Why Buy-Side Research Is Better Than Sell-Side Research

by: SA Product Team

Having worked as a sell-side analyst in the late 90s (I covered tech stocks), I value the reports research analysts write - up to a point. For one, due to regulatory concerns, sell-side analysts have no “skin in the game”. They can’t own the stocks they write about, and that makes a difference. It’s easy to keep recommending a falling stock as a “Buy” when you don’t feel the pain of the losses personally or have to explain them to the portfolio manager you work for. In addition, sell-side analysts are often forced to adopt a “house style” by the banks they work for. That makes their research reports more formulaic, less enjoyable to read, and less creative. And in many cases, SEC rules and compliance concerns crimp the ability of sell-side analysts to publish real-time, pithy research.

When I started Seeking Alpha in 2005, I envisioned a website for high-quality stock analysis, which would provide “buy-side research”. By that, I meant that instead of a sell-side analyst telling you why you should buy or sell a stock -- complete with a rating and price target -- an investor would describe, in their own words and their own style, what had made them decide to buy or sell a stock for their own portfolio. There would be no Buy, Neutral or Sell ratings, because the articles wouldn’t be recommendations – they’d be a description of “why I did what I did”.

Readers could then evaluate for themselves whether the author’s reasoning and decision were convincing. To prevent manipulation, we’d insist that authors sign a compliance agreement and agree to disclose positions in stocks being written about. But we’d welcome articles by investors with “skin in the game”, because their articles would be more convincing, more varied, and more enjoyable. Great stock analysis should be fun to read.

“Buy-side research” became something of a guiding principle for Seeking Alpha.

It is with these principles in mind that we’ve launched three new initiatives on the site, “Investment Views”, “Just One Stock” and “Just One ETF”.

Investment Views

"Investment Views" are actionable investing ideas from our contributors. We’ve categorized all of our articles on the site into two main sections to make it easier for users to find the pure-play investment articles we’re known for. Those articles are now highlighted on every quote and portfolio page with the heading, Investment Views. The rest of our articles, covering news, commentary and less actionable opinion pieces, are grouped together on quote and portfolio pages as "Articles, News & Commentary". For more on the change, see the post by Eli Hoffmann, our VP Content, here.

Just One Stock

In a similar vein, we’ve added a must-read column to the site called, “Just One Stock”. Every few days, we interview a money manager about their top pick among the stocks they own. Every interview opens with the question: “If you could only hold one stock position in your portfolio, what would it be?” The interviews are featured on the homepage and are archived. Since the column launched in November, many of the interviews have generated valuable and heated discussion. Steven Kiel’s description of why he bought Biglari Holdings (NYSE:BH) for his firm Arquitos Capital Management generated 69 comments, some in favor of the stock and some skeptical.

In the interview, Steven said:

Wall Street analysis of Biglari Holdings is virtually nonexistent. Yahoo Finance lists one analyst estimate. There have been a few general articles about Biglari in Forbes, but the best analysis has been in some of the great articles on Seeking Alpha.

That’s what we mean by “buy-side research”.

"Just One Stock" appears on our quote pages and under portfolios in the "Investment Views" section.

Just One ETF

Over the last few years, portfolio performance has been dominated by movements in entire asset classes due to macro factors – the rise and fall of oil prices, the bursting of the housing bubble, the implosion and bailout of the financial sector, and now chronic government budget deficits and the sovereign debt crisis.

"Just One ETF" explores money managers’ thinking about asset classes and macro trends. It’s a regular column in which we interview a money manager about their favorite asset class. But we’re interested in actionable ideas, accessible to all US investors. So every interview opens with: Which single asset class are you most bullish (or bearish) about in the coming year? And what ETF position would you choose to best capture that?

For example, Philip Blancato, President and CEO of Ladenburg Asset Management, described why he’s bullish on the emerging market consumer and the growing middle class within emerging markets, and which ETF he chose to play that trend. You can read his "Just One ETF" interview here.

"Just One ETF" is archived with "Just One Stock", and appears on our quote pages and under portfolios in the "Investment Views" section.

With the launch of “Just One Stock” and “Just One ETF”, and the grouping of actionable investment articles in the “Investment Views” section on quote pages and under portfolios, we hope we’ve made Seeking Alpha even more valuable for our readers.

- David Jackson

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