In our last post, we discussed about Careers in Equity Research. We also noted about the difference between Buy Side and Sell Side roles. In this post, we will discuss about the key skills needed in these roles and more detail about the roles.
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Lets get back to the skills needed in Equity Research.
Skills needed in Sell Side Research
Sell Side Equity Research is the research done by Brokerages in order to generate broking income. Usually, large institutional clients like Mutual Funds, Hedge Funds, PMS (Portfolio Management Services) and AIFs (Alternative Investment Funds) use this research. The research required here is very rigorous and detail oriented. A Sell Side Analyst usually tracks about 15-20 firms across a couple of sectors at most. The analyst should also have a fairly detailed understanding of the companies he/she is covering. Primary Research (meeting with companies to understand their business) is a major part of the work. A typical sell side Analyst has to be very good with Industry Analysis, Company Analysis and Valuation Modeling.
In addition, the role requires them to produce research in a timely manner, so as to enable the buy side clients to act on the basis of their advice. For example, if a company declares a quarterly research on Monday night, the result update needs to go out latest by Tuesday morning. The stock market will react to the results, and fund managers would want to take timely actions in such an event.
Skills needed in Buy Side Research
On the other hand, Buy Side research is the actual action of buying or selling a security. Here, the Analyst covers a larger number of companies and sectors. This is possible as the detailed research is available from the sell side counterparts. In addition to the above skills, one key skill needed here is having a strong conviction around your research. This skill is more behavioral in nature. Fund Managers and Buy Side Analysts have their skin in the game. Once they decide to buy or sell a stock, the results of those would be available every moment after the decision. Analysts in Buy Side research have to be mindful of the fact that there is actual money directly riding on the decisions that they make.
Next Steps for students
Both roles have limited openings every year, and are highly coveted roles. Both these careers in equity research pay very well, but skills needed are usually non-negotiable, since the role demands quality and timely research. Students interested in building a career in Sell Side or Buy Side Equity Research should start learning about Equity Valuation and Financial Analysis skills, and practice those to master them. Usually, one needs a good knowledge of atleast one industry when appearing for an interview for these roles. In addition, one needs the ability of understand the financial statements and build valuation models of companies in the sector.
Some of our courses can help you learn the skills needed in these roles. These are Certification in Equity Valuation and Certification in Applied Financial Statement Analysis.
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About the Author
Peeyush Chitlangia is the founder of FinShiksha. An Alumnus of IIM Calcutta & MNIT Jaipur, Peeyush has been in the financial services industry for the last 14 years & has extensive exposure to Equity Research & Financial Modeling. With more than 50,000 man hours of teaching experience, he has trained nearly 15000 participants across organizations.