When you're an associate on the sell-side, your #1 goal is to get to the buy-side. Anybody who says otherwise is a liar.
Now, when you're sitting there in a bank, the transition seems straightforward. After all, there you are, in equity research - covering a bunch of stocks, like on the buy-side. You follow companies and you understand their valuation. You speak with management and you're pretty much a rock star (aren't we all?).
So, how hard can it be to move to the buy-side? A lot harder than you think.
There's the news flow
Firstly, you're going to have to work a lot harder to stay on top of news flow if you want to move to the buy-side. When I was on the sell-side, I covered 10 companies. Now I cover over 100.
When I was covering 10 companies, keeping on top of news was like taking a leisurely sip from a small glass. Now that I cover 100, it's like drinking from a fire hose. Worst of all is covering tech, because then the news-flow is huge and it will move stocks.
Then you have the sell-side research reports. For some of my larger cap names, there can be 30 sell-side analysts. When I first started on the buy-side I'd take two hours going trough all the news and research looking for incremental information and upgrades/downgrades. Now, I've whittled that down to 30-45 minutes. This is because I know my space better. It's also because I know who's worth reading and who to put straight in the rubbish pile.
To be honest, I'm a little happy about MiFID II because there are so many analysts that don't have any value-add.
There's the need to stay on top of P&L
Secondly, on the buy-side I have one job: making money.
I can't stress how different this is to the sell-side. - When you're on the sell-side and you make a bad call, it sucks, but you can move on.
When you're on the buy-side and you make a bad trade, you might be down millions of dollars and you don't get to walk away from it. If you want to keep your job, you need to make that money back. - Either in the same trade, or in a new one.
There's the need to come up with continuous new ideas
Now, I've never heard anyone on the buy-side complain about having too many ideas. You cannot have enough. I need to constantly find new ideas to replace trades I'm taking off.
This is the hardest part of my job and it's what you don't learn on the sell-side. I don't have three months to ramp up on a new name: I need to decide in hours whether an idea is worth spending days on. If I find an idea is not actionable after a few days, I've wasted my time: I can't just put out a report with a "neutral" rating.
There's the stress
Working on the buy-side is much more stressful than the sell-side. However, I have no regrets about moving. If you want to move though, you need to be aware of this. You'll need to be more than good. And you'll need to ensure that you're
developing skills to be a great buy side analyst, not a great sell side one.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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