What is a Sell-Side Analyst?
A sell-side analyst is an equity research analyst who works for an investment bank or brokerage firm and produces investment research that is circulated to the firm’s clients. The investment research is later used by the client to make a decision on whether to buy or sell stock or another financial instrument.
Why is Having Sell-Side Analysts Beneficial for Firms?
The investment research done by a sell-side analyst will assist the client with making an informed decision on their investment, which will stimulate the process of buying or selling financial instruments. Buying and selling of financial instruments will produce commissions for the brokerage.
Aside from stimulating buying and selling, the reliability of the research will help the client make a better decision and remain in the market for a longer period of time. The longer the client stays in the market, the more commission generated.
A sell-side analyst usually issues a rating for a stock, such as “Overweight”, “Hold”, “Buy”, “Strong Buy”, or “Sell”. The ratings are also sometimes accompanied by a price target.
Access to Sell-Side Analyst Investment Research
Some investment research has limited access, depending on the size of a client’s account – how much money he/she has on deposit with the investment company – and/or on the service chosen when opening a brokerage account. Investors might need to pay for a subscription before they can access some investment research. Below is an image of an equity research report from Morgan Stanley.
How Does a Sell-Side Analyst Impact the Market?
When a sell-side analyst releases a rating for a company, the company’s stock price might experience sharp movement, depending on the rating and the popularity of the analyst. An analyst can change its rating from “Buy” to “Sell” and the market might slam the share price in response.
Caution on Sell-Side Analyst Research
Investors need to think twice before taking a sell-side analyst’s recommendation, as the analyst is working for the brokerage, not for the individual investor. When a brokerage is also a market maker for the stock being rated, it might use its analyst to influence the price of shares and ultimately reap the benefits.
The recommendation of a sell-side analyst is also considered general investment advice, not advice specific to an individual investor. Generally speaking, investors should rely more heavily on their personal investment strategy and their own research than on taking a trade based solely on an analyst’s recommendation.
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