How can a generalist analyst use his time economically?
Hey all, a quick run down - I have been promoted to just the above, a Generalist Analyst on a L/S hedge fund and I am finding the balance between depth and width very difficult to get.
I was previously an analyst on one fixed income product so 24/7 i was looking at 3 markets mostly.
Now I have at least 1,000 companies to look at and because I need to pick the cream of the crop, I obviously cant DCF - SOTP each one individually!
To all other Generalist's out there, what's your method???
I have been toying with 3 but can't figure out which I prefer.
- Top down filtering for attractive fundamentals, and picking the winners
- Filtering by sector, and then finding the cheapest or most expensive sector and focussing on those companies
- Watch what brokers are pitching.
I guess the general problem is investing at an operational level (is this company going to achieve it's margins? Is the restructuring going well?) vs general vogue markets (ie semi's over the past 3 years and real estate over the past year)
Any monkey thoughts?
I don't work at a l/s fund but I've faced the same issue as you. As for the three methods that you mentioned... I actually like none of them. Here's why:
-Filtering on fundamentals: I think any valuation screen is pretty awful since all it ever does is tell you what you already know. It's too easy, and when it's easy there's no value. You don't have to manually calculate P/E's and P/B's like they did 40 years ago so what value do you add to the table by looking at your Bloomberg/whatever and say it's a good buy b/c of this metric. I like qualitative filters a lot (ex: spinoffs, etc.). There are also patterns that you may recognize over time which you can filter for. If your fund likes to adhere to quality/10yr revenue growth or something, then having filters for those metrics would make sense. Filtering for something less obvious such as dispersion in analyst estimates can help.
-Filtering by sector for valuation: Same as above.
-Watch what brokers are pitching: No. I never pay attention to broker ratings... with the exception of a talking point when speaking with an analyst. "Oh hey you rate this company a buy. Tell me why you like this buy more than this other company."
Although I'm not a huge fan of this method, this is what I do. I pick a random industry (well not totally random) and try to really understand why the industry is trading the way it is and what drives industry fundamentals. I try to get some calls with people in the industry too to get their intuitive/gut sense also. It's really tough and it may seem like you know nothing about anything for a while, but we all have to start from somewhere right?
Other ways to source are through talking to other buy siders, attending conferences, and reading historical buy side research reports. I regularly read VIC, VII, and whatever some online blogs post.
Hope this was helpful. Looking forward to what other people say.
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