Recommend Pass for MM HF Case Study
I'm working on a weekend case study for MM HF and I think that a name is fairly valued and not a compelling opportunity long or short. Consensus is already higher than guidance and I do have positive variants on a couple key drivers, which I think is the most likely outcome. However, the downside has more room if I am wrong. Plus, given that consensus is already higher than guidance, if management is right (means both street and I are wrong), the stock moves lower.
A short would have a better risk/reward framework (still not compelling) but I believe the most likely outcome is up despite less room to go. Do I have to make a long/short decision or can I suggest a pass with different entry points? Is something like long until x upside is reached, then flip to a short reasonable?
I personally wouldn't have an issue with it if that's what you came to me with so long as you clearly outline what you think fair entry points for the trade are.
Based on the most helpful WSO content, it's crucial to approach your MM HF case study with a clear strategy that aligns with the fund's risk and reward expectations. Here are some insights and recommendations:
Pass Recommendation: It's entirely acceptable to recommend a pass if the risk/reward isn't compelling enough. Hedge funds value the ability to discern not just good investments, but also when to avoid potential pitfalls. Clearly articulate why the current valuation doesn't present a clear opportunity and the risks involved outweigh the potential gains.
Conditional Strategy: Proposing a conditional strategy, such as going long until a certain upside is reached and then reassessing for a potential short, can be a sophisticated approach. However, it requires a clear definition of the triggers for flipping the position. You must provide a robust analysis of what those triggers are (e.g., specific price points, earnings outcomes, market shifts) and why they are chosen.
Risk/Reward Analysis: Enhance your case by deeply analyzing the risk/reward scenario. Since you mentioned that a short position might have a better risk/reward framework, detail the specific conditions under which this would be true. Include potential market or internal company events that could shift the stock's trajectory.
Market and Management Expectations: Since the consensus is already higher than the guidance, it's important to evaluate the credibility of management's forecasts versus market expectations. Discuss how often the management has met or exceeded their guidance in the past, and use this to bolster your argument for or against the current consensus.
Entry and Exit Points: If suggesting a trading strategy, specify clear entry and exit points based on technical levels or changes in fundamental views. This shows not only strategic thinking but also practical application of your analysis.
Documentation and Presentation: Ensure your findings and strategies are well-documented. Use charts, graphs, and tables to visually represent data and forecasts. This will make your case study more persuasive and easier to understand for your audience.
By focusing on these elements, you can construct a well-rounded and strategic recommendation for your MM HF case study, whether it's a pass, a conditional long/short strategy, or another innovative approach.
Sources: Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, Is MM PE a smarter move than MF, LO to MM HF?, MM to SM is it possible, Should I make the move to a multi-manager platform?
They are not looking for a good idea. They are looking for a good pitch.
Pick the side that has the best thesis points and talk about the mitigants that could impact your thesis.
Never pitch a hold, even if it will often happens if you get the job.
Sounds like a good short
P72? I applied for HK office and just submitted my case study.
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