This document discusses perspectives from the buy side of investing. It begins by explaining the difference between buy side and sell side professionals, with buy side managers making investment decisions and sell side advising them. It then outlines the three main steps in managing a portfolio: stock selection, portfolio construction, and trading/monitoring. Next, it describes two main equity investing styles - quantitative strategies that use computers and statistics, and fundamental strategies relying on understanding companies. The rest of the document provides more details on quantitative and fundamental stock selection models, portfolio construction considerations, and trading/monitoring activities. It concludes by noting skills useful for a career in investing like the CFA and working with financial data systems.

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Perspectives from the buy side
The art of equity investing

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What is Buy Side vs Sell Side
 Buy side professionals manage money and advise institutional and retail clients
 Fund managers and analysts make decisions on investments and put money to work
 Buy side professionals are paid for fund performance and increasing fund assets under management
 Eg. Fidelity Investments, Vanguard, Pimco
 Sell side professionals work in brokerage houses
 Sell side professionals advise and service their buy side counterparts
 Sell Side professionals get paid through commissions from the buy side for advicing and executing orders for
stocks, bonds etc.
 Eg. Goldman Sachs, Morgan Stanley, CSFB
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Three Steps in Managing a Portfolio / Fund
 Stock Selection
‐ How many stocks in the fund ?
 Portfolio Construction / Risk Management
‐ How much of each stock to buy ?
 Trading and Monitoring the Portfolio
‐ How often to buy and sell ?
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Equity Investing Styles
 Quantitative Investment Strategies
‐ Quants make equity investments as scientific as possible
‐ Reliance on computers and statistics to make investing more precise
‐ Heavy emphasis on risk management
‐ Quant strategies are more scalable
 Fundamental Investment Strategies
‐ Fundamental strategies invlove deep understanding of a company, its industry and the economy
‐ Labor intensive i.e. involves meetings with management, industry experts, building spreadsheet models of
financial statements
‐ Not scalable and more man‐power required per fund i.e. analysts specializing in industry / sectors
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Quant stock selection models
 Use database of financial data going back in time ( several years / decades )
‐ Eg. Compustat, I/B/E/S, Worldscope, CRSP
 Create predictive signals for stock return forecasting using statistical methods
‐ Eg., Earnings Yield, Earnings Growth, Free Cash Flow, Share repurchase, Dividends
 Combine signals to create stock selection model
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Fundamental stock selection
 Identify global trends for stock ideas
 Conduct detailed analysis for
• Management Quality
‐ Track record and integrity of management, setting expectations
• Competitive Position
‐ Monopoly, Oligopoly or heavy competition ?
• Financial Strength
‐ Working Capital Management, Debt load, Free Cash Flow production
• Catalysts
‐ Unlocking value in hidden assets, management change, key acquisitions, share repurchase, dividends
• Improving business fundamentals
‐ New product / product cycle, industry consolidation
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Portfolio Construction
 Stocks have lots of risk
So diversify across
‐ Economic Drivers of Returns
‐ Industries
‐ Position Size
‐ Size
‐ Style
‐ Beta
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Trading / Monitoring
 Trade well = Buy low and Sell High
 Lower commission costs
 Liquidity
 Monitor your holdings
‐ Has your investment thesis played out
‐ Are there better opportunities
‐ Is your portfolios risk out of whack
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Investing – Skills needed for a great career
 CFA prepares you well – Accounting, Financial Statement Analysis, Portfolio Management theory
 Brush up your statistics
 Quants love to work with huge amount of data
 Factset, Bloomberg, SAS, Morningstar
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