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