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.
