I received a DM from a sell-side analyst asking for a buy-side perspective on what makes a good sell-sider. Here are my thoughts:
"KNOW THYSELF": I broke down the sell-side role into 9 key modules that I would look for help with as a buy-sider: Earnings models Stock picks Data work (surveys, alt data, etc) Product analysis Earnings season (prep, analysis, wrap)
Maintenance publishing (short, frequent notes) Deep publishing (primers, long outlook pieces) Corporate access Information nexus (in the pod flow, in the Boston flow) I have NEVER seen a sell-side analyst who is Top 3 in all of these dimensions. It's impossible.
What I do see, unfortunately, is new analysts who try to be Top 3 in all 9 dimensions, and end up being 12/15 in all. Mediocrity is the killer of buy-side attention. Do you have the 6th best analysis on the new biotech drug? Why do I need that? As a buy-side analyst, you are...
...looking to aggregate the best information from the sell-side. Baird might have the most accurate models, Goldman is in the pod flow, Wells in in the Boston/LO flow, JPM has the best earnings process, Citi has the best data work, and Barclays has the best mgmt access...
...from the buy-side seat, you can pick and choose who has best of breed work in each dimension. If you have strength in none of these areas, you will get lost. I recommend choosing 2-3 to focus on, and pick an archetype to build around. Which analyst are you?
Models & Stocks analyst? who will do buy-side level modeling to call accurate earnings misses and make brave UG/DGs of stocks? (BUT you might piss of mgmt with a DG, ruining corp access) Deep Thoughts analyst? Has great, deep thought pieces on fresh & topical debates (BUT.
...all that time writing a 200 page primer will take away from being in the flow broadly) Industry Connected analyst? Has the best view on new products & industry buzz (BUT models suck and can't pick a stock) Buyside Friend analyst? Is responsive to buy-side needs, does.
..idea lunches, can give you the "flow" on all names (BUT, has a thin process on a standalone basis) There are a handful of other archetypes. Don't try to be all things to all people, pick a niche and be absolutely indispensable to your clients within that niche.
EMBRACE YOUR ROLE: This sounds very elitist & snobby, but ultimately a sell-side analyst is in sales and buy-side is the client. The key is the end of year vote, where buy-side clients vote (via broker vote & II vote).
Your job is a popularity contest, not an intellectual battle of will. I sat in a sell-side 1x1 one time listening to my biotech analyst argue with the sell-side analyst for an hour. Nothing was accomplished, and no goodwill was generated (on either side).
TRUST ME, I can't imagine how annoying it must be to deal with know-it-all 24 year pod-shop stars all day. The visual that comes to mind is of a bullfighter. Sure, spar with client, but try not to be too attached to client's disagreement (most old hands do this well..)
And why does buy-side vote for you? Two reasons, 1) you helped us make money / be more efficient in our job, 2) likeability. And problematically, when we come to vote, we don't always remember the mix of 1) and 2). So do your best to steadily build up client goodwill.
SEGMENT & CATER: It must feel as a sell-side analyst often like you are yelling into a void. What a pod cares about is a lot different than what Fidelity cares about. Be meticulous about identifying what your clients care about. Pods, for example, generally LOVE a post-NDR..
..call after note is published to discuss mgmt "body language". Figure out your top 12 needle moving clients and place those calls, proactively (often pods will have sales chase down analyst to do these calls).
LO's might care about your history with the newly appointed CEO of a company, and appreciate your proactive outreach. When you meet clients for the first time, JUST ASK what moves the needle for them, and be thoughtful about delivering on that ask.
PREDICT DON'T REACT: FinTwit is replete with laughable sell-side follies. "Stock just went down 30%, so I'm downgrading it". Huh? Why does sell-side do that? (seriously someone tell me...) Try to make 3 big calls per year, PREDICTIVE CALLS. Look for your entire industry...
..at a profit growth inflection (business momentum turns are key). Make 3 bold, public calls, before those calls are in market consensus. This assumes you aren't "CEO's friend" analyst, as you will often have to DG a stock/sector at the top, making you no friends. These calls...
...must be backed up with a lot of thought & work, and must be framed as a R/R bet. And don't be a dick or smug about your call - have humility backed by data. This sort of predictive courage is sorely lacking on the sell-side, and if you can hit 2/3 of these calls (and not be...
...massively wrong when you whiff), you will quickly gain a reputation. Use a risk/reward lens when you make a call (i.e. UG groups/stocks at trough valuations, ahead of profit re-accel, DG at peak val, ahead of profit decel). It's so funny to me that, for example, the closer...
...e-commerce gets to a sales acceleration (tough comps waning), the more sell-siders want to DG the stocks. Don't be this analyst. Being early is better than being late - it wakes your clients up and gets them thinking about what you raised to them, cementing the relationship.
DROP EVERYTHING FOR BIG DEBATES: On the buy-side, there are usually 2-5 BIG DEBATES within a sector each year. Getting those right can make or break our year. News comes out, stocks kerfuffle, we lose money, and we are looking for help. Who can help us? Drop everything and..
..become a guided missile to figure out that debate. Call your industry network and schedule a round table. Dig deeply into data, and share that data. Attack that debate with urgency, frame the bull/bear outcomes, and make a call (often call is "we aren't sure what happens but...
...bear case is baked in, so we UG). Don't hide during big debates, and worse don't waste your time on some note during a big debate that no one cares about.
REVERSE ENGINEER SUCCESS: There is becoming a formula to succeed on the sell-side. In HC, what Mark Schoenbaum (may he rest in peace) did with his coverage model in biotech was innovative. Umer Raffat took his baton and remained top. Success leaves clues. Study them!
Buy-siders reading this, what would you add??