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Buy-side and Sell-side Financial Analysts

There are two major types of financial analysts: buy-side and sell-side. Buy-side analysts work for investment firms and make stock recommendations that are available only to the management of funds within that firm. Sell-side analysts work for brokerage firms and make recommendations that are used to sell stock to the brokerage firms' clients, which include individual investors and managers of investment funds.
What would be the differences in tasks and motivations of these two types of analysts?

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Sell-Side Analysts:

They are employed by brokerage houses to analyze companies and write in-depth research reports, conducting primary research. These reports are used to "sell" an idea to individuals and institutional clients. Individual investors gain access to these reports mainly by having accounts with the brokerage firm.

A good sell-side research report contains a detailed analysis of a company's competitive advantages and provides information on management's expertise and how the company's operating and stock valuation compares to a peer group and its industry. The typical report also contains an earnings model and clearly states the assumptions that are used to create the forecast.

Writing this type of report is a time consuming process. Information is obtained by reading the company's SEC filings, meeting with its management, and, if possible, talking with its suppliers and customers. It also entails analyzing the company's publicly-traded peers for the purpose of better understanding differences in operating results and stock valuations. This approach is called fundamental analysis because it focuses on the company's fundamentals. This is a rigorous and time-consuming process that limits a typical sell-side analyst specializing in two or three industries and covering about 10-15 companies, depending on the number of sectors they follow.

The primary purpose of sell-side analysts is providing brokerage ...

Solution Summary

This posting discusses the differences in tasks and motivations of buy-side and sell-side financial analysts in detail.