Generalist vs. Sector Specialist
For those of you in research, particularly buyside, what approach do you prefer generalist or sector specialty? I am at a firm where we are all generalists and it can feel a bit overwhelming at times but it is fascinating to delve into Chinese telecom one day and Nordic banks the next. I can see pluses and minuses to both approaches. Would be curious of your thoughts...
It's like choosing between being a sub specialist and a family practitioner, do you want knowledge a mile wide and an inch deep or an inch wide and a mile deep. I would prefer to be an expert on just one thing and be able to truly know that sector rather than be a jack of all trades, but a master of none.
That is such a difficult question to answer with pros and cons of each strategy. Choose to be a specialist, practice economies of scale and position yourself as an authority on the respective subject at the risk that your respective sector will go out of favor. Or be a generalist and adapt to any market environment but not really be a stand-out.
If I had to choose, it'd be a specialist. Simply because at least you'll more likely be passionate about what you do.
There are only a few industries (or really sub-industries) where this is even a real question. Most "specialists" in an industry follow 5-10 tickers and spend most of their time researching these efficiently priced stocks. And the barriers to entry for a skilled research analyst are pretty low anyway -- I call the sell side and talk to other buy side people all the time, and these "specialists" often know less than I know after anywhere from half a day to two days of research ("Sorry, I've only followed this stock for two quarters" -- GTFO). Sure, they know more about the puts and takes about the company's guidance, but most of the time they don't have enough insight into the industry to justify the amount of time they spend on it, and they generally focus on the wrong stuff anyway (can't see the forest through the trees -- you're an industry expert but mostly you're an expert on detailed quarterly projection models?). One obvious exception to this is financial services (which is a sector, not an industry). If you are a bank analyst, you will have better color on banks than a generalist hands down. But for any operating or service business, that is not the case.
Generalists are better investors 99% of the time. You learn how to spot value, when to put the position on, when to exit and how to rip apart a business from an analytical perspective very quickly. Some of the skilled investors I work with can tear something apart and have a good perspective within between about 10 minutes and an hour. Industry expert? No. But enough to know whether it is likely worth spending time on. The game is looking at a lot of stocks and trying to figure out which ones are mispriced, not spending oodles of time following the same handful of companies that are likely well priced. And there are attractive scale benefits to looking at a lot of names -- something happening in one industry might have a large and unexpected (to the Street) impact on another industry.
Being a generalist is better for a long-term career on the buy side (objectively speaking).
You've made some very good points that really got me thinking. But when you are referring to the buy-side, I can't help but think public equity investing shops or traditional MM PE firms focusing on conservative business models.
But with VC, I am going to have to respectfully disagree to some extent, where knowledge of the in's and out's of a sector is critical and specialization is so pivotal to long-term success (think, Steve Burrill with life sciences or Frank Quattrone with tech). Repetitive investments in the same space give extensive lessons in the ups and downs of that space and a real sense of how to make progress in detecting value.
I guess, answering this question really depends on your career goals at the end of the day.
One of my clients take an interesting approach to this conundrum. They have their analysts cover a sector for a year then rotate to a completely new sector the next year dependent on their reviews and returns for the year. So you might be covering Industrials this year but switch to Medtech the next. Once they have covered all the sectors they then become a PM. Its seems pretty rigorous but a great way to develop a broad and deep understanding of the sectors.
Are you a specialist or a generalist? (Originally Posted: 06/12/2012)
I just read this article on the Harvard Business Review and it got me thinking: http://blogs.hbr.org/cs/2012/06/all_hail_the_generalist.html?cm_mmc=ema…
I've always been told that while it is better to be a generalist when starting out in a career (applicable to all jobs but especially in banking where buyside recruiting trends dictate candidate preferences for groups like M&A and Leveraged Finance), one must begin to specialize in a particular industry/area/sector in a few years and become a subject matter expert in the said field. This made perfect sense to me before I read this article, which sort of defies conventional wisdom.
Do people who continue on this generalist path become more successful and rise to the top quicker than those who have made a concerted effort to specialize? What do you think monkeys?
I'm a specialist and I hate it, there are limited options aside from grad school
From a career point of view having a skill / expertise might get you employed and give you some traction early in your career, but if you have ambitions of being an owner / manager you have to become more of a generalist and be able to wear different hats.
Division of labour... a singular focus on specialisation is symptomatic of being labour, a tool of production. the proletariat. on the other hand, owners and the management / political class are generalists.
If you look at large financial corporations you can easily see the assembly line mentality of production and the economies of scope resulting from the division of labour. any finance labourer or group of labourers only has control & knowledge of one small part of the production process. The lower / mid level guys that actually do the grunt work are the specialists. The senior and managerial level guys are more generalist and political even if they may have risen through the ranks. Once you get to the C suite you have fewer specialists.
Generalist or Industry Specialist (Originally Posted: 11/29/2010)
Hey Guys,
First, I would like to thank you all that contribute to this website. I have been following many of you for a while and have gained valuable insight. As a newbie, I will be forever grateful. Please keep up the good work.
I have searched all throughout the forums and cannot find any answer specific to my question as I am confused as to what path to take because I want to use time wisely.
If my dream is to be in the hedge fund world and someday (can't we all dream a little?!) manage money, should I take the generalist or industry specialist path to get there?
If you were to start over again, what would you do and why?
Also what are the pro's and cons to each?
What is the best use of time if you're starting out?
Here are my goals:
short-term goal (1-3 yrs): analyst role in either a hedge fund or equity research mid-term goal (3-5 yrs): make a name for myself as an analyst by earning a credible reputation long-term goal (10yrs): manage money in a hedge fund using the value discipline
Your thoughts would greatly be appreciated. Thanks in advance for all the help. And as soon as I gain more knowledge, I will contribute to the forums as best as I could.
LNA360
I would say generalist. I think it's harder, especially at the junior levels because your superiors still expect you to know everything about whatever industry you are looking at, but you will know so much about everything. The CIO at my firm was head of Lev Fin at a major firm for 10 years and never focused on a specific industry. The amount he knows about everything from trucking, to healthcare, to defense contractors is amazing. He's brilliant. If you want to start your own fund with no industry focus, generalist is the way to go IMO. May be tough to do in Equity Research though...
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