Wanna Jump Straight to the Buy Side?
Most of my friends are going into banking. Not because pitch books and road shows are their thing, of course, but it opens a lot of doors. 100 hour work weeks, camaraderie in the form of all-nighters editing PowerPoint slides and sharing Seamless meals, and having no skin in the game never really sounded appealing to me, but I guess to each his own, right? Needless to say, it turns out I'm not the only one who's not overly excited about the idea of working on the sell-side, and this includes my friends lucky enough to get return offers or full-time gigs at their respective banks/research houses. But as most of them will tell me, "starting on the sell side is the quickest route to the buy side, and I'll be a hedge fund rockstar in just two years!"
Wait a second... wouldn't the quickest route to the buy side be... starting on the buy side? Or was I missing something?
Fortunately, I wasn't. And if you're sure you want to be investing for a living, going straight to the buy side is the best career move you can make. With recruiting all but over, I'm happy to be starting my career with the job title "Research Analyst" and doing something I'm actually interested in doing.
Anyone interested in making a career out of investing should be trying to make this jump. The argument that banking or sell-side research makes you a better investment analyst is bullshit. Being an investment analyst makes you a better investment analyst. But if you're planning on interviewing for the buy-side right away, there's a few things you need to be prepared for. I'll try to highlight a few of those below.
1. Have two stocks to pitch. And know everything there is to know about them.
If this sounds hard, you're not actually as interested in investing as you thought you were. If it sounds fun, keep reading. You should be able to explain exactly what these companies do in very simple terms (if they don't already know them), be able to paint the picture of why the market is divided on the stock, identify the catalysts in the short and long term that make this a great business that will eventually realize its intrinsic value, and provide some intelligent thoughts on valuation and why the stock is worth investing in today. I'd stress illustrating the long-term growth profile of the company over anything else, and make sure you highlight what the drivers are of that growth. Analysts want to know that you look at all aspects of a company, so mentioning management, industry economics, and company-specific competitive advantages are all essential. On valuation, you don't have to be an absolute wizard but you should know the typical industry multiples, show where the company is undervalued relative to competitors, and have some insights into how the company manages its cash flows and if there is a shareholder-friendly focus coming from management.
Obviously having one stock to pitch is always important, but I strongly recommend two. In a standard superday you'll most likely be talking to several analysts individually, and pitching them all on the same thing isn't a bad thing, but knowing just one business is something anyone can do. If you mix it up, it's that much better. You're likely not going to be asked for more than two ideas in any interview, so knowing three or four is probably not as beneficial as the jump from one to two.
2. Have a reasonable (and legitimate) explanation for why you're passionate about investing.
A lot of the decision-making around who to hire coming straight out of undergrad seems to come simply from who actually wants it the most. Often, the simple "walk me through your resume" question gets substituted in buy-side interviews for a slightly different question, "tell me why you're here.", The answer isn't too different since either way you're trying to lay out a narrative, but if you can't point specifically to your experiences in the past (both on and off your resume) that show why you're a good fit for an investment firm right away, it's probably not going to work out. This is where having personal investing experience comes in handy, as you can usually point to that (but be ready to talk about your investments, see #1), or being part of some investing group may be just as good if it's not bullshit. Either way, you need to come across as someone who's completely okay with sitting at a desk doing directed research and crushing 10-Ks for a year or two, so conveying a strong interest is actually important.
3. Be prepared to take lower compensation at first. Trust me, it's justified by better hours and over-justified by a much higher ceiling as quickly as a few years out.
Even if you think you're better than Warren Buffet, you're in your early 20s and haven't proven yourself to anyone yet, so don't expect any more than you'd be getting had you worked on the sell side. In fact, it may suck but you should probably expect less. Some of my offers were pretty bare. Even among respected firms 70k base with 10k signing and 10-15% bonuses for the first year are pretty standard. And for someone just starting out, that's going to be plenty. Most places will pay less, some places may pay more, but it's not about your first year's pay. What's more important is what your ceiling looks like and how quickly you are going to gain experience and hopefully move up the ladder to a position with more responsibility. Though it's easier to make 150k in 1-2 years in banking, it's easier to make 400k (or way, way more) in 4-5 years at an asset manager or hedge fund.
4. Location is irrelevant.
Unless you can't handle early mornings in San Francisco (I know I couldn't), geography can't be a big deal to you, since many of the best places to work on the buy side aren't even in New York. For a while I was convinced that if you work in finance and you're not in New York, you must be a failure. I'm starting to think it's the other way around. I don't have much to add aside from that, but if you really want to jump straight into an investment research role, you can't be dead-set on a certain city.
Any other monkeys taking this path? Thinking about it? Advise against it? As always, I'd love to hear. But so far, I'm not having any regrets...
I personally know of some
I personally know of some people who chose very good sell side offers over decent buy side ones because they wanted to to end up at an "elite" (subjective) PE/HF that didn't necessarily recruit undergrads or, if they did, took like 2 analysts from H or W. With PE and even HF recruitment becoming more structured, I would say an argument could be made for starting in the sell side. Curious to hear your opinions though.
Very informative post. You
Very informative post. You mentioned having two stock pitches and a reason you want to be in investing, but what else do you need to know for research when preparing to interview?
Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."
WhiteHat: 1. Have two stocks
1. Have two stocks to pitch. And know everything there is to know about them.
If this sounds hard, you're not actually as interested in investing as you thought you were. If it sounds fun, keep reading. You should be able to explain exactly what these companies do in very simple terms (if they don't already know them), be able to paint the picture of why the market is divided on the stock, identify the catalysts in the short and long term that make this a great business that will eventually realize its intrinsic value, and provide some intelligent thoughts on valuation and why the stock is worth investing in today. I'd stress illustrating the long-term growth profile of the company over anything else, and make sure you highlight what the drivers are of that growth. Analysts want to know that you look at all aspects of a company, so mentioning management, industry economics, and company-specific competitive advantages are all essential. On valuation, you don't have to be an absolute wizard but you should know the typical industry multiples, show where the company is undervalued relative to competitors, and have some insights into how the company manages its cash flows and if there is a shareholder-friendly focus coming from management.
Obviously having one stock to pitch is always important, but I strongly recommend two. In a standard superday you'll most likely be talking to several analysts individually, and pitching them all on the same thing isn't a bad thing, but knowing just one business is something anyone can do. If you mix it up, it's that much better. You're likely not going to be asked for more than two ideas in any interview, so knowing three or four is probably not as beneficial as the jump from one to two.
This times a billion. So many people "want" to work on the buyside at a hedge fund but don't really want to, if you catch my drift. If you're thinking about hedge funds and aren't already doing this to some degree, you probably don't really want to work for a hedge fund.
Nothing wrong with that, btw. Not ever job is for everybody.
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Thanks for the informative
Thanks for the informative post.
I'm a junior in college interested in getting into the buyside after graduation. As a novice, I've been having some difficulty finding stocks worth pitching. Many companies look hot and have a lot of things going for them, but that stuff is usually already reflected in the stock price. Or some other companies are relatively cheap but may have problems that make them value traps.
I read in another HF thread on WSO that analysts in value hedge funds may come up with only a few good ideas in a whole year, and that with them spending a decent chunk of their workday doing research. Unfortunately at college I don't have the time to spend all day doing research and reading 10-ks and company histories of a ton of companies.
What was your strategy when you were an undergrad for formulating stock pitches?
TheKing: WhiteHat: 1. Have
1. Have two stocks to pitch. And know everything there is to know about them.
If this sounds hard, you're not actually as interested in investing as you thought you were. If it sounds fun, keep reading. You should be able to explain exactly what these companies do in very simple terms (if they don't already know them), be able to paint the picture of why the market is divided on the stock, identify the catalysts in the short and long term that make this a great business that will eventually realize its intrinsic value, and provide some intelligent thoughts on valuation and why the stock is worth investing in today. I'd stress illustrating the long-term growth profile of the company over anything else, and make sure you highlight what the drivers are of that growth. Analysts want to know that you look at all aspects of a company, so mentioning management, industry economics, and company-specific competitive advantages are all essential. On valuation, you don't have to be an absolute wizard but you should know the typical industry multiples, show where the company is undervalued relative to competitors, and have some insights into how the company manages its cash flows and if there is a shareholder-friendly focus coming from management.
Obviously having one stock to pitch is always important, but I strongly recommend two. In a standard superday you'll most likely be talking to several analysts individually, and pitching them all on the same thing isn't a bad thing, but knowing just one business is something anyone can do. If you mix it up, it's that much better. You're likely not going to be asked for more than two ideas in any interview, so knowing three or four is probably not as beneficial as the jump from one to two.
This times a billion. So many people "want" to work on the buyside at a hedge fund but don't really want to, if you catch my drift. If you're thinking about hedge funds and aren't already doing this to some degree, you probably don't really want to work for a hedge fund.
Nothing wrong with that, btw. Not ever job is for everybody.
agree with everything said white and king, making the same jump myself and would echo all of your points.
And so it goes
That is definitely true
That is definitely true cauchymonkey but bear in mind you just need to sound somewhat knowledgable in an interview whereas we need to pick winners or lose our job. You are correct that just because a company has a low P/E, EV/EBITDA, w/e metric you use doesn't make it a good value pick. If you have screening tools those can be a good place to start so at least you can get pointed in the right direction (try net debt <1 EBITDA, <6x EV/EBITDA, etc. to get you started). From there you start to look bottom up, start looking at the companies that you see and use your gut to guide you. Some will be an obvious pass within five minutes but some you may spend hours on before deciding it just isn't up to snuff (this happens all the time and is the reason for the few big ideas a year comment). No one is going to go out and buy on your pitch alone but the most important thing for you to do in an interview is to demonstrate an understanding of what holds/creates value in a stock, a basic understanding of valuation, and some more qualitative reasons for buying. Oh, and I almost forgot PASSION FOR INVESTING/MARKETS!! That alone can get you the job out of undergrad....I would say the toughest part is just finding the opportunities that are even open to you with no work experience.
cauchymonkey: Thanks for the
Thanks for the informative post.
I'm a junior in college interested in getting into the buyside after graduation. As a novice, I've been having some difficulty finding stocks worth pitching. Many companies look hot and have a lot of things going for them, but that stuff is usually already reflected in the stock price. Or some other companies are relatively cheap but may have problems that make them value traps.
I read in another HF thread on WSO that analysts in value hedge funds may come up with only a few good ideas in a whole year, and that with them spending a decent chunk of their workday doing research. Unfortunately at college I don't have the time to spend all day doing research and reading 10-ks and company histories of a ton of companies.
What was your strategy when you were an undergrad for formulating stock pitches?
Ditto. Unless the point is not necessarilty to show the employer the best stocks, but to show them you're passionate? That might make sense..
been there done that
been there done that
WhiteHat: 4. Location is
4. Location is irrelevant.
Unless you can't handle early mornings in San Francisco (I know I couldn't), geography can't be a big deal to you, since many of the best places to work on the buy side aren't even in New York. For a while I was convinced that if you work in finance and you're not in New York, you must be a failure. I'm starting to think it's the other way around.
Don't agree with this. Sure not all good buy side roles are in New York, but they're also not in Wyoming. Also moving to a different role within the same city you're in is definitely easier than trying to relocate to a different city further down the line.
And I think it's gonna be a long, long, time
This is a pretty good post,
This is a pretty good post, +1 for you sir.
#1 I don't agree with however. You don't need to know everything about the stock, you just need to know why others are wrong and the current price is not an accurate reflection of future performance, and then identify the (hopefully large) delta between fair value and current. It is far, far better to have a crisp, well reasoned thesis than to have a rambling dissertation about a name (I know you weren't saying to have a dissertation). It's kind of disappointing to interview someone from HBS / GSB / Wharton and get a 50 page slide deck on a stock only to realize they don't actually have any clue how the company works or why it would be a good investment. Like, at what point during your rambling 50 page presentation should you have realized that you have no idea what you're talking about?
It's also a question of return on time. If I can cover five names in the time it takes you to cover one, I'm going to win over time if I can hone in on the key points consistently (which I can).
Something approximating 90% of the people on the buy side have no idea what they are doing (true story). It took me a while to come around to that fact, but having met with over 200 management teams, read through countless conference calls with retards asking retarded questions, and having interviewed with many firms, I know that's a true statement.
#2 This is unnecessary. It doesn't matter what your reason is as long as you're good and can make money for the firm. "Why do you want to be an investor?" is a retarded interview crutch question for retarded interviewers who don't know what to ask. It's a red flag if anyone asks you that. Real interviewers only need to ask 3 to 5 questions depending on the candidate (each of which may have follow up questions).
#3 I agree with this completely, but you have to realize that this is beyond the scope of the vast majority of the people entering this business. I spent 4 years working directly for a PM with a top 3 track record among long / short funds over the last 15 years. Tell me how that's worse than working for some moron running a billion dollar fund where I would have made twice as much in the short run.
#4 This is true. But West Coast hours are terrible.
In addition to my post above,
In addition to my post above, I also want to echo the comp statements. It may seem odd that the hallowed buyside is coming in below your BB banking offer but do NOT let that influence your decision at all. It is just silly and not to mention, lifestyle on the buyside is far better than for any bankers I know.
Ravenous: Thanks for the
Ravenous: Thanks for the informative comment. When you say that 90% of the buyside don't know what they are doing, what is it that they are generally doing wrong?
In addition, a lot of stuff I've read about pitches points to the importance of knowing why others are wrong, and knowing what is your "edge" on the street.
How do I know what "others" are thinking? For example, I might look at a stock X and see various sell-side analysts holding different ratings. Suppose I think that their overall consensus is wrong. However, how do I know whether people have actually bought/sold the stock according to this consensus opinion. From what I've gathered reading these forums, it seems typical for buyside firms to completely disregard sell-side research.
So what's the best way to get a hold of the consensus opinion that is being acted on, the consensus opinion that presumably is being priced into the stock?
Cheese: Thanks for the reply. Are there free database tools that I can use or do I need to pay for them?
If you want to hit a growing
If you want to hit a growing AM city...... Welcome to Minneapolis, Minnesota!
Generally would have to pay
Generally would have to pay for the robust ones (Bloomberg, CapIQ, Factset) but I would imagine there are basic free tools out there...
Do not quote consensus/sell-side research in a buyside interview. You are correct that it is not very important to buyside analysts what the buy/sell rec or PT are.
cauchymonkey: Ravenous:
Ravenous: Thanks for the informative comment. When you say that 90% of the buyside don't know what they are doing, what is it that they are generally doing wrong?
In addition, a lot of stuff I've read about pitches points to the importance of knowing why others are wrong, and knowing what is your "edge" on the street.
How do I know what "others" are thinking? For example, I might look at a stock X and see various sell-side analysts holding different ratings. Suppose I think that their overall consensus is wrong. However, how do I know whether people have actually bought/sold the stock according to this consensus opinion. From what I've gathered reading these forums, it seems typical for buyside firms to completely disregard sell-side research.
So what's the best way to get a hold of the consensus opinion that is being acted on, the consensus opinion that presumably is being priced into the stock?
Cheese: Thanks for the reply. Are there free database tools that I can use or do I need to pay for them?
I don't want to disrespect WhiteHat by thread jacking, but I also realize other readers might be interested in my response. I'll keep this short as a compromise and you or others can follow up with me off the thread if you want to go into more detail.
I should clarify my comment since the buy side is a big place and you have technical traders, swing traders, quant traders, and a bunch of other stuff going on. I should have said "90% of fundamental investors."
There are all kinds of ways to get into trouble:
- Don't understand capitalism and associated principles
- Bad timing
- Fall for "stories" from management
- Artificial institutional constraints (e.g., no stocks below $5.00)
- Quarterly mandate that forces short-term decision making
- Don't recognize value and/or catalysts
- Like to buy stocks that are way up because that's comforting
- Think you're a value investor because you buy stocks at low multiples (NO!)
- Think that because something bad hasn't happened yet, it never will (so predictable)
The list goes on and on and there are many iterations. You need to find the intersection of value, good business, and timing. It might be 1 in 10 or 1 in 20 stocks within a set of criteria that is seriously mispriced. The rest is noise.
What others are thinking:
- Consensus
- Guidance
- Valuation
- Misperception about the business (this happens all the time)
- Industry reports
- Conferences
- Reading research on SumZero or Vic (much of which is bad!)
It depends on how "busy" the stock is. If it's a stock that has had a large price move in either direction in the last 12 months or less and is of a large cap size (>$500 million), there will be some general consensus in the stock, written or unwritten. If it is much smaller and has done nothing for years, there may not be anyone looking at the stock in detail. I always like it when I ask management when was the last time they spoke with an investor and they have to think about it for a while.
Edit: But I am a small and microcap investor, so that makes sense for me. My sweet spot is $250 - 500mm but I'll go lower or higher than that. I rarely spend much time on stocks above a billion because those almost always have good coverage on the sell side and buy side.
WhiteHat: 1. Have two stocks
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This post seems mostly
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Ravenous: This is a pretty
slowdive: #2 - I disagree
slowdive: Also agree that
And I think it's gonna be a long, long, time
Ravenous: slowdive: #2 - I
I disagree that working on
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slowdive: Passion for
And I think it's gonna be a long, long, time
Going
slowdive: Going
And I think it's gonna be a long, long, time
A more apt question than "Why
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if you like it then you shoulda put a banana on it
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And I think it's gonna be a long, long, time
Going
if you like it then you shoulda put a banana on it
frgna: Going
if you like it then you shoulda put a banana on it
frgna: The way he described
And I think it's gonna be a long, long, time
frgna: I think I'd lean
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Hi WhiteHat and Ravenous, I
TheKing: WhiteHat: 1. Have
To be fair, when we are
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Oh, get a buyside job out of
Ravenous: This is a pretty
What about getting into
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FranciscoDAnconia: I
Aei ho theos geōmetreî