The following is my first Wall Street write-up and the initial inspiration behind the DopeyCowboy.com. This is where I pull back the curtain on the elite upper echelon of businessmen who make up the intricate world of finance, trading and investing to reveal a world that’s nothing more than monkey business.
Let’s take a closer look for a better understanding…
The sell-side analysts research the stocks, analyze management teams, follow market trends, and they form investment opinions that they share with their research sales department. These research sales people then distribute these ideas to select money management firms in exchange for payment
And here’s the way it really works:
Analysts:
We’ll start by taking a look at your typical sell-side analyst. All analysts are required to have tremendous ego’s and must always be right, even when piss wrong. One thing analysts excel at is being able to repackage/regurgitate what most competing analysts have already said. Analysts traditionally get grossly overpaid which allows for plenty of time off and lots of…”lunches”.
One of the first things a good analyst learns is to make sure they are completely and totally shipwrecked
After management reminds the analyst that they haven’t published anything in a while, they take their strongest idea, the one they feel they have the biggest edge and communicate those thoughts to the institutional “sales force”.
Sales Force:
The sales force is made up of a crafty, usually Ivy league, bunch of fun loving parasites that make their living by selling the analyst’s research to clients. The institutional sales person is closest in comparison to the analyst in that they too are grossly overpaid and they too get more time off than the average volunteer fireman. If you were to ask them, I’m sure they would tell you they’re the hardest working people in the firm. You don’t have to take a very hard look to see that what we have here are just glorified financial secretaries.
The ability to read, email, access to the firm’s research data base, a smoking hot assistant, the corporate card, the corporate card, and the corporate card are all of the essential tools needed to be a successful research sales person.
Let’s take a peek at the day and life of an average research sales person:
7am:
8am:
8:15am: Send out blast phone call messages containing a brief summary of the meeting. Also, send out a blanket email to the same
8:30am Breakfast and second cup of coffee with coworker sales people to discuss “business strategies”.
10:30am Return to the desk, check for messages from clients that may have research questions. If there are questions, then re-email them the same info you sent them earlier. Wait 10 minutes, if they still have questions then simply get your analyst on the phone and conference them in with the client. Remind the client how much you go “over and above for them” by providing this access.
11:15am Walk over to trading and ask some sales traders why numbers are so low with some of your accounts
12:00pm Lunch at five-star steakhouse with “clients”
2:30pm
2:45pm Inform your porn-star assistant that you’ll be in a meeting for the rest of the day and that you’ll be reachable on your Blackberry. Head off to golf course
Now, let’s jump over to the clients side of the fence to get a handle what it’s like on the buy side.
Portfolio Manager:
This is obviously one of the most high-pressure jobs in the complex web of institutional investing. These are the guys who call the shots…What to buy… when to sell… blah blah blah. At the end of the day it’s their ass on the line and performance is everything.
Equally important as stock selection and market timing is the remarkable ability that all PM’s and buy-side analysts have is to go out of their way to not understand market structure or trading at all. This is ironic, considering trading has such an integral role in their world. They make it a distinct point to not understand the way stocks trade, what it takes to actually buy stock, they at times have total disregard for supply and demand or how the total trading volume is an irrefutable factor. This is actually a highly developed skill that they like to flaunt often. They have zero interest on the topic and actually become hostile and plug their ears if one of their traders should try and educate them on the subject.
Much like the sell-side analysts like to model their recommendations after what all their competitors are doing, the modern day PM likes to model his entire portfolio after all the major indexes. Why risk using your own ideas when you can proudly show how you’ve been able to match the S&P 500 for the past 10 years running?
Hedge fund managers are a whole different can of beans. Money buys information, controls the press, and creates alpha for their portfolios. Of course, many of them are mere gun-slingers, looking for a lotto win, ramping up their leverage to 10-15x and destined to fail. However, overall, these guys seem to be the only ones utilizing their own brain power , shunning the indices, and making the most of the markets inefficiencies overall.
Once the traditional PM’s and analysts have decided which indexes they would like to mirror, they then break things down into specific stocks and off go the orders to the buy-side trader.
Buy-Side Trader:
The buy-side trader is typically sour. The buy-side trader is usually dumped on with reckless abandon by his clueless PM’s and is underpaid relative to the rest of Wall Street.
In the perfect world, this trader would take a good look around, figure out which broker-dealers have added the most value either by supplying his firm with research, insight, or trading ability. And that’s how he would begin to dish out his orders and pay a commission for those services.
The perfect world is long gone. Today’s buy-side trader now has a complete arsenal of electronic trading tools at his disposal. In fact, this guy has over fifty different ways of moving stock (but probably only knows how to use ten), without ever picking up the phone and talking to a broker.
Buy-siders, despite thier “high almighty” disposition, are however, consistent when it comes to their trading style. They utilize those electronic platforms just mentioned until they suck every last ounce of liquidity out of the stock. Next, like a sniper assassin would peer through the scope of his rifle, they begin to search Autex.
It’s no longer about who should get paid. It’s all about who’s willing to take the bullet. And if that trader can’t completely blow the broker out of the water with the first shot, they then pride themselves in making the rest of that lucky broker dealer’s day absolutely miserable. Since shit rolls down hill, your typical buy-side trader only knows how to talk down to his sell-side counterpart, always making it clear that he is the client. Buy-side traders are truly remarkable in that, much like a wife – they are never wrong.
Sales Trader:
Unlike research sales, sales traders are very seldom Ivy league. In fact, the sales trader’s closest relative would be the used car salesman. A good sales trader normally has ADD and can expect his first heart attack by age 40.
Sales trading days are numbered. Technology is moving through like a tornado through a trailer park and is tearing through Wall Street traders much like the conveyer belt and robotics decimated the assembly line workers back in the early 1900’s.
The reality is, all traders, buy-side and sell-side alike, are nearing extinction. The sell-side continues to introduce new electronic trading platforms at increasingly lower rates and the buy-side is gleefully gobbling it up. Why does the sell-side continue trip over themselves with these technologies at increasingly discounted rates? The institutional equity world is no longer a trader’s world. It’s a programmer’s world.
The only choice these people have is to hold on to their seats and ride them into the ground. Let’s face it, if any of the traders that I know ended up looking for work, the only thing they might qualify for is checking tire pressure at Meineke or suctioning a Domino’s Pizza sign to the tops of their BMW’s and Mercedes – that is, until their lease runs out…
-Dopey
