Is the buy side the winning side?
New analysts venturing into the finance industry for the first time are faced with a vexing question – buy side or sell side? Frankly the answer isn’t as binding and career-defining as say banking or insurance. With essentially the same entry level responsibilities, it largely comes down to competitiveness and that’s where the buy side becomes a bit more challenging. Quite simply, it is more difficult to get in. Here are a few reasons why.
Buy versus sell
Offshore markets have noticed something rather interesting: while plenty of sell side analysts leap to the buy side, many do jump back the other way as their careers develop. While such jumping back and forth isn’t really possible in Australia, it does highlight the buy side’s attractiveness to analysts and it seems to come to come down to personal satisfaction. Analysts want to see the fruits of their labour rather than just selling on to someone else all the time. They want to put their money with their mouth is but it is worthwhile noting that opportunities have been somewhat scarce given local market competition.
Another big buy difference
Yes, it’s true that analysts will perform a lot of the same tasks whether on the buy or sell side – doing financial modelling and making recommendations. However, on the buy side, all research is owned research using real client money to manage a portfolio. Sell side analysts will also find themselves acting as ghost researchers for their buy side colleagues as their hard work is often used to beef up buy side recommendations.
The buy side fallacies
This is where a few realities kick in. There seems to be a perception that the buy side is more glamour than labour, more glitz than grind. In fact, it’s basically the same job as the sell side doing essentially the same tasks, unless you can become a portfolio manager. Which is a hard task in itself based purely on the number of portfolio managers versus analysts found in a fund. On the outside looking in analysts also believe that making money from investments rather than sales commissions will coat their world in gold castles faster than you can say ‘Wolf of Wall Street.’ While technically there is considerably more money to be made, the average experience paints a far less spectacular picture of modest investment returns and therefore medium potential personal earnings in comparison to the sell side.
The buy side bottom line
At the end of the day, the buy side buys things, the sell side sells things; that’s pretty much it and new or experienced analysts will be philosophically drawn to one or the other. If selling research, advice and securities to companies and investors appeals and you are happy to do the hours then the sell side is the way to go. If matching investments to investors and buying large quantities of securities sounds attractive, the buy side is the right side for you.
First published by Meredith Jordan on LinkedIn on 19/08/16