Wall Street Explained: Buy-Side VS. Sell-Side
Once you get past the myriad of suits that would make Barney Stinson's little heart pitter-patter, the good 'ole boys club and the frantic glamour of Wall Street, it boils down to buying and selling. Essentially, there are two paths a career can take on Wall Street.
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But it is more than simply buying and selling commodities. Both codependent components of Wall Street play different roles in the market. Are you working on making the deals (buy side) or working the public market (sell-side)? There is what is called a "Chinese wall" dividing the exchange of information between the sides. Even if a firm has both components, like large JP Morgan, there could be a negative impact if the sides exchange information. So the sides do not routinely share information. The buy side is primarily focused on buying large amounts of securities for money-management. Mutual funds, pension funds, insurance firms, hedge funds, private equity, asset managers, and venture capitalists make up the buy side.
Those on the buy side have large pools of capital and tap into their own resources to make investments. Money is made when researched investments pay off. For example, a private firm or a retail conglomerate finds a trending or unique company. The investors invest in or purchase a small indie company. The indie company does exceptionally well, and the investors profit substantially. Spotify, Facebook, or L'Oreal purchasing Essie are good real world examples.
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As an analyst on the buy side, your findings are kept as secrets within the company, since research determines acquisitions and investments. Secrecy is essential to identifying underpriced assets or opportunities in the marketplace. You do not want another firm to beat you to the punch. A buy side analyst tends to make more money with a relatively less workload than those on the sell side. However, deeper analyzing and risk taking is required, therefore, more mental work. A switch from sell side to buy side is more common than buy to sell.
Buy side will use sell side generated reports as the foundation of their research and use prices set by the other side to make investments decisions. Sell side is often viewed as providing services for the buy side.
The sell side of finance is made of investment banking, commercial banking, stockbrokers, market makers, and corporations. Sell side includes the Bond Market, Foreign Exchange, and Stock Market. An analyst on the sell side is focusing on stock prices, company, and industry performance and financial analyst and trends. Their findings are often public and used in journalistic reports. Since market prices can change instantly, an analyst has little downtime and needs full focus.
Let say that same indie company becomes profitable enough for an Initial Public Offering. A stockbroker or an individual investor can now purchase equity in the company. A sell side analyst will track the company and industry's performance to make recommendations and financial forecasts. He will make his money off commissions. The more equity he convinces other people to buy, the more he makes.
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4 essential business books for a novice
"You wasted $150,000 on an education you coulda got for a buck fifty in late charges at the public library." Will Hunting knew what he was talking about.
Not everyone has the time, desire or a small fortune to to get an MBA. But for a fraction of the price, you can get a business education by tapping into successful entrepreneurs and professors' knowledge.
Here are four of the best books to read on navigating the business world and starting your own company.
1. The Portable MBA
For those interested in an MBA but not sure.
The Portable MBA, written by University of Virginia's Darden School of Business professors, covers core business school topics. If you need a bird's eye view of a MBA program or just need a crash course in the basics of business, chapters cover everything from finance, accounting, marketing, economics to ethics, leadership and strategy. An easier read than some MBA books, this is a great place to start if you are interested in business or an MBA.
2. The Four Steps to the Epiphany: Successful Strategies for Products that Win
For those looking at starting a business.
The core of Four Steps to the Epiphany is the base for the Lean Start Up method. Silicon Valley entrepreneur and Stanford professor Steve Blank argues that startups should focus on customer development rather than solely product development. Blank points to several traps that companies fall into causing them to fail. The customer-centric theory is a key point in successfully selling an idea before spending on marketing or scaling. This book is filled with examples, charts and illustrations to show how to turn a startup in to a company.
3. The Personal MBA
For those interested the basics of business.
This is a more in-depth look into business practices, which translates well into real-world application. Broad business concepts like starting a new business and actually running a business are major themes. Learn to evaluate a market, different forms of value, the Iron Law of the market, pricing uncertainty principle and ways to increase revenue. For an added bonus, visit author Josh Kaufman's website for a list of 100 of the best business books and his TEDX talk on the first 20 Hours of an MBA.
For those starting a business with limited funds.
When your company is not blessed with unlimited funds or an angel investor, bootstrapping is essential to getting started. Bootstrapping or starting a business without external venture capital requires creatively using internal cash flow. Entrepreneurial Mind CEO and co-founder Jeff Cornwall explores thriving on a limited budget through various techniques. The book teaches strict control of finances as well as process efficiency, cash-flow-management, human resources and long-term bootstrapping.
Four More Recommended Reads:
The Lean Start Up by Eric Ries (A student of Steve Blank)
How to Read a Financial Report by John A. Tracy
Getting Things Done by David Allen
Financial Intelligence for Entrepreneurs by Karen Berman and Joe Knight
6 sites a new investor needs to read
The idea of investing can seem terribly haphazard, especially if you've just finished watching Wolf of Wall Street. What are you going to do with your money? Invest it? Is a money market better? Or what about bonds? But do you know what are you're doing? No? You should start reading then. Even if you chose to have broker do your investing for you, staying up to date with the latest information helps make better long-term financial decisions.
Here are six websites you should be reading, subscribing to or studying.
If you have questions relating to money and finance, then Investopedia is where you turn. An easy to understand dictionary, guides, calculators and stock stimulator can help students and investors alike. If you're not ready to dive into the investing world, there's the Stock Market game, which can give you a practice run and compare how you do with investors without losing money.
2. Seeking Alpha
One of the more extensive websites, Seeking Alpha provides crowd sourced investing information on over 8,00 tickers. Stock analysts, traders, economists and industry experts create the content and editors curate. Since a community creates Seeking Alpha Investing content, advice is typically from the buy-side of the market.
3. SEC EDGAR
If a company is public, than the SEC has a slew of information on the company that's beneficial for investors. The company's prospectus provides background information on business operations, history, financial conditions and risk assessment— all of which has been audited by a CPA. The 10-K and 10 Q are annual and quarterly financial reports. You can also learn about owner(s) information, any ownership changes, criminal behavior and any legal scuffles. Plus, the SEC kindly provides red flags in the footnotes of company filings.
4. Yahoo Finance
Yahoo Finance offers real time information on stock quotes along with financial reports, aggregated content and original content. The good stuff is the SEC filings, analysts' estimates for quarters, and ownership data. Plus, you can easily create and save screeners to filter and track stocks based on your investing preferences. Another valuable tool is the "My Portfolio" tool, which can serve as your home base with real-time stock performance and news.
Bloomberg's websitse, newsletters, magazines, live stream TV and radio offer comprehensive economic, business and stock market news and data. Started by former Salomon Brothers partner Michael Bloomberg, the company began as terminal computer system for Wall Street Firms. Basically, it's made by serious investors for serious investors. If you're trading in foreign markets, Bloomberg's around the clock and around the world stock coverage is a serious asset. Even if you don't have an extra two grand for subscription fees, there is plenty of free valuable content.
6. Bank Rate
If you're a what if's person, than Bank Rate will make your heart pitter patter. Use Bank Rate to calculate and compare rates for bonds and CDs. Or use the Investment Calculator to see if your investments are on track to match your goals.
8 money habits to break in your 20s
When most of our parents were in their 20s, they were having us, buying houses, and working on their 401ks. Flash-forward a generation and now the 20s are considered a development phase. Even if you are figuring out what you're doing with your life, avoiding financial pitfalls can get you where you want to be much faster.
From managing your spending to paying all of your bills, here are the eight financial habits you need to form in your 20s.
1. Swiping your credit card like there is no tomorrow.
Plastic feels good in your hand and since you don't physically feel the money coming out of your wallet, it is easy to spend money fast. Avoid sinking into a debt hole by paying off your credit card purchases as soon as possible. The really expensive night out or the beautiful Italian leather shoes? Avoid using your card for impulse purchases and if you don't have the cash of fun purchases, then don't buy it just yet.
2. Defaulting on your student loans.
Hopefully, you're not drowning in college debt. Easiest way to mange your loans is by paying it regularly and not being late. You don't want your interest to snowball and interest fees add up quickly. If you're having a hard time paying the loans, look into refinancing your loans or a different payment plan.
3. Not paying your bills on time.
Pay your bills on time. There may be months were it's not going to happen but bills and necessary expenses come first. Then everything else.
4. Forgetting to create a retirement fund.
Oh, I'm not retiring for another forty years. "I'll worry about it later" is an easy attitude to have in your 20s, but preparing now can create an easy transition in the future.
5. Calling the parents for money.
Everyone needs a little help sometimes and it can be hard to make ends meet when you're on an entry-level salary. However, running to your parents every time you need help can create a bad habit. Figure out how to solve your problems so you can be equipped the bigger problems.
6. Not understanding the concept of a budget.
Uncontrolled spending money is one of the biggest problems when it comes to financial issues. Get a manageable budget for each month. Your budget can grew as your debt decreases and income increases.
7. Financial plan? What is that?
Once you get a budget down, you need a financial plan that includes long term saving, spending and investment goals. Put a little away every month or every paycheck. It's much easier to create a savings fund little by little that all at once in your 30s
8. Skipping insurance, since you're young and think you're invincible.
If you don't get sick as often, it's easy to skip insurance. But accidents happen and accidents can be expensive. Having insurance can help avoid significant debt. That's what insurance is for. While you're at it, get renter's insurance. It will cover fires, stolen items and cover replacement costs for things.