Do you need a high IQ to be successful in the Hedge Fund Industry? (Serious)
Not a joke post by any means.
Currently a senior analyst in IB and have been grinding it out since coming out of school but have always been more interested and passionate about the HF/markets space. However, I do want to legitimately ask if those in the HF space generally need to be smarter/higher IQ to be successful? Is the work very quant/mathematic oriented?
I also ask this as it seems brain teasers are a large part of the process (which is something I'm not very strong at).
Unfortunately, I believe my IQ/Intelligence is just OK and maybe just about average. Again, not meant as one of these bait joke posts or meant as imposter syndrome, I genuinely think it just takes me longer to pick on concepts. I've been able to succeed in IB because of it being more "grunt work" and being able to excel by just working hard.
Should I just stay where I am and keep collecting a check despite me not really caring for the work at all? Feel pretty stuck in my situation and just want to do something that excites me day to day but also want to be aware of my abilities and not fall for the "grass is greener" mentality or give up something that is paying me well.
Any feedback appreciated.
Spent a year and some change at a hedge fund after bluffing my way into 7-figure comp. Loved my co-workers, all smarter than I am, but I had a very particular set of skills I had acquired over a very long career that let me accelerate their models 100x. Sadly, their models were broken and all I managed to do was help them lose.money.fast. But having established 7-figure comp, it was trivial to reproduce it at the next place where things went better and that takes me to today. I miss the hedge fund life though yet my former co-workers there say my time in that space is atypical and mostly HF people are as dumb as everyone else these days.
What was your path there?
Started in academia and wasted a decade there, then fled to tech, flirted with finance several times, then when I had a unique skill they were seeking I made the leap. That skill is even more lucrative today and I miss my co-workers. Tech people by and large are boring and less driven in my experience and I just don't fit in like I did at the hedge fund.
I feel for you and you know yourself best, but what are you gonna do if you move to HF and the excitement starts to wane again? Do you start looking for exits again? That well will run dry one day. It's not excitement that gets people thru finance - it's discipline
What makes you think it needs to be mathematical or quantitative? If you go to work for a quant fund, they will ask more brainteasers because that is relevant to the types of problems they are solving, but I have never been asked a brainteaser at a fundamental interview (including an 18bn SM, a MMHF, and a handful of smaller SMs). I think you are confusing the work of quants and traders with the fundamental research guys...
So when it comes to IQ, I don't believe it needs to be exceptionally high, but maybe slightly above average. What is more important is an ability to grasp concepts quickly and distill a situation with a lot of noise / facts into the most important drivers, and be able to weigh the facts so you can draw a conclusion with conviction. It requires individuality and creativity, and intellectual honesty. Can you look at a raw financial data and craft a narrative with conviction regardless of what others think and without bias. What Buffett calls the temperament of not caring about the crowd. So basically you need to be able to think independently, and process lots of information without getting lost in the weeds.
Now idk if that ties directly to IQ, and I guess IQ does help for that, but I feel like temperament, work ethic, curiosity, passion, individuality, and the ability to distill a lot of noise into what matters with conviction - those are the qualities that matter more. Speaking purely from fundamental lens here. For quant guys I'm sure it is more: how much math and stats can you math, and how good of a problem/puzzle solver are you. And that's where the mensa IQ probably matters more. I really don't know enough about it tho.
You nailed it. I walked out of an interview with DE Shaw when they wouldn't stop asking these questions and had yet to ask a single question about what they were interested in talking to me about. But also, I don't believe the learnable skill at solving brainteasers correlates strongly with the mathematical and statistical brilliance to detect and exploit alpha. Ditto for asking obvious recent leetcode questions during tech interviews. When I interviewed at Google, I inadvertently reduced one of them to the quadratic formula and found an exact answer (8 espressos is a magical drug I guess) to something the interviewer wanted me to approximate. His response: what if your processor is missing a square root instruction? Don't work with people like that.
How to balance not caring about the crowd (contrarian) against confirmation bias (only searching for your own views and not listening to the crowd)
The exact quote is: You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. It is too easy to read a report that says "xyz" is a quality business because of "blank" in their past and suddenly you believe it and are biased. Or that this industry is expected to grow HSD over the next 5 years and is now secular growth and no longer cyclical. Or the ROIC looks high at first and you think they have a competitive advantage, or it is universally known for being quality when people talk shop and do their "quality compounders lists" on fintwit or graham and doddsville letters, etc.
You need to have a process to audit these things on your own, and enough conviction in your process that you are satisfied with your own conclusions, whether they align with the consensus or are contrarian. Being contrarian for contrarian's sake is deadly. It's not about searching for a specific view, but having conviction in the results of your own process - and that usually requires some level of creativity and intellectual honesty to ensure you are thinking about things properly and weighing the outcomes appropriately. There is too much information out there, and time is the most valuable resource of an investor, so we rely too quickly on a number of sources, heuristics, etc. to get a grasp quickly, so you have to find what matters most at any given time and trust that your view is somewhat more accurate.
That is where the temperament of not caring is valuable since we are pre-disposed to like things where we have made money in the past, or feel safety in numbers, or enjoy being a cynic, or rely on other people's summaries and views.
For background I work in commodity trading particularly in natural gas. So even though my job would be described as fundamental as we don't use quantitative models to trade directly its a very much data driven field and as a junior that falls on me to build out. However, at uni I did internships in L/S at some top firms which I'm guessing ur question is more about.
You need a mixture of pure intelligence, creativity and the correct emotional responses to risk. The way I put it to people is that everyone I met in the HF industry was on the high end in all categories when comparing yourself to other people in finance. Do you need a phd in theoretical physics of course not but if you can understand that, then analysing companies suddenly seems rather simple.
However, I would say that the smartest people at HFs are the ones that have VERY good pattern recognition (memory is a big part of that as well) and have the ability to draw obscure information together and create the full picture. Some people can do those two things but not be 'traditionally' super intelligent when looking at grades or IQ tests.
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