Buyside But Don't Invest

Is it me or do you run into a lot of ppl that try to get on the buyside but don’t personally invest their money? I am not sure if you actually need “personal” experience with investing, but if you haven’t spent the time investing your own/other people’s money, how good of an investor can you really be and why would someone hire you to be a research analyst?

I don’t invest my money in individual stocks now, but that’s because our board of directors have rules in place for our funds that severely restrict what managers and analysts can buy - I think we’re limited to stocks from the S&P 500, and need pre-clearance for all trades. There’s probably also limits on using margin or leveraged products, too, though I haven’t checked because I generally don’t use them. When I was in prior positions, Frank, I did invest my money. Only stopped because it’s part and parcel of current employment gig.

Perhaps it’s because some people don’t have any money to invest?

Yep, know people who have worked at some of the famous buyside firms, (places like Carlyle/GS etc) and many of them admit to not knowing much about picking individual stocks. Even the ones that do analyze individual securities seem to get nervous when it comes to their money. Paralysis by analysis.

Well, if you don’t have much money to invest to begin with, you’re faced with a dilemma: show that you don’t have experience investing your own money, or show that you are terrible at managing risk because any reasonable trade would blow out your ability to take risk. If you just do analysis or asset gathering or compliance, I don’t see the absolute need to have investing experience. However, if you are going to be pulling the trigger (as opposed to executing other peoples’ trades) it’s important to either have done it, or worked very closely with someone who has instructed you well.

I think it’s a challenge for a few reasons: 1) if you mess up, you look bad – obviously, this can go both ways, but some people are risk averse 2) you probably won’t have time to diversify properly – how are you going to work 60 to 80 hours a week and manage a 30 stock portfolio as well? it can be done, but it’s usually pretty time consuming. 3) there may be restrictions around what you can participate in. 4) in a sense it presents a conflict because you may be reluctant to change your recommendation if you are personally invested, knowing that your fund might move out of the stock in some volume (you are usually not allowed to trade ahead of the fund). 5) most people don’t know what they’re doing anyway and probably only admit that deep down.

You talking people who want to get into the industry or those in the industry?

It’s different running a billion dollar portfolio and a 50k portfolio.

yuoska Wrote: ------------------------------------------------------- > It’s different running a billion dollar portfolio > and a 50k portfolio. Exactly. If you’re on the buyside, perhaps you should actively manage your own funds on principle. But from an actual financial perspective, it’s unlikely to be worthwhile. Say your goal is to beat the S&P by 1% per year. If you have (as yuoska suggested above) a $50k portfolio, then you could potentially earnyourself an extra $500 per year. How many hours of your time are you willing to spend doing original research in order to make an extra $500? Probably not enough hours to actually meet your beat-the-index-by-1% goal. Of course, most folks working in finance will have several times more than 50k to invest. But still, the incremental payoff that they will recieve by actively managing even a few million dollars is unlikely to be worth the effort.

bromion Wrote: ------------------------------------------------------- > I think it’s a challenge for a few reasons: > > 5) most people don’t know what they’re doing > anyway and probably only admit that deep down. This.

If you look in the disclaimer of SA articles, there are indeed few people who invests following their analysis…I always found it strange to read an article in which the writer is clearly convinced of the potential of some stocks but does not own it himself…

Anyone looking to get into the industry should be managing their own portfolio (even if it’s only 1k). I was specifically asked this in every interview I ever had (I’m specifically talking about junior level investment analysis positions). Once you’re actually in the industry, it’s a different story due to time constraints, conflicts of interest, etc. I usually just put a chunk of my money in the fund I have the most direct impact on at work, that way I am sort of managing my own money in a way, or at least have a beneficial interest in making good investment decisions at work.

Yeah, I might change my view on it. You can’t do active management with 1k or 2k without being kind of irresponsible about risk management, but you can practice asset allocation and rebalancing, which are key practices. And it helps to look at your allocations as you try to develop views.

Most people I know don’t because: 1) They already invest in the funds the manage or for which they supply analysis. 2) Investing in stocks in addition to the above investments and their 401k would overly correlate their financial capital with their human capital. 3) Compliance is a bitch.

I’m actually referring to ppl not in the industry. If you’re already in the industry, you should problably eat your own cooking. But I come upon many ppl that are attempting to go on the buyside because they want to manage money. When I ask, “so what are your views on the market and what have you been investing in?”, they normally say, “i’m not invested at the moment”. Then I am thinking, how can you be serious about investing if you don’t even invest yourself? Ppl who are passionate about investing are going to do it no matter what. We don’t require a title or a job to do this. Yes it does take time, but you don’t need 80 hours per week. You spend 80 hours because that is the best use of your time. 30 stocks? why do you need to own 30 stocks? I own about 8 and that is plenty in my view. I would own less if i was better.

Having experience trading your personal account is not a prerequisite to getting hired to a buyside job. You need relevant _work_ experience from a prior job and a solid education background. Or you can be Michael Burry and publish your investment ideas for all to see. If you’re good, you will eventually get noticed.

You could do 8 as well depending on your investment style. Having followed the market for some time, I feel that there is a lot of insider trading and random elements that influence short-term pricing, so I tend to prefer making a lot of smaller bets on a long-term basis than a few large bets. But that fits with my investment style of rapidly looking at several hundred companies a year focusing on 2-3 year time frames (the market is really only good at discounting about 6-12 months out), trying to find very specific patterns. At any rate, 8 could still be time consuming if you are not allowed to invest in companies you are following on behalf of the firm – to source 8 good bets on the weekends, and then follow those stocks continuously could be a real time sink.

there is definitely no right or wrong so long as you’re making money. I just can’t find 30 great ideas. 3 a year is a max problably for me, but in these conditions, it gets much easier.

What are your thoughts about putting personal account performance on your resume? I had a section in college for “Leadership Experience” where I was an analyst for my university’s endowment fund in the Basic Materials industry, but that information is getting outdated and I’ve been actively managing my own portfolio for the past year (only $10,000 now but up 35% this year). Some people say it’s hokey to put that on your resume but it seems like it would be applicable for these types of positions?

Just make sure you have an attribution report that is GIPS compliant. :wink: