Does the buy side usually model financials quarterly?

On the buy side, whether to model financials quarterly depends on the fund’s strategy. Long-term value strategies focus on forecasting multi-year cash flows rather than earnings over the next few quarters. The Baupost Group is a prime example of a long-term focused value investor. On the other end, funds with a 6-9 month time horizon focus on predicting quarterly forecasts. These are typically long/short hedge funds, and Citadel and Point72 are well-known examples.

There’s an advantage of predicting quarters on the buy-side over the sell-side. On the buy side, you’d have access to multiple sell-side analysts and their models. You can gauge which sell-side assumptions are too optimistic or what drivers they are missing. As a sell-side analyst, you have access to the overall consensus estimates but won’t have frequent direct conversations with your competitors on what their assumptions are. As an analyst at a long/short fund focused on quarterly earnings, a big part of the analysis is understanding what the sell-side assumptions are and how you differ from them.

Author Kelvin Jiang, CFA

Kelvin Jiang has a decade of investment experience in public equities, private equity, distressed debt, and leveraged finance. His journey spans across Calamos Investments, Thornburg Investment Management, CHS Capital, and J.P. Morgan. Throughout his career, Kelvin has screened and interviewed candidates extensively for the buy side. Kelvin earned an M.B.A. from the Kellogg School of Management and graduated magna cum laude from Columbia University. He is a CFA Charterholder. In his spare time, Kelvin is an avid commentator on NBA trade rumors and Oscar-worthy performances.

More posts by Kelvin Jiang, CFA

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