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Buy-Side vs. Sell-Side Investment Analysts

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Here's a closer look at buy side vs sell side investment analysts. Reading up on investment analysis can help you better understand market trends as you make decisions in your portfolio. Buy side vs sell side analysts are two very different approaches to investing. If you’re unfamiliar with those terms or how they can affect your investment, here’s what you need to know.

Buy Side Analyst

Analyst generally refers to someone who offers investment advice for a fee. A buy side analyst works for institutional investors, such as hedge funds, mutual funds or pension funds. They conduct investment research and make investment recommendations. In other words, a buy side analyst tells fund managers what to buy.

These analysts consider a fund’s overall investment strategy, as well as market trends and individual investment performance. At the same time, buy side analysts prepare for all investment disasters.

They seek potentially profitable investments that align with a fund’s objectives. A buy side analyst’s reputation often hinges on their recommendations’ success.

However, buy side analysts may rely on sell side analysis in their research.

Sell Side Analyst

Here's a closer look at buy side vs sell side investment analysts. Sell side analysts typically work with brokerage firms and investment banks. They offer clients investment advice and direct investors to buy or sell specific investments. Specifically, an analyst may recommend investors put their money into funds managed by their employer.

Like buy side analysts, sell side analysts evaluate investments through independent research. For example, they may analyze a company’s earnings forecast or balance sheet ahead of the release of its next earnings report. As a result, they may advise a client to buy, sell or hold a security.

If a brokerage or investment bank’s clients buy or sell shares based on a sell side analyst’s recommendation, it makes a commission. Unlike a buy side analyst, a sell side analyst’s performance usually depends on how often investors follow their advice versus how well the stock actually performs.

Buy Side vs Sell Side: Which is Better?

When reviewing investment analysis as an individual investor, consider buy side and sell side analysts’ motivations.

A buy side analyst typically points clients toward investments with solid potential. Buy side analysts help clients invest in products that align with their best interests. This advice is tailored to the client, rather than being a broa generalization about which way a stock might move next.

Sell side analysis targets a broader audience, such as investment bank or brokerage firm’s clients. That can be problematic because the advice isn’t personalized toward individual clients. For example, an investment firm may hold accounts for 10,000 investors who aren’t exactly alike when it comes to their goals, risk tolerance and risk capacity.

What Each Means For You

When following sell side analysis, investors should keep their personal investment strategy in mind. A sell side analyst is focused on making plays. For example, they target a particular stock, then sell it or hold it. Their suggestions may not fit your investment portfolio’s goals.

A buy side analyst, however, generally prefers making the right call. Though their advice should fit their fund manager’s profile, their end goal is performance. That could make buy side analysis more reliable for individual investors than sell side analysis.

The Bottom Line

Here's a closer look at buy side vs sell side investment analysts. When it comes to buy side vs sell side analysis, it’s always best to do your own research rather than relying solely on one or the other to decide how to invest your money. Analysts make money by offering recommendations that meet their clients needs. That analysis doesn’t account for your risk tolerance or tax liability. Also, it doesn’t consider  whether you’re more interested in growth investing versus value investing. Setting priorities can help you determine whether buy side or sell side analysis best fits your investment profile.

Investment Tips
  • Consider talking to your financial advisor in more detail about buy side vs sell side analysis and what approach they use when making investment recommendations. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Do you know how much investment risk you can tolerate? How much does your investment need to grow to meet your goals? Will taxes and inflation take a bite out of your investment? SmartAsset’s investing guide can help answer some of those initial questions.
  • When evaluating stocks, mutual funds or other investments, remember that past history isn’t an indicator of future performance. A stock that’s done well may seem like a strong buy but a market downturn could result in a price drop and a potential loss for you. Also, pay attention to what you’re paying to invest in stocks, funds, bonds or other investments. Look for brokerages that offer commission-free trades or funds that have a low expense ratio, so you can hold on to more of your investment earnings.

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