How Many Stock Pitches Should You Prepare for Interviews?

The quick answer is at least four.  If you plan to interview with a mutual fund then prepare at least four longs.  If you are interviewing with a long/short hedge fund be prepared to go over at least three longs and one short.  If you are interviewing with a sector focused hedge fund, try to gear your pitches to stocks that the fund employees will be familiar with. 

At a minimum, you should expect to go over at least two stock ideas when you interview with a portfolio manager.  Coming in with just two stock pitches is not a good idea because the interviewing portfolio manager may not know one of your stocks and ask to hear another idea.  PMs tend to want their analysts to eat, breathe and sleep stocks, so the last thing you want to say is "I don’t have another one".  There is a good chance the PM will think you don't want the job badly enough and just write you off.

Related posts:

Tips for Preparing a Stock Recommendation

Stand Out by Going the Extra Mile

Know Your Audience’s Investment Time Frame

Know the 3 Key “What Counts” Factors for Your Stock Picks

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Stock Market Words of Wisdom (V)

"Individuals who cannot master their emotions are ill-suited to profit from the investment process."

Benjamin Graham

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Do Not Assume You Will Get a Bonus Every Year

Generally speaking, a hedge fund equity analyst’s bonus is paid out of the returns generated by the overall portfolio.  If, in aggregate, the portfolio doesn’t make money in a given year there will be no bonus pool.  It will not matter how great your individual stock picks were if the bonus pool is zero (or negative).  Therefore, since you can never assume your bonus is a sure thing, do not live beyond the means your salary and savings can support.  Following this guideline will help you avoid a great deal of stress somewhere down the line.

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.

Stock Market Words of Wisdom (IV)

“When all the experts and forecasts agree, something else is going to happen”  

Bob Farrell

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Should You Use GAAP or Non-GAAP EPS Estimates?

While all U.S. companies report GAAP earnings results, that does not mean those are the estimates that buy side (hedge fund/mutual fund) analysts tend to follow for a given stock.  For some companies the analysts focus on "adjusted" EPS or a version of Non-GAAP.  Unfortunately, you often cannot tell which EPS number is most important to investors by looking at a sell side analyst note.  The research firms have their own policies for what numbers they use in their research reports and this may or may not follow the numbers that investors focus on.  Company press releases are often not helpful on this point either.

How do you figure out which numbers you should use in your stock pitch?  A simple way to figure this out is to look at the consensus EPS estimates in First Call.  Look at last quarter's reported (actual) EPS results and see whether the number in First Call corresponds with the reported GAAP or Non-GAAP/Adjusted EPS and you will have your answer.

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.

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Stock Market Words of Wisdom (III)

"Wide diversification is only required when investors do not understand what they are doing."
Warren Buffett

You can put all of your eggs in one basket

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Dress for Success...Even for Hedge Fund Interviews

When you are interviewing you should play it safe and wear conservative business attire. While this likely goes without saying if you are interviewing with a more formal/established money manager like a mutual fund, it can sometimes be confusing with hedge funds.  

Admittedly, some hedge funds can be very casual.  Nonetheless, your default assumption when interviewing, whether on-campus or at the firm's office, should be to dress for success at all times.   If a firm tells you ahead of time that you do not have to dress up then that is a different story.  The bottom line is that I can think of no student that was ever dinged for wearing conservative business attire in an interview.  I can think of a few who raised some serious eyebrows by taking a nonchalant approach to attire. 

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.


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Don’t Live in the Past

Stay on top of the stocks you are pitching in interviews.  Be sure to update your research write ups and models to reflect earnings results, M&A announcements, et cetera.  The last thing you want to happen in an interview is to base your pitch on out of date assumptions and have this be pointed out by the portfolio manager during your interview.  

Related posts:
Tips for Preparing a Stock Recommendation

Stand Out by Going the Extra Mile

Know Your Audience’s Investment Time Frame

Know the 3 Key “What Counts” Factors for Your Stock Picks

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.


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Stock Market Words of Wisdom (II)

"Markets can remain irrational longer than you can remain solvent."

John Maynard Keynes

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Learn How to Build Financial Models

A fundamental equity analyst is expected to be able to build and maintain financial models for the stocks they cover.  Therefore, you should create at least an income statement model on companies that you will be pitching in your interviews.  If you need examples of how the street lays out a model then look at sell side research notes from Credit Suisse or Morgan Stanley.  I choose those two firms as references because:     

1. Credit Suisse and Morgan Stanley tend to put models in most of the notes they publish so examples are relatively easy to find 
2. I find their models tend to be more complete/detailed than those of other firms

Make sure your models isolate the applicable what counts factors for the stocks in question. Also be sure your models allow flexibility to easily change key variables so you can do scenario testing without having to overhaul the model’s construction.

Related posts:
Tips for Preparing a Stock Recommendation

Stand Out by Going the Extra Mile

Know Your Audience’s Investment Time Frame

Know the 3 Key “What Counts” Factors for Your Stock Picks

Don’t Live in the Past

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.

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Stock Market Words of Wisdom (I)

"It's not whether you are right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

George Soros

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Know the 3 Key “What Counts” Factors for Your Stock Picks

When you create your stock pitch, be sure to identify and analyze the "what counts" factors for your stock. What counts factors are the variables that are the key drivers for making the stock work the way you expect. At a high level, these factors tend to be:

• Revenue
• Gross Margin
• Operating Margin

For example, if the stock you are pitching is a high flying growth story, concentrate on revenue growth rate. Should your recommendation hinge on an improvement in product mix then zero in on gross margin expansion. A cost restructuring story? Examine operating margin. If the stock is a roll-up, focus on revenue retention and operating margins.

Other factors may be important for a given stock story (such as ASPs, same store sales, etc).  However, to generalize, changes in revenue, gross margin and operating margin are often the hot button items that affect earnings and multiples.

For more thoughts on stock pitches, see:  Tips for Preparing a Stock Recommendation

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.

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Do Not Let Your Tweets or Posts Create a Bad Impression

Don’t be naïve…you should assume potential employers will check out your activity on social media sites like Twitter and Facebook.  Far before you collect your first paycheck, any well established mutual fund or hedge fund will have hired someone to do a background check on you. Social media can provide a wealth of information for these investigators.  Therefore, make sure that what you put out there for public viewing would not cause an employer to have second thoughts about offering you a job.  Do not allow your public posts to cause a firm to question your character or judgment.

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How to Talk About Being a Team Player in Interviews

Many firms want to hire team players.  They generally want employees that can work together, that will do what is best for the firm over what is best for the individual, et cetera.  What you the candidate need to understand is that while firms want team players, they want their team to be made up of high achieving individuals.  This gets back to a previous post where I encourage you to make sure your resume clearly tells a potential employer what you accomplished when you were given an opportunity to perform.

In some interviews you will probably talk about the accomplishments of a team that you were on.  When you have that discussion, do not fall into the trap of talking only in terms of what your team (or club or organization) accomplished.  When a team achieves something, it can be difficult to know who made things happen and who was merely along for the ride.  The potential employer is trying to decide whether to hire you, not everyone on your team.

Make it clear that you have worked successfully on a team.  But don’t forget to also make clear what you delivered to help your team accomplish its goals.

Related post: Resume/Curriculum Vitae – Show You Have Made a Difference

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Know Your Audience’s Investment Time Frame

My colleague Nick Caputo contributes this tip:  When interviewing, try to determine the investment orientation of the firm you are meeting with.  Some asset managers are trying to figure out where a stock will be three years from now while others are focused on where the stock price will close at the end of the week.  Pitching a value stock to a short term manager will not do you much good.  Likewise, recommending a stock that has multiple short term catalysts is not likely to score many points with the long term manager.  Be sure to adjust your stock pitch to your audience.

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For more thoughts on stock pitches, see: 

Tips for Preparing a Stock Recommendation

Stand Out by Going the Extra Mile

Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation.

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The 30 Second Elevator Speech

When you initially pitch a stock to a portfolio manager, it is often conveyed verbally. Portfolio Managers are generally very busy so it is important that you learn how to pitch a stock in a short amount of time. Therefore, I suggest that aspiring analysts develop the skill of giving their stock pitches in a 30 second "elevator speech".  In those 30 seconds you should be able to communicate the two or three important bullet points that are key to understanding why a stock should be bought or sold. For example:

"I think you should buy Intel for the following three reasons: First..."

 

These bullet points generally do not cover the entire story, but they convey the key driving points of the idea. You should not expect the portfolio manager will be sold on your idea in those 30 seconds, but if the points are convincing it will start a conversation that could cause the PM to take action.

If you cannot convey a compelling pitch in that length of time, then revisit your thesis to make sure you are focused on the key drivers for the idea. If your bullet points are good but you are struggling with the delivery, just keep practicing. It will come to you.

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Stand Out by Going the Extra Mile

You are competing against many smart and talented candidates when you pursue an equity analyst job. It is wise to assume your competition has access to the same sell side research and off the shelf data sets that you will use as the basis for your stock pitch. In order to get additional insights that can differentiate your pitch, show initiative by going beyond these common resources. To the degree practical, consider doing some of the following:

Wade through the company 10K and/or 10Q
Read a recent earnings conference call transcript
Review industry publications, web sites and blogs
Search the company’s web site to see if they post investor presentations
Get an informational interview with an investor relations contact at the company

Stock picking is not just about gaining access to fundamental data.  However, the insights you glean from your analysis of the fundamentals is very important.  Going the extra mile can get you a richer set of data and allow you to put this information in context.  This should enable you to come up with distinctive insights and recommendations that will help you stand out from the crowd.

For more thoughts on stock pitches, see:  Tips for Preparing a Stock Recommendation

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Copyright © 2012 Kingdom Ridge Capital, LLC. All Rights Reserved. Not a Public Solicitation


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