Following the thread on beta vs volatility, I mentioned that the question of whether beta is a measure of risk or volatility is a deceptively simple-sounding one, where it is not clear that there is a nice pat answer (because volatility affects beta, and both beta and volatility represent risk, so the answer might just be “yes”.) Sometimes these questions are less about delivering a pat answer and more about making sure the candidate is thinking about a large enough number of issues in trying to answer it, and therefore gives you a sense of whether an analyst uses cookie-cutter thinking or can adapt to new and/or unexpected situations. I thought it would be good to have a thread that brings up other “deceptively simple” interview questions. Another one I remember coming up here (though not in my own interviews), is whether dividends or share buybacks will be better for the stock price. It turns out to depend on many more things than one thinks. Anything else? (You don’t have to answer the questions, though partial analysis would be nice).
“Where do you see yourself in 10 years?” I despise that question - probably never answered it correctly, ever. I’ve tried a few different answers like the cookie cutter response for the given path of the job, alternate paths in attempts to make a point, and variations of “I don’t know”. I’ve never been able to match my response to what the interviewer was looking for. My real answer is I have no idea.
“Why did you apply for this job?” i’ve heard answers including “Beacause I think its the next step in my career,” “I know a guy in the group who told me to,” “To see what’s out there,” “Because the writing’s on the wall in my other group,” “Ummmm (blank stare)” besides product related questions i like to go through the resume with a fine comb and ask simple questions to get the person talking. i really want to find out who the person is.
Interesting question (where in 10 years)… I’ve gotten the 5 year version of this. With 10 years, I think I’d say “Who the heck knows what the world will be like in 10 years. Ten years ago, today, most of the country had never heard of Osama bin Laden. But assuming that the external world is more or less the same, what I would hope for is X, Y, Z.” The legitimate version of this question is to see if the current position would lie on a career path that will take you there, and what other kinds of things would make you jump ship. Also to see if the company’s growth is the sort of thing that can accommodate you. And also to see if you are being the least bit realistic about your career. Added: I guess it also lets an interviewer know if you’ve even thought that far ahead. Obviously it looks better to be a long-term thinker, although in practice, people who just adapt to near-term things often do very well and can rise quickly (see “Who moved my cheese.”) Although I think a lot of people just ask it because they run out of things to say and think it might open up something to talk about.
LPoulin133 Wrote: ------------------------------------------------------- > “Where do you see yourself in 10 years?” > > I despise that question - probably never answered > it correctly, ever. Funny I always think that is one of the easiest. I’d like to gain seniority, move up within the organisation and help take it forward. It’s non-specific. I hate, what are your biggest weaknesses. No good answering good beer and dodgy women. Couple of more technical questions I got asked - What is the approximate WACC of ABB, a large Swiss engineering company? If the Yen / $ rate is 150.85, what is the rate if yen drops 15%? What is the portfolio standard deviation if correlation is zero?
I remember being asked one time if EBIT = Operating Income. I think in Level II the CFAI referred to EBIT as Operating Income. My understanding is that EBIT includes non-operating income/expenses whereas operating income obviously excludes non-operating items. If a Company has no non-operating income or expenses then EBIT = Operating Income.
LPoulin133 Wrote: ------------------------------------------------------- > “Where do you see yourself in 10 years?” > > I despise that question - probably never answered > it correctly, ever. I’ve tried a few different > answers like the cookie cutter response for the > given path of the job, alternate paths in attempts > to make a point, and variations of “I don’t know”. > > > I’ve never been able to match my response to what > the interviewer was looking for. My real answer > is I have no idea. There’s a key line I always use in an interview, and generally something like this is where I would plug it. For starters, everyone should know where they want to be in 5 or 10, not just for interviews, but for keeping themselves on track to actually go somewhere in their career, rather than waiting. If you don’t know where you want to go, you can’t begin to make plans on how to get there. If you’re not getting approval from your answers, you should try thoughtfully making a plan and then answering honestly, rather than just making things up for the interview. Anyhow, back to my interview line. Best saved for near the end of an interview that’s going well. Basically, I just say something along the lines of, “Well, I always think to myself that my own personal criteria in determining if I’m a good fit for the position is to look across the desk, look at the management, and see if they represent who I’d like to become in 5,10, or 20 years. And honestly, not as some sort of flattery, during this interview I’ve been thinking to myself that this is the right environment for me to develop in, that as I’ve been interviewing throughout today, that I’ve seen something in each of the managers I’ve respected and that represents who I’d like to become both personally and professionally…(then list examples)” They key to this chain of statements is that managers generally have enormous egos waaaay out of line with their stature. Each one of them has at many points thought, “what I need to make things smoother around here is a younger version of me doing things, not these incompetent kids…why when I was a kid…etc”. You’re basically telling them you’re a younger version of them. Then there’s the simple fact that everyone likes to think, “Hey, I’m awesome, other people want to be me.” This gives them that too. They picture some idealistic work environment where they sit behind their desk and mentor away, imparting their many kernels of wisdom on an eager, yet respectful younger generation. Lastly, the phrase, “And honestly, not as some sort of flattery” is the key to ensuring they don’t take it as the brown nosing that it is. If you say it, they will believe it, and take you as some openly honest well intentioned interviewee, why? Because they want to. People will nearly always believe what they want to believe and not what is logical. The examples at the end are interviewing 101, you always use examples from interviews with other people from the firm to demonstrate that you’re already fitting in, learning from others, and plant the idea that your other interviews went well, whether they did or not.
Love it, Black Swan That’s awesome!
bchad - I say 10, but have had it phrased in many ways including “the future”, a short/long time frame (it was 5/20 iirc), and within the specific bounds of that company as well. Mudda - Haha, stick with good beer/dodgy women, you answer the question perfectly by showing how a weakness is really a strength.
Muddahudda Wrote: ------------------------------------------------------- > Couple of more technical questions I got asked - > > What is the approximate WACC of ABB, a large Swiss > engineering company? I don’t know what the D/E of a large engineering company is, so I’d guess 50% then take into account that Swiss yields are very low and say 5% > If the Yen / $ rate is 150.85, what is the rate if > yen drops 15%? I’m guessing ~173.35 assuming no calculators involved > What is the portfolio standard deviation if > correlation is zero? The root of the weighted average individual volatilities of the portfolio assets?
Black Swan Wrote: ------------------------------------------------------- > I just say something along the lines > of > > “Well, I always think to myself that my own > personal criteria in determining if I’m a good fit > for the position is to look across the desk, look > at the management, and see if they represent who > I’d like to become in 5,10, or 20 years. And > honestly, not as some sort of flattery, during > this interview I’ve been thinking to myself that > this is the right environment for me to develop > in, that as I’ve been interviewing throughout > today, that I’ve seen something in each of the > managers I’ve respected and that represents who > I’d like to become both personally and > professionally…(then list examples)” > > They key to this chain of statements is that > managers generally have enormous egos waaaay out > of line with their stature. Each one of them has > at many points thought, “what I need to make > things smoother around here is a younger version > of me doing things, not these incompetent > kids…why when I was a kid…etc”. You’re > basically telling them you’re a younger version of > them. Then there’s the simple fact that everyone > likes to think, “Hey, I’m awesome, other people > want to be me.” This gives them that too. They > picture some idealistic work environment where > they sit behind their desk and mentor away, > imparting their many kernels of wisdom on an > eager, yet respectful younger generation. Lastly, > the phrase, “And honestly, not as some sort of > flattery” is the key to ensuring they don’t take > it as the brown nosing that it is. Dude, Machiavelli would be so proud. This is awesome. Seriously love it, this should be stickied. This has been favorited, now added to my mental list of stellar responses to interview questions.
I find generally that sometimes asking a simple question gives people some rope by which to hang themselves. One of my stat teachers once told how he asked an MA in statistics in a job interview about the probability of something you could simply calculate from a binomial distribution and the MA turned it to something very confusing and got the wrong answer. For our most recent hire, since the job involves a lot of writing I was diligent about reading applicants’ writing samples (I’m guessing no one ever really does this) and asking them to explain it. In one case, the work was far above the caliber of the others and I figured out in the interview that he had plagiarized it. I wouldn’t say there was anything deceptive about the questions I was asking, just explain what you mean by X. If there are 50+ candidates and you have to pick one, a random drawing would probably have worked as well as the interview process.
bchadwick Wrote: ------------------------------------------------------- > Following the thread on beta vs volatility, I > mentioned that the question of whether beta is a > measure of risk or volatility is a deceptively > simple-sounding one, where it is not clear that > there is a nice pat answer (because volatility > affects beta, and both beta and volatility > represent risk, so the answer might just be > “yes”.) Sometimes these questions are less about > delivering a pat answer and more about making sure > the candidate is thinking about a large enough > number of issues in trying to answer it, and > therefore gives you a sense of whether an analyst > uses cookie-cutter thinking or can adapt to new > and/or unexpected situations. Pedantically speaking, saying that beta is a measure of volatility is incorrect. While alpha is skill, beta represents willingness to take market risk only. At best, you can say it’s a measure of correlated volatility relative to the market, i.e. beta_i = correlation * sigma_i / sigma_market for some asset i.
Beta is a measure of a component of volatility, but it’s measured as a proportion of the market’s volatility. So it is volatility, it’s just not total volatility, and it’s measured in different units… like measuring your height in cheesburgers vs inches. Even if it’s not as clear how it measures height, I could say that I am approximately 25 cheeseburgers tall, given that the average cheeseburger is about 3 inches thick.
Dude you’re 6’3"?
bchadwick Wrote: ------------------------------------------------------- > Beta is a measure of a component of volatility, > but it’s measured as a proportion of the market’s > volatility. So it is volatility, it’s just not > total volatility, and it’s measured in different > units… like measuring your height in > cheesburgers vs inches. Even if it’s not as clear > how it measures height, I could say that I am > approximately 25 cheeseburgers tall, given that > the average cheeseburger is about 3 inches thick. Volatility has the same unit of measure as the variable whose stdev is being measured. Beta is dimensionless.
BS, I’m not quite 6’3". A little over 6’2", though. So 25 cheeseburgers, but someone couldn’t wait and took a bite out of the last one. Justin88. You are correct, beta is technically dimensionless, but it also can be interpreted as “units of market volatility,” which is what the cheeseburger analogy is about.
bchadwick Wrote: ------------------------------------------------------- > Justin88. You are correct, beta is technically > dimensionless, but it also can be interpreted as > “units of market volatility,” which is what the > cheeseburger analogy is about. This “interpretation” is incorrect because completely ignores the correlation component of beta. Say correlation = 0.5 sigma_i = 2 sigma_market = 1 Beta will be 1 even though it’s 2 cheeseburgers tall.
No, all it means is that the volatility that is attributable to market movements is Beta*Sigma_mkt (well, ok, it’s variance that is attributable to market movements is (Beta*Sigma_mkt)^2 ). I said that it is only a component of volatility, but it is a meaningful component, and beta is a measure of that. It is only a component because of the correlation. In a 1-factor model, SD_Asset = SQRT( (Beta*Sigma_mkt)^2 + Sigma_AllOtherStuff^2 ). In a more-than-one-factor model, it gets stickier because of covariances. You don’t have to use this interpretation, but it’s a perfectly legitimate way to think about it, as long as you understand 1) that it is not capturing the whole picture, and 2) sometimes the part that it does capture is sufficient for whatever you are doing.