Buy-siders: how to build credibility and track record as an analyst?

Water Cooler Investing
#1

Hi All,

As a post-MBA analyst at a long/short equity fund, I’m interested in hearing thoughts from anyone here that has worked on the buy-side about how they built credibility and a track record, not only within the firm but also in a way where others outside their firm could recognize their talent. I understand that most firms won’t give you a portable track record, in which case if you are looking to interview elsewhere in the future, how can you “prove” to somebody that you’re good? I know there are various ways to keep track of your ideas (i.e. posting it on some blog or site such as SeekingAlpha or SumZero), but what about situations where you told your portfolio manager NOT to take a position in something and simply doing nothing was really the best course of action?

Also, for any of you that have hired experienced analysts in the past, how do you determine who you want to hire other than the quality of the ideas they’re pitching you? Will you have known the candidate you’re interviewing over an extended period of time? Will you have checked with their references or other people in the industry that may know them? How would you expect the potential analyst candidate to substantiate the quality of their calls?

I’m happy with my role and the resources that have been afforded to me in my current role. Like many of you, I’m trying to figure out how I can get up the responsibility/knowledge curve as fast as possible, and ultimately get compensated accordingly (fully realizing that sometimes people have to look outside their immediate firm in order to get paid). I’m also trying to get smart about how experienced hiring works on the buy-side for roles that are below the portfolio manager level. It’s because I have always planned my career with a vision for where I want to be 12-24 months out, so I’d appreciate any perspectives from experienced people here. I’m also reachable at numi.advisory@gmail.com if anyone wants to communicate with me, provide any personalized advice, talk stocks, whatever. Thanks.

#2

The part that I quoted made me curious because it makes me ask…why are you restricting yourself to roles “below PM”? Do you not feel qualified to manage an investment team and take a lead role?Would another 1-2 years in your current arrangement get there? Would you be confortable managing a portfolio of a certain size/ strategy? My question to you is, what is the step from being a senior analyst to PM? Does that only happen in house or is it possible that you-someone can leverage their experience and make that jump at another firm.

#3

As you get more senior in your career, I think that 12-24 months becomes somewhat unrealistic as a time frame for making a career move. Rather, goals should be based around performance and should be short term. What are some things you can do to perhaps improve your performance. What is an area of research you have been meaning to get to but, for one reason or another, have not “found the time”? Where can you seek out alternative points of view? Whose points of view to you respect and when is the last time you spoke with that person?

In almost all front office positions, once you are a decade or so in it makes less sense to plan major career shifts every 24 months. Building a real, good brand and performance track record requires years, not months. Think about it interms of IB: you want to progress from associate to VP pretty quickly. It will take longer to make it to Director or MD (with long gaps between the two), but that is your goal. On the buy side, many shops are not as rigid with titles. Generally speaking, if the strategy has had good performance and can point to good recommendations you have made to support that performance then you will be paid. Otherwise, you need to look elsewhere. If you are early in your buy side career, then honestly the first year the PM is probably trying to figure out whether he can trust your opinion. Once s/he can trust your opinion and start implementing your recommendations then that is the first milestone.

#4

dvictr – thanks for your thoughts. I’m “limiting” myself to sub-PM roles because I haven’t been in the hedge fund industry long enough to manage a whole portfolio. I know that I have a lot to ramp up on as an equity analyst, even though I have been a top performer at every role I’ve had in the past so naturally want to do whatever I can to be the best at my current role. Before business school I worked in bulge-bracket sell-side research for several years and spent a couple years in private equity/leveraged buyouts. During business school, I did an MBA internship at a hedge fund and now working at one full time.

So, I don’t need to be trained on mechanical things like valuation and modeling and I have a lot of freedom in evaluating ideas (well-deserved in my opinion), and am starting to develop confidence with my PM in actually generating my own ideas for the book. However, I also know that I don’t have any formal experience in portfolio management other than investing in my own PA. Also there’s no way I would become a PM at this firm in the foreseeable future since we have a lean team, but presumably as an analyst perhaps I could get some basis points on the P&L or have compensation linked more directly to my calls. But as I’ve been here for less than a year, I’m still pretty new. What area of the business are you in, and do you have any further advice based on where I currently am in my career?

brain_wash_your_face – thanks for your perspectives. To give you more clarity on my role, I am an analyst at a hedge fund covering a specific sector. I just joined several months ago out of business school, with prior experiences in ER and PE/LBO. I had multiple other offers to consider during the summer. I know that the hedge fund business is all about performance, but I don’t feel I have clarity on how my bonus will be decided and already know that I am working for a lower base than what I could have been paid elsewhere. I took this particular offer based on the PM’s past performance and overall positive work dynamics, and overall things have been very satisfactory except for transparency about compensation. I know I am new to the firm but my performance so far has been good, both in terms of general feedback on my work quality as well as the performance of my specific stock calls.

So therefore, my key questions are:

(1) How do I know what is considered “fair” as far as bonuses / slice of P&L are?

(2) What steps can I take to proactively manage my compensation / career progression at the firm, since right now I sort of feel like I’m leaving a lot to blind faith?

(3) And finally, if I wanted to look elsewhere, would citing compensation as a reason for exploring the job market be sufficient?

When I said earlier that I was looking at a 12-24 month horizon, it’s because I didn’t want to be short-sighted. But I also know that in the hedge fund space, historically it hasn’t been that rare for people to move from fund to fund, so maybe my horizon could be shorter? Curious to know what you meant when you said “goals should be based around performance and should be short term,” if it entailed anything beyond regular introspection and self-improvement at the workplace. At the end of the day, I see the hedge fund space as a very different environment than ER or PE where my compensation levels were pretty structured and I knew relatively speaking what I could be making. In contrast, I know hedge fund compensation could be more variable, so just want to get more of a sense as to how I can manage expectations about my compensation, and ultimately what I can do to make myself the best analyst I can be (you already provided some good tips above).

If you don’t mind corresponding through e-mail, I’d be happy to provide more specific details. I have valued your feedback on this forum, so I would actually be very grateful to communicate off-line if that’s possible. I’m at numi.advisory@gmail.com.

#5

Ambitious, indeed you are, master Numi.

#6

Ambitious, no doubt.

I will try to answer your original questions i.e. building profiles. It is normally done through 1. presenting in industry conferences, 2. word of mouth e.g. clients and/or consultants and 3. your colleagues. All of them sounds fairly obvious to me.

I would like to add that I believe track record portability can be negotiated. Generally, track record is applicable to PMs not so much to analysts.

#7

Bchadwick - haha! Thanks buddy. Yuoska - thanks for the thoughts. What industry conferences are you referring to where buy side analysts present their ideas? Also what do you mean when you say clients and consultants? My only “clients” are the investors in the fund and it seems unlikely that they would want to endorse my departure from a fund they’ve invested in.

#8

Credibility as an analyst is earned by the amount of useful knowledgeable people and web info you can access in order to get the whole picture on any commodity.

Never Before Seen Option Techniques with little risk.

#9

^ huh?

#10

Looks like tradingdave has some videos that he wants AFers to sign up for.

tradingdave, if you’re just here to sell your product, we’re going to have to ask you to stop spamming us or be banned.

If you are going to contribute meaningful insights to the conversations here and avoid the hard sell, you are welcome to stay. We have advertisers who pay, and we also have members who sell services but still contribute meaningfully (i.e. more than platitudes) to the discussions. But non-paying advertisers and unhelpful advertising-spam (defined as a post history that is primarily about getting members to a site or service) is not welcome here.

#11

If you are at the stage where you are making PM and need to worry about raising money, then you need a track record.

If you are concerned with your employability as an analyst, then worry less about having a documented track record and worry more about picking good stocks. Call me arrogant but good analysts are rare both on the buy & sell-side. If you are good, an intelligent PM will be able to recognize your talent just by talking with you, becaue you will have an actionable idea to pitch, backed up with a solid thesis, detailed knowledge of the company in question, and be able to explain what everyone else in the market has missed. Sure, if your past ideas generated an IRR of 30%, that looks great on paper, but a well-articulated new idea is many times more valuable.

The reason PM needs a track record is because you are trying to raise money from people that don’t know how investing works, and a track record of past return is the easiet thing they can understand.

my 2 cents

#12

Zuran, this is fantastic advice. Thanks for it. From your perspective, what are some key elements that make for a good pitch in your view? Also, as an analyst, how can I verify that I pitched idea about company ABC on date 1/2/13, and our fund took a position of $XX and made %YY? I get what you’re saying about how potential employers care about how you deliver your pitch, but if they care about results too I’m interested in knowing how as an analyst I can prove my results.

Also, not sure if you have any interest in keeping in touch off-line but I would be happy to do so - feel free to drop me a note at numi.advisory@gmail.com if so. Thanks again.

#13

No problem this is a great thread as I’m in the same position as you are - an analyst looking to advance his career. I enjoyed reading everyone’s view on the topic so far.

To be honest I don’t know any way to verify to others that the fund took a position on your recommendation and generated good return - the only way seems to be reference from your boss. I think most of the time people just take your word for it, and to me, that’s not the most interesting part of the interview. At my shop it’s a fairly close-knitted place so I get to participate in interviewing potential analysts, and from my experience the “tell me about your past pick” question doesn’t generate interesting response because you already know the perosn has the benefit of hindsight. My favorite question is actually “tell me about your worst pick”, being able to explain past mistakes means one has learned from it, and it also shows intellectual honesty.

I’m still trying to master the art of the pitch, but I think one important element is to be able to explain why the market is wrong. Is there another angle to look at the stock that the market has missed? Is the market too overfocus on one underperforming aspect of the company and missing the big picture? Is this a time arbitrage where the market is looking 6 months out when the 5 year picture looks much brighter? Explain why the market hate the stock and why it is senseless.

Thanks for the invite to keep in touch, I’ll send you an email.

#14

Yeah, the “why is the market is wrong?” question is a tricky one. How to answer it?

At some level, the market is neither right, nor wrong, it just is. Traders often have a saying that the market is always right, which I think is mostly a saying they say so that they can implement their risk control strategies of “cutting losses while they are small.”

On the other hand, from an investor’s point of view, if you are ever going to invest in an individual stock (as opposed to an index), it’s absolutely necessary to believe that there is something about the way the stock is trading now that is “wrong” when you look at the long term distribution. What are the ways you field that quesiton?

Too much momentum investing?

Underrealized asset on the balance sheet?

Synergies that the public is not considering (or synergies that are overestimated by the public)?

Shenaningans?

Others?

#15

Your track record is in your comp which is based on your “stock picks.” If you made a million dollar bonus last year you have a good track record.

#16

^ Good point. On average, how much of the management fees/incentive fees does the PM keep before paying the staff? Also, your point is valid except for instances where PM’s underpay the analysts, which I understand does happen and hope it doesn’t happen to me, but you never know.

#17

Well I’m not going to pretend to be a high flying analyst raking in millions, but I got to think that the market is pretty efficient and therefore I can’t see PMs under paying good analyst for long as they’ll get picked up somewhere else just like an undervalued company.

#18

You think the labor market is efficient?

Transparent pay? Transparent ability? Transparent supply and demand? Wages sticky downward? Transaction costs in hiring and firing.

There seems little to suggest that the labor market should be efficient. Certainly not nearly as efficient as the securities market (if for transaction costs alone).

It is laughable if employers think that there’s alpha to be had (which would imply enough inefficiencies in securities markets), but that the labor market, by contrast, would be priced efficiently.

#19

Numi - there are many industry conferences where analysts/PMs present. You have ones arranged by CFA local society (admittedly, not that useful) to ones organised by cap intros where only big names are invited. Similarly, there are conferences organised by major research houses/IBs where analysts discuss their sectors and/or stock ideas. Last but not least, there are third-party event organisers.

In terms of clients/consultants, you’re correct to think that they won’t endorse your departure. However, there are several occasions where PMs asked my opinion on some names. In all honesty, I do not treat analyst departures as key events so I’m quite comfortably to give my view.

Without changing the topic of the thread, I’ll refrain myself from contributing my favourite interview questions…

#20

Numi - is your fund structured to accomodate side pockets?