In Part 2 of Gekko’s Guidance, I’m going to cover S&T interview prep (also can be used for Research). Part 1 of Gekko’s Guidance.

This guide is meant to cover all the “How do I prepare for XXX interview in XX product group”. The simple truth is that 99% of preparation is the same regardless of the position (sales or trading) and regardless of the product group. If you are interviewing for sales, you need to know the same info that a person interviewing for trading does. Sales gets a bad rap on this site, but I have met a lot of sales guys and they need to know the market and the product just as well as the traders do because they are the ones that need to pitch their client and answer the client’s questions. A lot of the sales guys I know were ex-traders who for one reason or another quit trading to go into sales---and they love it, less stress, they know all about the product, and they do just as well as when they were trading.

The difference between these interviews is that they will focus on one area more than the other, but that does not mean you should not have a stock pick ready when going into a fixed income interview. In fact, most fixed income interviews ask economy and equity questions because they think you will know those and don’t think you should know a lot about mortgages or distressed debt.

Warning: This guide is not meant to be a cram sheet. You can’t pop two adderall before the final and think you are set. This guide is meant to be completed over time and to prepare you for the marathon that is the interviewing process.

Section 1—The Fit
Despite the guide’s primary focus on technical questions, the fit part of the interview (anything not talking about markets or brain teasers) will be the longest part of the interview and will carry the most weight. To prepare for the fit part, I would read the WSO Fit interview guide and look hard at your resume for possible questions that could be asked (ie I see you studied abroad in China, what did you think?). Prepare answers and try weave an interesting story rather than “China was really cool. Great experience” Remember Rule #7—Control the Interview

Now some of you might be asking, If fit is so important why bother with technicals? Technicals are there to differentiate candidates. If you have two candidates who are about equal in the fit category, you are going to take the one that either A) has a skill set you want (ie computer science) or B) knows more technicals. Technicals also help show that passion I talked about in Part 1.

Section 2-Technicals
First thing I recommend is that you read and download the Vault Guide to Finance Interviews.
I provided the link, but a quick Google search reveals several other links should this one go down.The guide is excellent in providing a basic understanding of the products and what types of questions you can receive.

Another excellent resource for brain teaser questions is Heard on the Street. The book is basically the bible for brainteaser and math related questions. You might expect 1 or 2 brain teaser questions and maybe some math, but it is not definite. The math would be something like what is 39x39 or simple expected value. While getting the right answer is good, the interviewer really just wants to see your thought process and how you approach a brain teaser. My friends tell me that brain teasers and expected value questions are much more likely at prop shops. All the brain teasers/math questions I got during my BB interviews could have been answered by the Vault guide (it has a small section on brain teasers).

I also think either reading the Market Wizards books or Come Into My Trading Room by Alex Elder would be beneficial for S&T. Market Wizards is candid interviews with top traders, and Elder’s book is one of those “learn how to trade books”, but I really like it. The point of reading either of these books is to give you a better sense of what people look for in a trade and the different ways people trade. These books let you get a feel for what a trader is thinking, rather than the technical knowledge “an call option is….., you calculate delta by………”

Staying up to date with the markets
I personally think that the Financial Times is a better paper, but I will talk about the WSJ because that is what most people have access to. If you only have 30 minutes of free time a day and can only get your information from one source-read the front cover of the WSJ, the front page of The Marketplace section, and the Money and Investing section. The Marketplace section can be used to generate a stock pick or a talk about why a specific event makes an industry look attractive.

Your primary focus should be the money and investing section. Read the front page, Heard of the Street (back page), Moving the Market, and any article on currencies or commodities. The idea is to get a general sense of what is happening in the markets along with investor’s general mindset (aka the driving forces). That way when you tell the interview what is your view of the economy you can provide some examples—I think Energy will be a very big sector with higher commodity prices, demand from China and India, Potash, BHP. Maybe mention a growth number you picked up in your reading about the increase in demand for Iron ore, whatever. The idea is to have a 2-3 investment “themes” and examples of those themes playing out.

Apart from the WSJ/FT, there are plenty of other sources of information to go to and most of them have been listed on this site. I like PIMCO.com for fixed income research, Abnormalreturns.com, and seekingalpha.com

I would say that those sites would keep you up to date with current events and provide plenty of investment ideas to talk about during an interview.

Specific Stock Question
When it comes to the specific stock question, I would have at least 2 choices. You should know the stocks P/E ratio (historically high or low), Sales, Net Income, Operating Margin, products, risks to their business, areas where they are growing, what are their strengths—brand name, international exposure, and things that they have done recently. I always tried to pick a stock and then steer the interview back to the general economy. So I would touch on its P/E ratio and say whether it was cheap or expensive, I would then say areas they were growing, some of their strengths, and how events in the general economy would affect it going forward. This strategy might not work for an equity research interview, but it worked most of the time for general interviews.

Facts & Figures you NEED to know
You should the current levels for all of the below, you should also know what their price movements looked like over the last 6-9 months and , if possible, the market sentiment behind the moves—all of which becomes very easy if you actively follow the markets. You should also note their support and resistance levels and events that could force them out of their ranges.

The S&P 500, The Dow Jones, Oil, Gold, 2 yr UST, 5 yr UST, 10yr UST, 30yr UST, Fed Funds Rate, O/N Libor (What is Libor--and I don't just mean the name?), 3-month Libor, 6 month Libor, USD,GBP,JPY,EUR,AUD,CAD
(I would also know the ball park duration of the 10yr and 30yr and EXACTLY what duration is. I mean saying the alphabet in your sleep kind of know)

I have had interviews where people ask me about the 2yr UST. As I already said, I have had interviews where they ask you to detail the price movements for the last 6 months and then what market factors would cause the a change.

Additional Prep
If you would like to learn more general info about a topic, use Google and investopedia (or Wikipedia)
http://en.wikipedia.org/wiki/Global_macro

Click on the link and scroll to the bottom of the page to see a gold mind of information. Having more general knowledge of different products and trading strategies allows you to ask interviewers more detailed questions about the market they trade, what they do on a daily basis, and how they got to their current position. It also allows you to see what is out there and what catches your interest.

More Technical Stuff
If you were to follow the assigned reading and keep up to date with the markets, you would probably be fine for any S&T interview. Below is a list of more technical books that provide a deeper understanding of a particular product. While they are all good reads, if you have time I would read 1 or 2 of them that interest you so that you can get a better understanding and REALLY impress the interviewer. If you have an interview that is geared towards a particular product, you are not expected to know everything about the product, but I would know some basics. I would know what factors affect the price of the product, risk factors the product faces and how to hedge them, why someone would want to invest in a particular product, what customers the product attracts.

To give an example lets use a MBS. Factors that affect price are interest rate, prepayments, credit if it’s not an agency security. How to hedge those risks—UST or derivatives for IR and Credit risk, Prepay risk ??? (the answer is the dollar roll, or the lock out period if its CMBS, but that is a little too technical). Why someone would want to invest—diversify portfolio, higher yields. Which bond do I want to prepay faster: a bond priced at 95 or a bond priced at 105? Answer is we want the 95 bond to prepay faster so that we can collect the principal at par.

If you happen to land an internship or FT offer in one of these particular product areas, I would buy the mentioned book to keep it at your desk.

Technical Analysis-Japanese Candlestick Charting

Energy -Energy Trading and Investing (A great introduction to all the various energy markets)

equity value Investing- Security Analysis by Benjamin Graham. Also, =Margin of Safety .

General Equity Trading—Come into My Trading Room by Alexander Elder

Options— Options Volatility and Pricing by Natenberg
Exotic Options Trading--I am a big fan of Exotic Options Trading. It was written by a Barcap derivatives trader and explains general options trading in a very simple language. It then goes on to cover various 1st and 2nd generation derivatives, their characteristics, risk profiles, ect. I would also recommend this book if you are starting in FX options because a normal FX options trader deals with digitals, barriers, ect.

Rates-Interest Rate Swaps and Their Derivatives (Recommended by a swaps trader at a BB and assigned to the interns)

FX-Foreign Exchange by Tim Weithers (I have recommended this countless times and I will continue to do so. #1 FX book I have ever read)

Credit—Fabozzi; Distressed Debt Investing; Handbook of Municipal Bonds/

Mortgages—The Handbook of Mortgage Backed Securities

Emerging Markets—An Amazing Thread on EM Trading

In Closing

In this last post I laid out a lot of information and informational tools to help you get ahead in the interview process. I want you to use them, but remember Rule #6 and Rule #10 (Ah, yes, there WERE only 9 rules, but I decided to add another one even though it is sort of implied in a few others.

Rule #10-Always be Honest and Humble
If someone asks you if you know about X, always respond with “I have done some reading so I know a little bit, I know that X and Y about Z. Show the interviewer your knowledge by talking about it—it may lead to more detailed questions, but if you are honest and humble about it those detailed questions that you don’t know won’t hurt you. If you get a question you don’t know, admit you don’t know it, offer some guesses with your reasoning behind them and then politely ask the interviewer what the answer is. Even if you know a great deal about a topic, it’s always safer to play it humble and let your answers reveal your knowledge. If you walk into an interview with a cocky know it all attitude, I guarantee you will get mind fucked with technicals.

Well that’s all folks. As usual, leave any comments or questions below and enjoy your weekend.