A sell side analyst is an equity research analyst who works for an investment bank or brokerage firm and produces investment research which is circulated to the firm’s clients. The investment research is later used by the client to make a decision of whether to buy or sell stock or another financial instrument.
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 instrument will produce commission for 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 accompanied by price target on occasion.
Some investment research has limited access depending on the value of the money and the service chosen when opening a brokerage account. Investors might need to pay for a subscription before they can access the investment research. Below is an image of an equity research report from Morgan Stanley.
When a sell-side analyst release rating for the company, the share of the company might experience sharp movement, depending on the popularity of the analyst. An analyst can change its rating from “Buy” to “Sell” and the market might slam the share price.
Investors need to think twice before taking a sell side analyst recommendation, as the analyst is working for a brokerage, not an individual. When a brokerage is also a market maker, 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. Investors need to weight their strategy before taking a trade based on the analyst’s recommendations.