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6 Tips If You're Starting Out At A Hedge Fund Or Private Equity Firm

Chimp_and_jeez   

6 Tips If You're Starting Out At A Hedge Fund Or Private Equity Firm
Finance5 min read

Analyst Bank Stock Ecchange Trader

Chris McGrath / Getty

In the past few years, more buyside companies are hiring analysts straight out of college, or without 2 full years of ibanking experience.

If you are in one of these positions, the 6 tips below might be able to help you. My own experience is more in public markets, so it might not apply as well to people who are in private market/venture capital.

1. Be slow but steady in forming your view.

Granted, if you are in an investment role, then you are hired to have a view. However, one of the very common mistakes I've seen around me (and in myself as well) is when very junior analysts try to come up with a very comprehensive view FAST.

I don't mean that you shouldn't try to do you work fast--everyone loves a junior who can do their model/analysis/what have you as fast as they can manage. However, it is not a good idea to try to force a fast speed on forming your view. In most investment instruments, you need a certain amount of experience and "investment maturity" to know the big picture questions (where is the US economy going, how will asset allocation flow look like next year, what's the most likely scenario next year), how the market is going to react to certain information, and which driver in your thesis is the more important one.

To know a company/bond well is easier to manage than any of the above; thus, if you have one year of experience following your coverage closely, you should be able to do that. However, to have an investment view is more complex, and it requires the more experience-based knowledge mentioned above.

I've often seen junior analysts forcing themselves to reach a very comprehensive view when they are not ready to answer any of the above. This is actually a bad thing for their own investment analysis because they are jamming many pieces puzzle into one piece; often, they don't have enough experience and time to reflect on what their implicit assumptions are, and it makes them slower to realize what are the mistakes that they can make in their analysis.

Part of this is due to culture, most teams will want you to have a view. However, I think most teams are also understanding enough if you are less experienced--they won't force you to come up with the whole picture (I mean, that's what your seniors are for). A good way to mitigate this for someone who has just started is to parse out your views for different scenarios. Instead of thinking to yourself:" I think interest rates will go up and therefore my real estate company will suffer because of higher borrowing cost", try: "In the case interest rates go up, my company might experience this; in the case interest rates don't go up because Fed changed its mind on tapering, my company might experience that, etc etc.". Always parse out your own assumptions at the beginning--you don't have enough experience to have a good handle on macro views yet, therefore, make sure you know which part of your analysis rest on certain macro/market-based assumptions you made.

Which leads to the 2nd point ...

2. As a thought experiment, train yourself to think about macro

For most investors, the macroeconomic environment plays an important role in their investment analysis. At the places that I've seen or heard of, these decisions are made by the senior members of the team, which makes sense--not because seniority makes you smarter, but rather that those people have seen more of a "history" of the market, and their thinking can benefit from that knowledge more than yours can. However, if you want to progress in this line of work, you need to think about the big picture, in addition to the specific coverage that you work on. You shouldn't expect your macro views to be taken up by your team yet, but it's always a good practice for yourself. Think about: US data, European data, manufacturing survey data, commodity prices--what are the drivers of money flow in this world, and how does that affect your coverage? Try to think about the data instead of the ready-made analysis on these data that you get from sell-side emails, this will help you form a stronger impression of what's happening.

3. Track your activity/time spent at work

If you are a junior, chances are there are things you do at work that you can do more efficiently. Most people in investment roles don't try to waste time--after all, it's competitive enough without having ourselves as one of our enemies. However, you'd be surprised at how much improvement you can make. One thing that might help you is to track your activity at work, and see how much time you spend on each task. Are you spending a lot of time reading? Most of us have to do that, but can you do it more efficiently? Can you try to read the first line and last line of each paragraph and see if you can still come away with the crucial information? Can you make notes as you read to increase the ratio of things you remember? It's often difficult to keep track of everything when things get hectic, but I do recommend doing this (especially for people who are just starting) to see what kind of work-place habits you can work on to help yourself.

4. Don't be afraid of chaos

On average, buyside jobs are more stable than sellside jobs. Most people stay for a few years, and internal promotions to real money-management roles (PM) are common. However, if you happen to end up at a place with a high turn-over ratio, then don't worry too much about it either. For one, if you are junior, you can always transition to somewhere else with a better cultural fit for you after you learn the preliminary skills. And two, a high turn-over rate means that you get more people to observe and learn from. Much of investing is about how a person thinks, and the more senior people you can observe in the early stage of your career, the better. It generally takes about 6 months for analysts to understand their senior's style; some of them might fit you better than others, but it is always good to have the extra knowledge.

The only time when chaos is bad is when a person's own thinking is chaotic. If you are working for someone whose own thought process is chaotic, then be careful! You want to make sure that you are open-minded about their process, but at the same time, it's important to form good thinking habits when you are young, and a chaotic thought process might not be good for generating persistent returns.

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