Buy Side vs Sell Side: What's the Difference? - YouTube

what's up everyone kenji here and in this video i  thought i'd explain the main differences between  

the buy side and the sell side so if you've ever  recruited for a finance oriented role you've  

probably come across these terms being thrown  around so in this video i thought i'd do my  

best to explain them so i've divided this video  into four main areas firstly we'll look at some  

definitions of both the buy side and the sell side  secondly we'll look at the types of market players  

there are on each side and i'll be providing  specific examples of company names for each  

thirdly we'll look at how they actually make money  and then lastly we'll look over the career options  

on both sides considering things like compensation  the work life balance as well as the skill sets  

required but before we get into it i do want  to say that i'm launching a free monthly email  

newsletter so feel free to sign up for that i'll  leave it in the description if you're interested  

now with that out of the way let's get into a  video at its core the sell side is about well  

selling stuff right they sell all sorts of  securities from stocks to bonds to options  

on behalf of clients and as for who they actually  sell it to well that's to the buy side and in  

the buy side it's basically people that are  looking to invest money on behalf of investors  

and they're typically buying securities and so  the role of somebody in the buy side versus a  

sell side is actually quite different hence  the big split in finance so let's look at an  

example to make it a bit more clear let's say  tesla's looking to create another factory to  

expand into the electric truck market so in order  to make this factory they need money right so  

they'll get in touch with somebody on the sell  side like say an investment to help them raise  

the money and the investment marks might propose  something like selling tesla stocks to raise money  

so the investor monk will then start pitching  to the buy side or the investors on how exciting  

tesla is and why they should invest in it and  let's say the investment monk puts a price tag  

of 100 per tesla share and so the buy side will  hopefully get excited by this opportunity and say  

decide to invest by buying 250 shares in tesla and  so tesla will receive the money from the investors  

in this case 250 shares times 100 dollars so  that'd be 25 000 in exchange for the shares  

and for these services the investment bank will  actually take a commission for helping tesla raise  

the money and as you can probably tell in this  example the buy side and the sell side actually  

depend on each other right if one of them is not  doing well for whatever reason then the other one  

is bound to suffer as well so simply put the buy  side is about managing clients as money so things  

like how to invest the money how to grow the  money or how to mitigate the risk while investing  

while on the other hand in the sell side it's  about raising money for companies or clients in  

this case by selling things like bonds stocks and  other securities at the same time there's another  

service which has to do with advice advising  clients so these might be things like mergers and  

acquisitions so now that we understand what each  site does let's now look into some of the market  

players and i'll be providing specific company  names as well so the big players on the sell side  

are primarily the investment banks there's also  other players like commercial banks or brokers  

but to be honest they don't really refer to  themselves as buy side or sell side as for  

the big names within the investor monks there's  goldman sachs j.p morgan and morgan stanley if  

you want a more extensive list you can easily do a  google search and you'll find many more obviously  

as for the brokers i'd say fidelity as well  as charge schwab are some of the main ones  

and lastly looking at commercial banks say chase  is a big one in the us or barclays could be a  

big one in the uk as well on the buy side though  you do have a lot more players so these include  

asset managers private equity funds hedge  funds venture capital funds and many more  

that i'm not really gonna get into but to give  you some examples some of the big asset managers  

include blackrock fidelity and vanguard as for  private equity firms they include blackstone kkr  

and carline some of the big hedge funds  include bridgewater renaissance and eliot  

while venture capital funds include sequoia  anderson horowitz and founders fund and the  

examples i've provided here are some of the bigger  companies out there there's obviously a lot more  

examples that i could give but that'd be a bit  too long for this video what's quite confusing  

is that investment banks don't just do sell side  they actually also have asset management divisions  

within the investment month so for example jp  morgan has an asset management division goldman  

sachs has an asset management division ubs has an  asset management division some also have private  

equity divisions as well so that just makes  it even more confusing but typically if you're  

talking about the investment banking division that  is regarded as sell side so how they make money  

and as you can imagine this being the finance  industry both the buy side and the sell side have  

the primary goal of making money right for the buy  side there's really two main ways that they make  

money performance fees and management fees when it  comes to performance fees it's basically all about  

buying low and selling high and it is easier said  than done so let's look at an example let's go  

back to a tesla example and we mentioned earlier  that investors ended up buying tesla shares at 250  

and now one year later let's say that those share  prices went up to 350 dollars and they actually  

sold it there so that gives them a hundred dollars  and that's how they've made their money basically  

now that is a very simplified example but overall  they do look for things that are undervalued right  

whether that be a share price whether that be a  startup real estate or anything else so in short  

because their investment performed well they get  a performance fee for that usually that's around  

20 so in this case that's 20 out of the 100 in  gains right where the remaining 80 would then go  

to clients that invested the money in addition to  the performance fee that they get like i mentioned  

earlier they also have a management fee you could  call it a maintenance fee if you will so this is  

for things like paying down salaries the office  rent the technology and other things like that  

and this one they get regardless of whether  they've made money or they've lost money  

on the sell side they make money through fees and  commissions and this really is not that different  

to see me buying apple shares through a broker  and the broker charging me say five dollars for  

that transaction right basically the more  they sell the more money they make so it's  

kind of in their interest to try to sell as  many products as possible and try to reach as  

many clients as possible right that's also why  they're sometimes too aggressive and they get  

caught up in controversial positions like what  might be the 2008 financial crisis right where  

lehman brothers which was a leading investment  bank at the time ended up going bankrupt  

all right let's now look into career options  on both sides now if you're looking for entry  

level roles they're a lot more common on the sell  side so things like investment banking sales and  

trading or equity research could be some examples  of those generally all the major investment monks  

out there will offer these positions for  entry level as well as for internships  

as for the buy side companies typically look for  people with a couple years of experience something  

like two to four years and that experience could  be at a place like an investment a broker or a  

big four for instance so a common path would  be to say do two years in investor monkey  

and then make the switch to a private equity fund  on the buy sign rate that said it is possible to  

get into the buy side straight out of college  so with no experience basically examples of  

companies that do recruit for entry level roles  include blackstone as well as kkr but they are  

quite competitive and they're a lot more rare than  the sell side other options on the buy side that  

might be more feasible than private equity say  include asset management or wealth management  

in terms of work life balance generally speaking  the sell side has longer hours than the buy side  

and that's primarily because they don't really  depend on themselves right you're typically  

working on a deal or a transaction so if the  client wants something ready for tomorrow then  

you gotta have it ready right in other words  there's a lot of things that come up and you  

can't really control on the other hand in the buy  side you're a lot more under control you have a  

set amount of money that you need to invest you  know what kind of returns that you're looking  

for you know what kind of risk levels that you're  looking for so there's no say last minute requests  

in the same way that said if you work at the  private equity fund like blackstone for instance  

odds are you're still gonna be working a lot  more than your typical nine to five jawbreak  

when it comes to compensation they're actually  quite similar maybe the buy side pays slightly  

more but that's primarily because the people in  there are somewhat more experienced than those  

on the sell side but overall if these were  entry-level rolls they would probably both  

be around a hundred thousand dollars and above  including bonuses and then as you move later  

up the ranks into more senior positions usually  especially your bonus has a steep incline as for  

the skills required in your earlier years they're  really quite similar so both need to be very  

analytical both need to be good with powerpoint  and both need to be good with financial modeling  

but later on as you become more senior on the sell  side you need to become more of a good salesman  

once on the other hand on the buy side you need  to become more of a good researcher and financial  

modeler in order to be able to determine the best  investments all right that's all for this video do  

let me know in the comments if you'd like me to  explain some other concept in a future video and  

i also wanted to quickly say a big thank you for  helping me reach 10 000 subs to be honest i didn't  

think you'll grow this quickly so it's really been  quite an exciting journey for me so big thanks for  

that and if you are enjoying these videos do make  sure to hit that like and that subscribe it really  

does help with the youtube algorithm so that's all  for this one and i'll catch you in the next one