Many of us are regular investors in stocks where we buy or sell equities. We conduct stock trade through research reports, stating which equities to buy and which to sell at what time.
This decision of ours is largely dependent upon experts’ advice. These experts are officially known as sell side analysts.
In stock trading, there are two kinds of analysts – the buy side and the sell side. The buy side analysts are those who are involved in raising investment capital and deciding where to invest the capital. The sell side analysts are those who pitch financial products like bonds, stocks or companies to investors and persuade investors to buy them. While a sell side analyst works in a stock broking firm, a buy side research analyst has to work with mutual funds.
In this article, we will look into sell side equity research in detail, in terms of their roles and responsibilities, enabling you to understand their communications to you as an investor and perhaps, you can think of becoming a sell side equity research analyst yourself!
The Sell Side Equity Research
Simply put, the job of a sell side analyst is to recommend stocks to people. Other than that, a sell side analyst writes a Sell Side Equity Research Report that is expressive of his or her opinion, enabling investors to decide whether buying or selling certain stocks will be profitable or not.
The sell side equity research analyst has the job to follow a list of companies and regularly research them for the clients of the firm employing them. The clients are comprised of individual investors, small businesses and corporate.
To ease the research process, the researcher builds financial models to keep track of the financial changes happening in the list of companies, as well as communicate with competitors, suppliers; customers are other sources to generate holistic company research profiles. These research works are reflected in the form of reports made accessible to the public.
The report will generally be a detailed research and recommendation on why some stock is or isn’t a good investment in the long-term or short-term. For their research and analytical skills, the researcher is usually paid about 60,000 USD to 90,000 USD annually. The salary range differs with profile role and responsibilities, work experience and educational knowledge.
A sell side equity research interview is most of the time practiced and trained. Stocks that are rated sell in these interviews aren’t considered to have much potential.
These equities will tumble down soon because they have been rated sell. Equities that are bound to go up are rated as buy.
The 3 Secrets
A sell side equity research analyst will tell you whether you should buy, sell or hold a particular stock. These sell side equity research analysts are appointed by Equity research firms for giving advice to customers.
These research analysts develop secret methods of recommending the stocks. I have come across a lot of people who blindly follow the advice given by experts, but should they? I know they are experts and therefore, their recommendations to carry value but should you trust blindly?
Let’s see. I will briefly point out 3 secrets of sell side equity research analysts to you in this article. The analysts won’t even let you on these so read and remember these.
1. Sell side doesn't prioritize individual investors.
This is a shocking and bitter truth but it is the way it is. As individual investors, you expect the equity researchers to treat you equally, at par with big shot investors but you aren't.
Equity researches aren't carried out with the purpose of helping out individual investors. In fact, an individual investor is the last thing on the mind of an analyst while conducting a research. It’s true that individual investors benefit from these research reports but they are not made keeping the individuals in mind. The equity researchers draw up these reports for corporate or high-value investors.
2. The stock depends on the statements of the analyst.
Yes, even this is true and it would strike you immediately if you applied logic and common sense. When you buy or sell a stock, it is always on the recommendation of the research analyst, right? Therefore, when an analyst rates the stock as ‘sell’, those who follow his or her advice, sell the stock almost instantly.
This obviously results in a fall in the prices of these stocks. Hence, it would be safe to say that the plight of the stocks is largely dependent upon the sell side research analyst. Now, whether you should listen to the advice of the analysts or not brings us to the third secret and it is doubly shocking!
3. Unqualified analysts
Ideally speaking, an analyst ought to have an MBA degree and a CFA certification. Being a sell side research analyst calls for high skill levels because a lot of money is involved here and people want the best profit margin.
However, the bitter truth again is that only 3/4th of the sell side analysts are qualified while the others simply learn on the job. Most of them aren’t even MBAs or CFA certified. It’s acceptable to learn on the job but sometimes, firm hire less qualified and less skilled individuals to control company costs. This, in turn, poses the firm customers at risk because the customers / investors are relying on the analytical abilities of the sell side researcher.
Therefore, given the fact that some firms engage in flawed recruitment drives, it is very easy to enter the job market BUT the redeeming factor is that ultimately, one needs to prove their skills and analytical abilities to make a successful career as a sell side research analyst. Owing to scarcity in the market, the demand for qualified sell side research analysts is high.
To become a top-class equity research analyst, you have to be yourself. Be more of yourself and start polishing your skills. Many people are working on it. And you as well?