Making the most of sell-side research
A guide for buy-siders
In previous discussions, I highlighted buy siders’ misconceptions about sell-side research and gave you an insider’s look at what a sell-side senior analyst actually does throughout the year.
There are still many ways the sell-side adds value to an investor’s research process. That’s why I’ve argued that AI won’t drastically disrupt the sell-side research industry. In this article, let’s explore how you, as an investor, can make the most out of sell-side research.
Now let’s dive in.
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General tip
Investing is a profession of judgment—though many assume it’s all about running numbers and doing diligence. In the end, it’s about what you do with the findings that determines whether you make money, lose money, or worse, miss out on big opportunities (oh no, Nvidia).
First and foremost, don’t rely on the opinion of a single analyst. Triangulate. It’s like when you use expert networks: one expert’s opinion about a company might be biased, but if five experts all say the same thing, it’s more likely to be accurate.
Without naming names, there are sell-side research shops below a certain tier that are, at best, useless and, at worst, unethical. Most investors know who they are. Do not rely on their opinion at all, but it’s fine to ask for a model, a primer to get up to speed on factual information, or access to management at a conference. But beyond that, you’re often better off doing the work yourself. For me, reverse-engineering other’s work is usually more time-consuming than starting from scratch.
Whether an investment bank handled a company’s IPO is public information—you can find it in the press or the S-1 filing. Just be mindful of the analyst’s positive bias. If you’re a new buy-sider who relies solely on sell-side opinions, you won’t last long in this business.
The good news is that, these days, most buy-siders don’t rely on the sell-side for price targets and ratings anyway.
Know what they are known for
Sell-side analysts typically differentiate themselves on just two or three angles1. The best way to find out who’s known for what is to ask other buy-siders. And these buy-siders don’t need to share your investment style. For example, if you’re a long-only investor and a pod PM tells you that Analyst A is great at estimating earnings, that analyst is likely not the best resource for gaining a deep understanding of that industry (because every analyst has limited time to be good at only few things.)
If you’re a generalist, some analysts can be helpful but struggle with simplifying technical concepts. If that’s not a deal-breaker, take advantage. If it is, be mindful of their limitations if you want to learn a technically complex industry from first principle. Despite working in a profession that relies on grabbing attention upfront (much like social media), many sell-side analysts are surprisingly bad at keeping things simple and telling a compelling story.
If you’ve ever wondered why some of the top Institutional Investor-ranked analysts or Hall of Famers were English majors in college, now you know: great writing and storytelling pay bills.
How sell-side analysts can be useful
If you want to do a quick dive into a company, using a sell-side model can help you understand which business assumptions drive future profit and cash flow—as long as the model is error-free and detailed enough.
You can also request a sector primer to get up to speed. These are usually more engaging than a 10-K or S-1, especially if the analyst includes exhibits to break down factual information, like key industry players, market share trends, business models, competitive dynamics, sources of moat, and what drives demand and revenue. Just beware these reports do contain opinions, so remember to rely on more trustworthy sources like boutique research shops, independent research providers, or industry experts if you want to challenge your assumptions.
Many people criticize sell-side research reports, but if you can learn to separate facts from opinions and work with an analyst who’s both a good storyteller and a concise communicator, it can be a huge time saver. Analysts can act as historians, providing insights into a company’s past and what drove significant stock moves up or down.
The sell-side also adds value through its connection to the trading floor, offering insights into market flow. Some analysts stand out by "being in the flow"—they know why a Capital Group PM is long on a stock, what might cause them to sell, and why certain hedge funds are shorting it. That kind of intel is crucial for understanding the “setup” of a trade.
When it comes to understanding management teams, this is where AI can’t replace Wall Street research. How could AI tell you about the personality or quirks of a management team? No one is publicly writing about an XYZ CEO being a chronic micromanager or, worse, a psychopath. These insights come from whispered conversations within the ecosystem, often shared by sell-side analysts in one-on-one settings—maybe over a phone call, but more likely over drinks at client events.
No matter your investment style, understanding personalities and motives of management can help you make money, both on the long and short side. Veteran sell-side analysts are invaluable in this respect, as they’ve spent years interacting with these executives.
II doesn’t matter, but it kind of does
I often get asked, "Who is the best analyst in XYZ sector?" I don’t know how to answer that. There’s no such thing as the “best” analyst because buy-siders have different needs. Long-only investors and pod shops, for example, often want completely different things.
As a result, sell-side analysts tailor their work to please enough clients to get paid. Institutional Investor (II) rankings measure how many key buy-siders found a particular analyst useful in a given year, with importance often linked to the commissions those clients paid (II votes are weighed by commissions paid). So, analysts tend to prioritize pleasing top commission payors (which usually are the big 4 multi-manager hedge funds and a couple mega long-onlys), most of whom are short-term oriented.
If you’re more of a long-term investor, the most useful analyst for your needs might be someone outside the big firms measured by IPO deal flows and II rankings. Be mindful of this and ask around—publicly (on Twitter/X, etc.) or through your network—to find the most valuable resources for your specific goals.
That said, the II rankings do reflect a broad enough pool of opinions from investors that they give a general sense of who is adding value to the ecosystem. If you’re unsure which analyst is best suited to your needs, starting with an II-ranked analyst can give you a higher margin of safety.
Don’t be an ass
Yes, sell-side analysts are there to serve you—but it’s better to treat the relationship as a collaboration rather than seeing them as solely there for your benefit. Here’s why:
Job security and networking: The average tenure of a junior hedge fund analyst is only about two years. Sell-side analysts are well-connected and can alert you about lucrative openings when things go south. They know people, and maintaining a good relationship with them could pay off in the long run.
No skin in the game: Sell-side analysts don’t take it personally if you criticize their theses. This is especially true for veterans who’ve encountered all kinds of buy-side personalities. Keep any disdain for sell-side analysts to yourself or share it with your PM—there’s no need to make it explicit. They’re not as clueless as you might think. Their incentives drive their behavior, and their true views are often smarter than the opinions they share publicly. Of course, due to compliance, they can’t always tell you what they really think.
Instead, reciprocate. Share insights you’ve gathered from management, other buy-siders, or industry experts. This builds goodwill. For smaller funds, it can make the difference between being denied access to an analyst or saving time during your ramp on a new sector—because you’ve added value upfront.
Unfortunately, this doesn’t apply to veteran buy-siders. They often have the track record and network to get away with a more transactional approach. There are plenty of not-so-nice people on the buy-side who have done just fine despite their reputation as being difficult.
But if you’re new to the game, I wouldn’t recommend taking that approach unless you’ve proven yourself as a reliable “mercenary” who can consistently generate alpha.
Thanks for reading. I will talk to you next time.
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