Thursday, May 8, 2008

The X's and O's of Capital Markets: Buy Side vs. Sell Side

A very common question when interviewing for investment banking positions is 'Do you want to be on the Buy Side or Sell Side?' This is a basic question that you should not get wrong. If you want to be an investment banker then you want to be on the Sell Side.

Investment Banking Analyst/Associate = Sell Side

Sell Side

  • In general, they are not investors, but rather they give advice to the buy side, who are the investors. The sell side is trying to make a sale and drum up business. They are salesmen and they are selling financial products, ie. stocks, M&A, IPOs, etc...

  • Investment Bankers in the Investment Banking Division

  • Brokers

  • Stock Analysts (ie. make recommendations of "strong buy", "outperform", "neutral", or "sell")

Buy Side

  • In general, they are money managers in some form or another. They have huge funds of money that they are investing in order to try and make a big return.

  • Venture Capital / Private Equity

  • Hedge Funds

  • Mutual Funds

  • Pension Funds

Not knowing this type of basic information can be compared to a guy that wants to play professional football but doesn't know each position and their responsibilities.

You could also easily relate each side to Offense vs. Defense. They are both on the field playing, but they each have different goals, positions, and responsibilities. Hopefully you get the idea, but the point being that if you want to be an investment banker, like a football player who wants to play pro football, you too need to know your stuff!

Here are some links to a few great sources to help you learn more.

Vault Article: The Buy Side vs. Sell Side

Motley Fool: Buy Side vs. Sell Side

Investopedia: Definitions of Buy Side and Sell Side

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