. A long buying a stock does not move a stock if above two conditions are not met.

That being said, because sentiment matters and improving sentiment can mean an inflection point in short-term price action, people ask about it. Both on long and short side. Again, longs are almost always late.

Also, it is great to have a Capital or a Trowe or welly own a stock because they tend not to churn and build big positions. But, a l/s is not going to care if I tell him Capital is doing work on a name. He would care more if I said inbounds from pods had picked up considerably, because that might mean he is missing an inflection point.

Jul 12, 2017

If I didn't feel like you were trolling me I would probably take the time to type out a proper response to this. I'm sorry if I failed to recognize the infinite wisdom and wizardry of the l/s analysts.

Jul 12, 2017

Not about wisdom, about style. L/S have to generate new ideas because they turnover funds more (usually). Look at more ideas generally because of this. Also, l/s talk to each other and share ideas so they move as packs. This happens a little bit in Boston, but not at same velocity.

Jul 13, 2017

Yeah I mean on this I definitely agree. For sure they have much higher turnover and idea velocity. I guess my point is that from the long-only perspective, we don't care that much how the pods are positioned. I guess it is interesting at the margin to gauge sentiment for entry and exit points, but this would never be a major part of an investment thesis. Over the medium term (what I normally think of as 2-3 years), the pods might have moved in and out of a name 5-10 times. But what's going to be much more impactful is how many sticky long-term guys have come in over that period. If you're pitching a stock when you're the only or one or two well known big investors in the name, and by the time you're selling it is in the benchmark and every long-only has a position, then you've usually booked a 50-100%+ gain. That to me is way more important than the 5-20% swings that the long/short guys can create by piling into a name together. That's why the hedge fund analysts are keen to know how the long-only's are thinking about things (imo). If they put on a short of some lodging business that I really like based on a 2020 outlook and we are about to pick up $500mm-1B in stock over the next three months, they're gonna get their face ripped off.

That being said, your chicken-egg comment is fair. Usually the only thing that is going to get that many L/O's involved is an improving fundamental environment. This can come from a lot of sources; demand environment, some regulatory change, supply constraints, consolidation, etc. but to pitch a 5 year idea you're usually not looking to buy ahead of easy comps and favorable weather trends in a quarter like you would at some of these L/S.

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Jul 13, 2017

Yep, agreed. If a stock is underowned by big longs and fundamentals are turning you can get doubles and triples. If overowned more of a grind.

Jul 13, 2017

Two-way conversations. Not "hey what are your ideas for this quarter, who's going to beat, etc. I'll hang up and listen". More of "hey what do you think of this company and this potential issue, I think xxxxxx, etc.". Also don't be a jackass, whether you are right or wrong.

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May 3, 2018

I worked a couple of years in the buyside and just moved to the sell side. There are several biasesin ss research and you should not pay that much attention to the price targets and valuation. You should focus on the reasoning behind the investment thesis of the ss analyst. The easiest way is to not annoy the ss analyst too much on his valuation but instead discuss deeply on the reasoning and the events that might affect the company.

You will enrich your thought process much more this way. At the end ss analyst are rarely right on their targets. However nobody knows a stock and the management better than ss analysts. Thats their job.

May 23, 2018

Having been on both sides of th table here is what I think.

Don't waste time with an analyst, i.e. request a call with a stock you hate and aren't prepared to change you're mind. Always be open. Things change and the sell side gurus are deeper into some names you aren't. Respect their knowledge and understand their reasoning. Makes for a fruitful conversation even if you don't agree (sometimes you tell them sometimes you don't; it isn't a two way street. I'll keep my views from SS until I have built a full position then I might try to change some minds).

If you are going to call for a 30,000 ft view on a stock in a space you don't know tell the sales contact and let them know what you want and don't ask for one of these calls in the middle of earnings unless it is urgent.

As you get to know various research providers you will gravitate to a few. Build the relationship with update calls on the space and top picks.

If they participate in II voting make sure you let your PM know who you feel has helped you the most with research, models, or idea generation. If you give them a vote let them know. This is important.

May 23, 2018

For our group it usually is industry-specific stuff. They don't have subscription to certain industry data vendors and we maintain periodical updates of these data sets.

May 23, 2018