The Buy-Side vs. The Sell-Side: The Worst Way to Categorize Finance Firms?

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The Buy-Side vs. The Sell-Side“Yo, you’ll make bank when you move to the buy-side! Screw this stupid investment banking job.”

“Yeah, I heard everyone at hedge funds makes at least $1 million and gets a castle as their signing bonus.”

“So when’s your interview?”

Ah, yes: that classic debate about the buy-side vs. the sell-side. Although the conversation above is fictional, similar exchanges are taking place in cubicles across the world as you read this.

You hear about the buy-side vs. sell-side distinction everywhere, whether you search online, browse through you message boards, or even (gasp) talk to people in real life.

The only problem is that “buy-side vs. sell-side” is the worst way to categorize financial services firms.

The Usual Divisions

Search online and you’ll find explanations like the one below to explain the buy-side vs. the sell-side:

“On the sell-side, you pitch products such as stocks, bonds, or entire companies in the case of M&A, and you persuade investors to buy them. On the buy-side, you raise capital from investors and then make your own decisions on where to invest it and what to buy.”

If Ari Gold is the sell-side, Dana Gordon is the buy-side.

To an outsider, this seems like a logical way to divide the industry: you earn money either via commissions on sales or by investing your own money and getting a return on that investment.

The implication is that the buy-side is “better” because you have the potential to make a lot more from investing than you do from earning commissions – which is technically true, but far from the average case.

Buy-Side vs. Sell-Side?

Beyond the high-level difference above – investing vs. selling, and earning money via investment returns vs. commissions on sales – you’ll also find alleged differences in the pay, hours, type of work, structure of firms, and more.

Here are some of the more hilariously wrong (and sometimes, borderline wrong) points I’ve seen:

  • Pay: You make mad bank on the buy-side because you’ll be a better investor than Warren Buffett and get 80% returns every year!
  • Hours: In addition to better pay, you also barely work on the buy-side because you’re such a baller that bankers, traders, and brokers answer your every call and deliver mermaids and private islands to your doorstep every day, all in a feeble attempt to win your business.
  • Type of Work: While the work is mind-numbingly boring on the sell-side, on the buy-side you’re doing intellectually stimulating tasks all day and changing the world!
  • Structure of Firms: There’s too much hierarchy on the sell-side, so it’s harder to advance. But on the buy-side you’ll move up the ranks quickly because the hierarchy is flatter and they reward top performers!

The only one of these that’s even close to being true is the last one – many firms on the buy-side do have a flatter hierarchy, but many groups on the sell-side also have a flatter hierarchy as well (I’m looking at you, equity research and sales & trading).

Most of the points above are not even real, significant differences – the real distinction is something else entirely, which you don’t hear much mention of…

The Real Distinction: Deals vs. Public Markets

Rather than this buy-side vs. sell-side dichotomy, we should be talking about whether you work on deals or in the public markets.

That’s the more meaningful distinction, and the one that goes unnoticed whenever this silly buy-side vs. sell-debate comes up (Don’t believe me? Try searching for “buy-side vs. sell-side” and then “deals vs. public markets” and see which one turns up more results).

Just like ranking the banks or ranking schools or ranking anything else, it’s easier and more fun to debate minutiae rather than discuss something that’s useful.

Here’s what the grouping above looks like when you use deals vs. public markets rather than sell-side vs. buy-side to categorize the firms:

  • Deals: Investment Banking, Private Equity, and Venture Capital
  • Public Markets: Hedge Funds, Buy-Side Research, Sell-Side Research, Trading at Banks, Prop Trading, and Asset Management

And yes, the “Other Types of Miscellaneous ‘Investment Firms’ ” one could go either way depending on what they do.

If they buy and sell entire companies (as in PE) or large chunks of private companies (as in VC) then they would fall into the “Deals” category, while anything else would be public markets.

Definitions: Say What?

In case it’s not obvious, “Deals” means that you work on M&A deals, IPOs, debt offerings, or Restructurings – major transactions where an entire company is being bought or sold or where they’re doing something otherwise massive.

You could argue that venture capital does not belong in this category since VC firms never acquire companies 100% outright – but the actual process of investing in a company as a venture capitalist is time-consuming and closer to the work you do in IB and PE than to what you do in trading.

In contrast, “Public Markets” means that you follow, recommend, and invest in the stocks of publicly traded companies or in other securities like bonds, derivatives, commodities, and so on.

Here’s why this is the better way to categorize financial services firms:

The Type of Work

When you buy or sell 100% of a company, it takes far more work than just buying or selling a few shares here or there.

You need to pitch it to dozens of potential buyers, create marketing materials, do financial modeling and valuation work, and then negotiate the terms of the definitive agreement with the buyer; if you’re the buyer, you can skip those first two steps but you’ll spend a lot more time on due diligence and digging into all the material available on the company you want to buy.

A single deal might take months or years of effort to close, and the entire process is more like a marathon than a sprint: you’re not always working 100%, there’s plenty of downtime, and sometimes it’s stressful but your overall busy-ness fluctuates over time.

When you’re on the Public Markets side, by contrast, your average day is more like a sprint than a marathon: there’s little downtime, you have to follow the market constantly, and you need to be 100% focused at work.

But investments don’t take months or years to negotiate – even when you’re accumulating a huge position in a public company, it requires subtlety and patience but not super-elite negotiation skills.

And when your work is finished, you go home. That may sound like a small deal, but in investment banking and private equity you often get pulled into work on weekends and late at night when major deals are happening.

Before you leave a comment saying, “But I work in PE and the hours are still much better than banking!” I’ll say that the hours can be better at smaller firms, but when you’re busy, you’re still busy, and at mega-funds the hours are like banking all over again.

Hours

…which neatly takes us into our next topic, the hours.

Going back to the buy-side vs. sell-side argument in the beginning, the usual claim is that the hours are much better on the buy-side because you don’t have to answer to the whims of clients 24/7.

That is sort of true – in theory – but it’s not the best way to look at it. It’s better to divide the hours by Predictable vs. Unpredictable.

  • Deals: The hours are more unpredictable because you never know when a huge deal will heat up and when you’ll get slammed with work at the last minute. Venture capital may be an exception, but even there you could always get busy when closing a deal.
  • Public Markets: Your life is more predictable because you work market hours. You may have to get in before the market opens and stay after the market closes, but it’s not like IB where you might get called in at 2 AM to fix a random problem that a client is complaining about.

In general, you will work more if you’re on the “Deals” side – yes, hours may be better in PE than in investment banking, but you’ll still work more per week on average than you would on the “Public Markets” side because of this unpredictability.

Most Public Markets jobs clock in at the 50-60 hour per week range – while some Deals roles may also be in that range, the average tends to be a bit higher, or a lot higher in the case of investment banking.

The size of your firm often impacts the hours more than the work itself.

Taking hedge funds as an example, people often claim that the hours are “good,” but at the biggest funds you’ll still be working a lot even if it’s a Public Markets role on paper.

Stress

That issue with market hours vs. unpredictable hours also means that the stress in each role is much different as well.

In banking (and PE, when you’re working on a huge deal) the stress is of the “Crap, something on this deal is falling apart and they need me to fix it ASAP even if it’s Saturday night at 10 PM… and now my VP is emailing me to get into the office” type.

In Public Markets roles, work doesn’t follow you outside the office as much – but when you’re at the office, there’s very little downtime compared to what you would see in a Deals role.

Traders, for example, need to watch their positions every second of the day and must find someone else to cover them if they leave for even a few minutes to run to the bathroom.

If you’re working at a long-only asset management firm, it may not be quite that stressful but you still need to monitor the markets closely and you can’t afford to screw around during market hours.

So pick your poison: do you want market stress or deal stress?

Interesting-ness

This is another oft-debated point, but it’s also a silly one because there’s no real answer.

People like to claim that much of the work you do on Deals is mindless grunt work – which is not untrue – but you could say the same thing about a Public Markets role.

Sure, you don’t have to fix the font size in a pitch book at 2 AM, but you have to do plenty of research and comb through filings and other reports to support the Portfolio Manager and/or Research Analyst and other senior people.

This one is more about what you personally find interesting: do you actively follow the stock market and invest your own portfolio? If so, you’re probably better off in a Public Markets role.

If you’re more interested in business in general but don’t find the stock market that interesting or you don’t invest much yourself, a Deals role is probably better.

I’ve always found “Deals” work more interesting because there’s a different story and different scenario each time, whereas (to me) the markets all blend together after a point.

But your mileage will vary and there’s no correct answer here.

Pay

Ah, now we get to the fun part.

And there’s a surprising conclusion here which makes this point different from everything else on this list:

The average pay on the buy-side and sell-side is not that much different, but the ceiling on the buy-side is much higher.

So this is the only point where the buy-side vs. sell-side distinction makes more of a difference than the Deals vs. Public Markets one: yes, I guess my argument falls apart here (shh, don’t tell anyone).

The ceiling on the buy-side is much higher because if you invest well, the sky’s the limit.

I hate to use John Paulson as an example yet again, but his performance post-crisis goes to show you how top hedge fund managers can make billions of dollars in cash in the right market with the right strategy.

On the sell-side, meanwhile, the ceiling is much lower for Partners and Managing Directors. No matter how good you are, you have a limited amount of time and you can only do so many deals or sell so many stocks in a day.

I hesitate to give exact numbers here because they change from year to year, but earning more than a few million USD per year as an MD-level banker is rare unless the economy is on fire and you’re a Group Head or have another even-more-senior position.

While it’s fun to debate who makes the most money and point to outliers like John Paulson and Henry Kravis as evidence that the buy-side is “better,” the more relevant number for you is the average pay on each side.

You can see typical numbers for investment banking here; private equity is not much different, and even in something less hierarchal such as trading you see a similar progression from bottom to top.

And despite rumors that everyone at hedge funds makes millions of dollars, the average pay is $326K, with only 5% earning over $1 million according to compensation data.

The bottom-line: you’ll be in the top 1% or so of earners in your country even at the entry to mid-levels in the finance industry.

You will never be a billionaire unless you start your own fund – but hey, a million dollars isn’t that much less cool than a billion dollars.

Hierarchy

This is another one where the buy-side vs. sell-side distinction seems sort of true at first… until you look at it in more detail.

The buy-side does tend to be less structured in the sense that you don’t see lots of mid-level associates, VPs, and SVPs / Directors as in banking.

But, two points here show that this is not the best way to think about it:

  1. Many groups on the sell-side also have less hierarchy – equity research and trading, for example.
  2. While you may not see quite as much hierarchy in PE and VC, there are still more mid-level positions (e.g. “Principal”) than in, say, long-only asset management.

So once again, the Deals vs. Public Markets distinction is the best lens through which to view the hierarchies.

You need more headcount on Deals because more work needs to get done and more people need to be managed: lawyers, accountants, financing teams from other banks, and even the occasional clueless consultant.

But when you buy and sell shares or securities, you don’t need a deal team of 5-10 people to make decisions: you just need the Portfolio Manager and his or her supporting analyst(s).

Advancement

That difference in hierarchy also means that advancement differs in Deals roles and in Public Markets roles.

In both of them – and really anything in finance – it’s an “up-or-out” culture. Deliver results, generate fees or high returns, or get out and don’t come back.

But the key difference is that advancement on the Deals side – mostly in investment banking – is more structured and tends to follow a set “path” in terms of number of years required to advance.

It takes 3 years to move from analyst to associate, 3-4 years to move from associate to VP, and so on, and you can’t do too much to speed up the process.

But in Public Markets roles, advancement is more linked to your own performance, external factors like whether your Research Analyst is leaving, your reputation, and luck of the draw.

So you could advance very quickly if you perform well and get lucky, or very slowly if you never do anything to set yourself apart.

Exit Opportunities

Exit opportunities have already been beaten to death on this site, so I’m not going to go into too much detail here other than to say that it’s difficult to move from a Deals role to a Public Markets role and vice versa – with a few exceptions.

This is why it’s so common for bankers to go into PE but much more difficult if you’re in trading or equity research; it’s also why traders might move from trading at a bank to a hedge fund or asset management firm but wouldn’t go into corporate development.

There are some exceptions – for example, bankers can still get into hedge funds, and it can be difficult to move from the buy-side back to the sell-side (PE –> IB, let’s say) on the Deals side.

But your exit opportunities depend on whether your a Deals person or Public Markets person, for the most part.

The CFA

You knew we had to arrive at my favorite topic in the world (ok, maybe ranking the banks is still #1) at some point, right?

This one’s simple: whereas the CFA is relatively useless for Deals roles such as IB and PE, it’s much more useful and often expected or required in Public Markets roles (except for trading).

I have no scientific explanation, but one possible reason is that the CFA itself just doesn’t cover most of what you do on M&A deals as an analyst or associate: the material is more general and higher-level, which is great but also not that applicable to major transactions.

So yes, if you’re interested in a Public Markets role then you may want to consider the CFA – as long as you already have good grades, solid work experience, and brand names on your resume.

Financial Modeling Training Programs

Most modeling training programs, including Breaking Into Wall Street, focus on the “Deals” side – how to value companies and how to model M&A and LBO deals.

That’s because there’s more modeling required for Deals roles to begin with – if you’re just investing in stocks of publicly traded companies, you don’t need to know the in’s and out’s of deferred tax liabilities and book vs. cash taxes.

Sure, if you’re at a merger arbitrage hedge fund you’ll need to know more – but the modeling work is still less involved than what you see on major transactions.

And there’s more of a focus on valuation over transaction modeling – so the quantitative work is simpler because valuing a company is simpler than modeling an entire deal, especially since you can save time by not spending hours adjusting numbers in the comps.

I have gotten a number of requests for more material on “Public Markets Modeling,” so we may add that in the future. I’d say, “Just give it a few hours” in a nod to my friend AJ, but it’s probably more than a few hours away from happening.

Flaws?

The main flaw with this Deals vs. Public Markets distinction is that the pay differences are more strongly linked to the buy-side vs. the sell-side.

But other than that, the key issues such as predictability of hours, the work itself and associated stress, and advancement all have less to do with buy-side vs. sell-side and more to do with Deals vs. Public Markets.

Another flaw is that some roles such as Equity Capital Markets and Debt Capital Markets may be “in between” Deals and Public Markets – so you see a mix of the differences above.

Oh, and the water cooler debates will persist even after everyone reads about why it’s silly right here.

Which Side of the Street Are You On?

So the next time you hear people debating the buy-side vs. the sell-side or hyping up the buy-side, please punch them in the face and deliver a drop-kick or two.

And then send them a link to this article – they’ll need some reading material for when they’re recovering in the hospital.

For Further Reading

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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55 Comments to “The Buy-Side vs. The Sell-Side: The Worst Way to Categorize Finance Firms?”

Comments

  1. Ross says

    Brian- thank you so much for setting this straight! After realizing this summer I’m not a “deal” guy, I realize this is well more important than this horribly misleading buyside vs sell side argument!

    • says

      Thanks! I don’t think it’s “horribly misleading” necessarily (the headline was more just to get attention) but I do think Deals vs. Public Markets is the better way to look at it.

  2. Kanishka says

    Brian,

    Thanks for another excellent article. Could you please throw some more light on the valuation vs transaction modeling. Are we talking about DCF vs Merger/LBO modeling over here

    Thx,
    Kanishka

  3. John says

    Brian,

    What do you think the deals vs. public markets distinction means for business schools applications? Do you think they prefer one over the other?

    • says

      I don’t think it really matters. What you did there, the reputation of your company, and accomplishments outside work matter more.

  4. Lucky says

    Brian- thanks for the great insights. One question:

    “Traders, for example, need to watch their positions every second of the day and must find someone else to cover them if they leave for even a few minutes to run to the bathroom.”

    Is this entirely true? I know a handful of traders who picked up smoking so they force themselves to take their eyes of the screens and not “micro manage” their positions (and obviously to deal with the stress). They said it helps them stay decisive, disciplined, and patient (i.e. make the call, set their targets, put in stops, limits, etc. and then monitor them regularly, not every second).

    • says

      You might be right there, I’m not sure what percentage of traders actually do that. And depending on the type of trading you don’t have to necessarily micro-manage, but it still requires more focus than working on deals.

  5. ret says

    Brian – this is a truly insightful article. I also find the buyside/sellside distinction to be rather useless and even confusing. Your categorization is wayy more intuitive for me.

    Keep up the great work!

  6. PD says

    I should point out that VC has a rather big “sell-side” component to it as well when you’re fishing for an exit. This is arguably more important than the work you do in preparation for an investment. Actually, VC is a classic case of the stupidity of the buy-side/sell-side dichotomy. Deals vs markets is much better.

    • says

      Yeah that’s a really good point, and I’m guessing that with a lot of VC portfolio companies you don’t have bankers lining up to help out. So sell-side vs. buy-side is sort of useless there.

  7. Alexey says

    Once again, another great article that structures knowledge of what one doing.
    Why did you say that PE->IB transition is difficult?

    • says

      Yeah in general it is more difficult because most people only do the reverse. You would need a really good story about wanting to learn something specific / work in a bigger team or something like that to make it work.

  8. PIke says

    A bit unrelated, but would an internship with a tax accounting firm that does tax returns and other accounting work for PE firms look good on a resume for investment banking?

  9. Max says

    I met a PhD student on campus randomly, she happens to know a few quite established bankers for some reason. How should I follow up on her? Should I send her an email and directly ask for referrals? Thanks

  10. Jason says

    If I want to do school year internship, is it fine if i can’t work every day? How many hours each week are required in order to do the job? Thanks.

  11. Lee says

    Great post, of course.

    Sorta realised this some time ago – I’m hoping to eventually end up as a venture capitalist, but that’s not really very feasible in Asia. So I figure I’m going to have to work my way through the IB system and somehow worm my way back to the USA so I can move to Cali.

    • says

      There are VCs in Asia but it’s still a smaller industry and still definitely centered in Silicon Valley. Might want to think about the AVCJ conference for Asia though.

  12. Couchy says

    I would love a ‘Public Markets’ modeling course. I just don’t understand how you can make decisions on these bullshit valuation techniques. IMO comps with 1 or 2 yr forecasted 3-statements is the most accurate.

    • PD says

      I couldn’t agree more with your view that valuation techniques are BS. I go into a rage and tear new a-holes when I see NPV analyses on peoples’ presentations. Comps might work if they actually existed, but usually don’t.

      So when I’m asked “how did you come up with that valuation”, I usually answer with “by using the HW technqiue”, “HW?”, “ya, the Hand-Waving method”.

  13. Curious says

    What are the exit opps for Public Markets? In deals it seems pretty clear that you go into corporate development or business development. What if you work at an IM/HF/AM and your recommendation fizzles out? What do you do then?

  14. John Smith says

    Hi M&I,

    Thanks again for the continued advice.

    One theme I see running through just about everyone’s career is being able to make a good living, while still doing a social good.

    1. I know that finance certainly does the first one. However, is there any room to do the second? (i.e. do a social good by donating money, etc.).

    2. In the end, does corporate finance really add value in the majority of cases? (I.e. I’ve read that many companies are worth less after merging or acquiring than they were both worth separately before). Frankly, the investment banking industry in particular seems like “snake oil sale”.

    • M&I - Nicole says

      1. Yes you can always donate $ or support a worthy cause or start your own business to help others. Money can do society good; it depends on how you use it
      2. Yes, corporate finance, like any other business, can add or not add value depending on how you see it and who is doing the deal etc. You have to look at the context before you make a statement

  15. Matthias says

    Hi Brian,

    I hate to reply what all others have been saying above, but it’s true though, once again a great post…

    I’ve been wanting to ask you this question for a while:

    I am looking to get into M&A although I am not to sure that I’ll succeed without getting an MBA first (I am currently working in Risk Mgmt and have a non-finance background). Would you nevertheless recommend applying for the full-time M&A job before going to business school? I’m wondering whether I should be worried about not getting in after obtaining my MBA as a result of my ‘bad performance’ the first time. Do they keep records/… or am I not risking anything by applying now and try again within ‘2’ years?

    Many thanks!

    matthias

    • M&I - Nicole says

      If you apply and don’t get in this year, no one really cares if you reapply again unless you made a really bad impression on an interviewer. Even if they keep records, they might not remember. Just apply now and see where it leads you.

  16. James says

    Hey Brian,

    How can you tell if a company is focused more on sell-side or buy-side if they do both?

    Also, how can you tell if a company is buy-side or sell-side in the first place?

  17. Dr. Dreams says

    Well written! I enjoyed your content and style

    This is my first question on this site so I really hope I get a decent answer :)

    1> If my goal is the top roles in PE and currently I’m an undergrad student at a top school in my country; can I just enter PE directly upon graduation (and get experience, learn, network and start moving upwards) or should I enter into IB for 2-3 years then head out over to PE?

    What are the advantages/disadvantages for doing that (if any) …I really would like to just progress upwards in PE from the start, if possible (I am in Canada, so not sure if its different from US)

    Any insights would be much appreciated :)

    • M&I - Nicole says

      You can try though it is easier to break in from a top tier IB program (from a BB)
      Starting out in IB can give you the skills in PE; IB firms give you proper structured training. Harder to obtain that in PE firms esp cause they are small and expect candidates to be up and running ASAP
      Depends on what kind of person you are – if you can be up and running when they hire you and have a genuine passion in PE, I think going straight into it is a more direct way

      • Dr. Dreams says

        Thanks so much for the advice! Just to follow through, would 1 year in I-banking be enough to enter PE? Or do I have to do 2 or 3 years? (Does it make a difference in terms of salary or knowledge/prestige?)

        I really appreciate the help!

        • says

          Just to add here, many people at top banks actually interview for PE and land offers before year 1 ends, and then start after 2 years.. sometimes even before that. Doesn’t really make a big difference, but generally it’s better to have at least 2 years experience before you start *working* in PE even if you interview before that.

  18. newbie says

    I want to be an agency trader at an Investment Bank. Can you tell me:-

    1. Is it true that computers are replacing humans in these positions ?

    2. If so, are there any asset classes where agency trading is still done by humans instead of computers ?

    3. How easy will it be for me to move to a hedge fund (as a prop trader) after few yrs ? Will my background (math/CS) be helpful in the agency-trading role and/or the hedge fund trader role ?

    Thanks !

    • M&I - Nicole says

      1. This is a trend though I don’t think computers can replace all humans
      2. Most
      3. Depends on how good you are. Yes.

  19. Max says

    Hi,

    I’m interning at a BB doing equity research. I know you don’t have a public markets model yet, but until then, do you know of anything else that might come in handy?

    Thanks again

    • says

      The Fundamentals course will still be helpful and specifically the Bonus Case Studies included within (not yet even mentioned on the promotional pages) will be helpful.

      We give an exact template for a detailed stock pitch plus cover how to project revenue and expenses for different companies, which is what you do in ER.

      • anonymous says

        Brian,

        By “Fundamentals course”, do you mean the course on Excel fundamentals, or a course on fundamental analysis? (if you mean the latter, can you provide the link to the course).

        Thanks!

  20. says

    Hi!

    There is a lot of insight and truth regarding the myths and realities of the tenor of the buy and sell sides. But buy side and sell side terminology is vital for keeping us sane if we view it in the following way – this perspective was sort of overlooked here :)

    Buy side vs sell side would more accurately be described this way:

    The sell side “sells SERVICES”
    The buy side “buys SERVICES”

    This distinction is both accurate and inaccurate when we consider M&A is a little bit different in M&A, but this distinction is accurate in corporate finance, syndication, private placement, investment research, public market investors, etc.

    SALES TRADERS AND TRADERS

    You mention traders (which would also include sales-traders who liaise between investors and traders) and , so let’s talk about the history of trading for a moment…

    In the old days you needed someone to broker your trading if you or your company didn’t own a seat on the NYSE, for example. You can’t get on the floor without you or your firm owning a seat. So how can you trade? You pay a firm who CAN get on the floor because they own a seat. They don’t care if you make money or lose money as long as you pay them a fee for the service they provide; taking a fist full of your investment dollars, walking onto the floor, and investing your money. Or they take your fee for the service of walking onto the floor selling your security, and returning, hopefully, with a fist full of your investment dollars.

    The sell side trader is selling you access to the floor, you are buying access to the floor (he is sell side, you are buy side). It has nothing to do with someone pitching a particular stock, etc. It has to do with buying the service he provides – access.

    Electronic trading can be considered the sell side, because you are paying for the same access to the trading floor.

    INVESTMENT RESEARCH AND RESEARCH SALES

    Similarly, let’s take sell side investment research; it is a service. Investors either pay money for their presumed expertise or it is given away as a freebie if the volume of your trading activity is sufficiently exciting to the firm as a revenue stream in and of itself. By the way, in general, the “buy”, “sell”, “hold” designations that sell side analysts offer does not help sophisticated investors (or amateurs) succeed more often – they’re as wrong as anyone. But, the “stars” may have either better connections with industry management OR fantastic models, OR both. There are few “stars” on the sell side, however. They’re only really useful for building earnings consensus on the street – after all, they are staring at models for as few as 10 to 25 companies in the same industry SECTOR every single day.

    Investors are considered the buy side because the PAY for sell side investment research either in cash or through “soft dollars” (because they trade through that company’s desk a LOT). So sell side investment research is a SERVICE.

    INVESTMENT BANKING

    Imagine you are a private company and you want to go public. If you don’t already have representation, you don’t know what docs to fill out, how to structure the security you wish to release upon the world’s investors in order to raise more capital to reinvest in the company – or at least keep your balance sheet sound. Not only that, but you have no idea how to connect with investors who would buy it out of the gate or even down the road. Securities are not just structured and left at that – someone has to distribute it for you. This combination of SERVICES is why they are the “sell side”.

    You are the buy side because you are essentially renting the expertise of investment bankers. You are buying those SERVICES.

    They will tell you all about the docs, they will tell you how to structure shares, and THEN they will walk over to their capital markets people, sales, traders, etc., and they will set up roadshows and sell that new security – then hand it off to their traders who will get the transactions flowing (hopefully).

    So that is the definition of buy side and sell side in a nutshell; the sell side sells SERVICES, and the buy side buys SERVICES. That is why investment banks with both brokerage and IB are called “full service investment bank/brokerages” – they sell both SERVICES.

    Hope that helps!

  21. monty says

    Great blog: you’ve managed to make the world of finance so much clearer.
    May I ask you a question? I’m currently a VP in private banking with 8 years’ experience at a top name US firm. I have the CFA. Within the next 2 years I am going to need to switch to another geographical market, leaving all my clients behind, for family reasons. I’m therefore interested in shifting gears to another area in finance that might be more technically involving – and intellectually satisfying – than simply networking among rich people; e.g. possibly institutional sales.
    Any idea if this would be possible – or advisable?

    • M&I - Nicole says

      Yes, but you’ll have a higher chance if you’ve had some sort of relationships with institutional clients/can demonstrate that you can generate commissions almost immediately, especially at your level

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