WH's Interview Stock Pitch Checklist
This was originally posted on 10/26/12
For many positions, the stock pitch is the biggest part of the interview. It gives the interviewee the opportunity to explain his or her thought process and the way they evaluate an investment opportunity. It can separate the fakers from the legitimate candidates. In many cases it can be the difference between being asked back and being sent home.
But there's no class you can take that teaches you to properly pitch a stock. And there's plenty of people on this forum who are better resources than I am, and hopefully they'll chime in, but I've pitched the same 5 companies dozens of times and seeing the pitches that succeed and the ones that fail, I'd like to share my experience as to how you should go about pitching a stock in an interview.
Getting right to it, here's my checklist of things you should be sure to include when pitching a stock in an interview.
1. Industry Overview
Rather than starting with the company itself, outline the industry it is apart of and begin making your case for why it's an attractive place to be investing. Consider the following questions: What makes this industry economically viable? What makes the barriers to entry high enough to keep competition from destroying these economics? What is pricing power like and why do consumers accept it? For the consultant-types among you, think Porter's Five Forces. But I hate those.
2. Company-Specific Overview
Now explain where the company you're pitching fits in with the overall industry. Is it a market-leader, does it dominate a specific niche within the sector, or what makes it attractive compared to its competition? We'll get to valuation later, but if the reason you're pitching this company rather than another is simply that it's underpriced relative to competitors, be sure to highlight why your company is no different than the others in the industry then. Know the major profitability metrics for the business compared to competitors, such as gross and operating margins, EPS growth, and anything specifically relevant to the industry.
3. Where the Market Is Wrong
It wouldn't be a great opportunity unless the market was missing something, so this is where you want to point out why the security might be underpriced, what the catalyst(s) will be that changes this, and why you think that catalyst will happen. There's no specific information I can give you here since I think this is what separates a good analyst from a great analyst... just having the "edge" (I hate that word) to see right away that there's questions to be asked and possibly something Wall Street isn't seeing. Normally it's going to be something like the market not understanding a specific growth opportunity, an expense-related advantage, or a one-off event that people perceive as a fundamental shift in the business.
4. Valuation
This one's tough since you don't have 6 hours to explain every facet of a model or something ridiculous like that. What's important to know is the multiples for your company, the industry, and why there is a difference or why there should be a difference. This will usually relate to whatever it is the street is missing. Be sure to know the basics of your company's capital structure and what valuation metrics are important. This is a good opportunity to demonstrate that you're not retarded and know when to use EV/EBITDA over P/E or something else. Also important is some notion of a price target post-catalyst, and some estimation of what you think would happen to the stock price if the catalyst worked against you. This gives the interviewer a chance to see that you understand what risk/reward is. Bravo!
And remember, don't spend too much time on any one part of your stock pitch. The pitch shouldn't take much more than 5-10 minutes and leave plenty of time for the interviewer to start up a conversation and ask some questions. Being succinct is as important as being right.
Comments
Great post! Is there a
Great post! Is there a particular sector you like to focus on?
Nice post WH. +1 Number 3
Nice post WH. +1
Number 3 seems to be the hardest part, figuring out why it is worth it. Where the risk advantage lies.
Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."
Nice post WH +1. I am
Nice post WH +1.
I am interested to know how you go about choosing the actual stock you pitch in the interview.
Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?
Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?
Simple As...: Nice post WH
Nice post WH +1.
I am interested to know how you go about choosing the actual stock you pitch in the interview.
Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?
Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?
Somewhere inbetween. Never pitch AAPL or something so ubiquitously known and unoriginal that the guy's going to think you came up with the pitch in the hallway, but don't pitch an obscure 100M market cap Chinese gaming company that has no revenue and is completely unknown to any normal investor. I like pitching mid-caps in some form of industrial or service type industry, usually something the guy will know and yes, if it's a sector job then you want to probably have something within the sector. Be careful not to go overboard though because you could be walking into a death trap if you pitch something that is the firm's #1 holding and you start stretching facts or something. You want the analyst to know the stock but probably not to know it like the back of his hand. And if he does, that's a good thing if you do too, but if you don't I'd be careful.
Reality denied comes back to haunt
See my WSO Blog
WhiteHat: Simple
Nice post WH +1.
I am interested to know how you go about choosing the actual stock you pitch in the interview.
Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?
Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?
Somewhere inbetween. Never pitch AAPL or something so ubiquitously known and unoriginal that the guy's going to think you came up with the pitch in the hallway, but don't pitch an obscure 100M market cap Chinese gaming company that has no revenue and is completely unknown to any normal investor. I like pitching mid-caps in some form of industrial or service type industry, usually something the guy will know and yes, if it's a sector job then you want to probably have something within the sector. Be careful not to go overboard though because you could be walking into a death trap if you pitch something that is the firm's #1 holding and you start stretching facts or something. You want the analyst to know the stock but probably not to know it like the back of his hand. And if he does, that's a good thing if you do too, but if you don't I'd be careful.
Thanks. Great thoughts.
You don't include
You don't include options/hedging strategy? Where I work they often ask for a market neutral position.
Good post. I also think
Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy
I tell you, we are here on Earth to fart around, and don't let anybody tell you different.
Kurt Vonnegut
CaR: Good post. I also think
Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy
Absolutely. I totally forgot to mention this and had planned to put it in the valuation part but totally forgot, so thanks for mentioning this.
Know the CEO, maybe the CFO, and if you're really good also know the head of IR if it's a company the firm owns or the analyst is intimately familiar with. Pay special attention to things like management's focus on shareholders and what their typical cash management strategy is. Do they reinvest earnings at a reasonable rate of return, or do they return cash to the shareholders? Do they do it by buybacks or dividends? What's the ROE and the ROIC look like?
By the way, unrelated to this post but if an interviewer asks you the "if you could have just one piece of information about a company to tell if it's a good business or not, what would it be?" ...the answer is Return on Invested Capital. Your welcome.
Reality denied comes back to haunt
See my WSO Blog
nice, i like this
nice, i like this
Check out my Blog
Good one WH. +1
Good one WH. +1
If you ain't gettin money dat mean you done somethin wrong.
" If you have built castles in the
air , your work need not be lost;
that is where they should be .
Now put the foundations under
them." - Henry David Thoreau
WhiteHat: CaR: Good post.
Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy
Absolutely. I totally forgot to mention this and had planned to put it in the valuation part but totally forgot, so thanks for mentioning this.
Know the CEO, maybe the CFO, and if you're really good also know the head of IR if it's a company the firm owns or the analyst is intimately familiar with. Pay special attention to things like management's focus on shareholders and what their typical cash management strategy is. Do they reinvest earnings at a reasonable rate of return, or do they return cash to the shareholders? Do they do it by buybacks or dividends? What's the ROE and the ROIC look like?
By the way, unrelated to this post but if an interviewer asks you the "if you could have just one piece of information about a company to tell if it's a good business or not, what would it be?" ...the answer is Return on Invested Capital. Your welcome.
Thats well explained man.
If you ain't gettin money dat mean you done somethin wrong.
" If you have built castles in the
air , your work need not be lost;
that is where they should be .
Now put the foundations under
them." - Henry David Thoreau
Nice post and very
Nice post and very informative. Thanks for sharing.
I haven't posted hardly at
I haven't posted hardly at all, but this is a great post and very informative. Just wanted to say thanks!
Isn't 5-10 mins a bit too
Isn't 5-10 mins a bit too long? I've always heard to keep it sub 3 mins.
But +1 on the post nonetheless.
Just a sophomore looking for an opportunity to start up this dream of mine.
this was very useful. thanks
this was very useful. thanks