What doesn't work in buy-side job search (and how to fix it)
It's no myth that investment management (the "buy-side") job openings are scarce and competitions are fierce. Based on interactions I had with aspiring candidates, I felt the need to lay out what doesn't work. Before I start, I will note two exceptions (that I can think of) to the rule: 1) the "idiot sons and daughters of clients / LPs" type, who can get to anywhere without conforming to my criteria below, but most of us aren't born rich, so read on 2) the type who broke in despite having fatal flaws, whom I believe will have limited longevity in the profession than the truly prepared.
In my opinion, a candidate should possesses the "3Cs" below (cheesy, but for marketability of the article):
- Content: actionable stock ideas
- Concept: frameworks to analyze and value businesses, and process to identify compelling ideas
- Connections: a network of buy-siders who can refer you to openings
For reference, I really loved flaco 2x2 matrix concept that's related to how I am framing this:
I generally think of a 2x2 matrix (shout out to consulting friends) with passion for the work and talent (which is always subjectively measured) on each side. Low passion + low talent = don't bother. High passion + low talent = maybe you get your foot in the door at the junior level, but are found useless pretty quickly before getting into the money-making seats. Low passion + high talent = can probably string together a few nice years but then burn out. High passion + high talent = people I've seen with greatest longevity and success. It's not a uniform distribution of these combinations / outcomes, and there are obviously so many other factors that determine probability of success which I've mentioned in other posts. But it's always helpful to think objectively which bucket you fall in for any high stress / high reward job like this.
Candidates come in the following categories with their shortcomings:
The worst candidates. They make no effort to understand the day-to-day of a research analyst and have no passion for investing - just here for the money and the prestige. They see buy-side as a career path where financial reward is limitless (true) and work-life balance is great (also true), but missing the complete picture of the deceptively many hours of personal time dedicated to better understanding the world, forming contrarian views to identify mispriced stocks toand refining personal investment process. This is the same type who will most likely ask how much salary one makes at a hedge fund or which tiger cub is "better" (if you are asking how much people make on the salary side, it's the first telltale sign that you don't know where the action is in this business). I am not going to bother discussing them here, other than saying: you guys are not breaking into the buy-side.
The Producer (not a good way)
Stock idea (content) matters, but how can one come up with a solid work product without a process of identifying ideas, analyzing industries and businesses, and finally valuing that business? This type of candidate needs to develop a toolkit to alleviate a hiring firm's concern about whether the candidate has a repeatable process to handle whatever stocks given to them. I suggest reading a few classic investing literature (think Seth Klarman, Phil Fisher, Joel Greenblatt, etc.) but don't overdo it, and then start looking at stocks and applying the concepts. There are always going to be more people who can recite famous investor names or quote jargon such as "margin of safety" and "Mr. Market" than people with the ability to generate real alpha. Become the latter.
Buy-side is more skill-based than other professions. It's a wrong approach to start networking without first developing the intrinsic skills. So before you start reaching out to people, produce real stock ideas, develop your own research process and rehearse your story of "why buy-side now, why this firm, why this style of investing". Trust me, you can know thousands of buy-siders, but if no one is willing to refer you when a good opportunity comes along, you are better off quietly grooming yourself as an investor first.
I fall into this camp, hard. I self-taught investing byletters, investment books and hedge fund letters and it's not a good thing. Yes, I have a lot of frameworks, but in hindsight I should have spent more time on looking at different companies. As nice as it is to speak passionately about the theory of identifying, analyzing, and valuing stocks, funds pay me to apply concepts - make money. So there IS such a thing as too much reading. For those that think they might fall in this camp, remember to allocate enough time to studying more businesses and industries.
There are infinite ways to skin a cat as an investor. You cannot be a jack of all trades, so the buy-side search becomes a balance between breath and depth. Obviously you don't want to be too limited to a niche where there are five funds in the world that perfectly suit your personal style, but you also don't want to be stretched too thin by trying to please, for example, both a multi manager and a long-only. The solution: talk to investors from many styles, read a survey book (John Train's "Money Master of Our Time" is the best one, "" by Mallaby is another good one), and assess for yourself what styles you resonate with, and then it's your decision of how big of an opportunity set you want to target, which directly impacts how many stock ideas you need to produce. Finally, remember that as long as you are not the portfolio manager, perfect alignment does not exist, so you should focus on finding a firm where you don't have to adapt (or bend yourself) too much.
The Flawed Personality
Just like any job, the buy-side role has a selling component: convincing a PM to allocate capital to your stock ideas (or to give you the job, that's the first sale!), asking the right questions to get what you need from company management / investor relations / sell-side analysts, and so on. You need to interact with many external parties and that requires strong written and verbal communication skills and being a good human being. Both arrogance and social awkwardness can hurt but I view arrogance as a much bigger deterrent because in a typical hedge fund small team environment, if you fail the "airport test", tough luck getting in or surviving the job. With that said, there are tons of a-holes and antisocial types in this business at the top, so maybe it's not as big of an issue as I think.
The Mentally Unprepared
In a profession where most jobs are filled without ever hitting a job board or a recruiter, it can be frustrating for candidates who get rejected, not knowing when the next opening comes up. I've been there and have the following suggestions:
- First, accept the reality that it's not a fair game - for every opening, you could be competing with someone who has 3-5 years of real buy-side research experience. From the hiring manager's perspective, a plug-and-play is always better than having to train someone, no matter how much potential you have.
- Second, it is a numbers game and it's a cliché but it's true - you only need one job, this search is as much about the ability to get back up than about getting in. Stay persistent.
When I was in business school, I wondered why Carol Dweck's book "Mindset" appeared on a reading list for an investment management club. After reading the book and going through the journey myself, I wholeheartedly put Carol Dweck's on the top of my investing reading list as well. For those who have read the book, remember that growth mindset can help you stay resilient. So, if you get rejected for that long-only role, pick yourself up and remember it does not invalidate your competence and you just need to keep getting better and eventually someone will give you a chance.
The One Trick Pony
As previously mentioned, job openings are hard to find. If you have trouble knowing where the job openings are, think outside of the box. I have written about the various channels to source jobs (check out my previous piece). Use as many channels as you can: start a Substack, start a twitter account and interact with real investors on it, submit your write-up to Value Investor Club and SumZero; Hell, submit your stock pitch to Sohn Conference Competition (what's the worst outcome? You don't hear back, but you got nothing to lose, rest is all upside, you could be that Wharton undergraduate who got hired by Ruane Cundiff). Continue to use the more traditional methods as well - cold-email (or LinkedIn) associates and PMs on the hiring team, applying on career website (worst method, going back to my philosophy of "avoiding HRs at all cost"), and applying on other independent job boards (or closed-loop job boards at your business school or undergraduate school). Make sure to get a buy-sider to "bless" your stock idea before building your brand on the more public channels like Twitter, Substack, VIC and SumZero because you should start off on the right foot (especially if you decide to use your real name) when building an online presence. Always assume everything you have published online is permanently searchable.
If you are in the journey for the buy-side search and hit a wall, I hope this piece helps you map yourself into one of these buckets and devise a plan of improvement. Life in general is about continuous improvement but I recently learned one also needs a short-term win from time to time. So keep improving and score that dream buy-side job (for that short-term win), but don't forget to continue on a lifetime process of learning and improving.