I got my fundamental equities training at a shop that invested in stocks with a target 3-5 year hold period. We were encouraged to minimize checking Bloomberg or the stock price frequently. Of course we would have had to keep a tab on key news or earnings for the stock, but generally, it was a "sleepy" fund where you could afford to spend a whole month on a single thesis and without a particular catalyst in view. It was backed by family money, which probably explains a bit of the non-chalance.
I'm no longer working there, but I want to level up a bit on underwriting stocks on a fundamental basis but with a target to make a return in 12-18 months. It's not always guaranteed, but I'd like to hear how the analysis would differ from the 3-5 year hold type of analysis.
I don't know if what I'm saying here makes sense to you, but if it does, please chime in. Thanks.
Focus on your estimates vs consensus over next quarter and next year. Try to figure out positioning and the stock story.
If company misses eps by 5pc, does stock go down 2pc at open but rallied through end of day because LO is a persistent buyer?
Which metric are people focusing on - is it enough for financial company to beat on eps despite worsening loan book?
Unfortunately, this type of work is a lot tougher than sleepy funds since you need to focus on quarter as well as 3yr view since LO action can whipsaw your small pod position.
Platforms tend to have focus <12 months and quarterlies important. Barely any HFs left that have a longer duration and aren’t market neutral, because the strategy has underperformed platforms for a long time.
OP sorry to hijack your thread - but could someone help explain how does running a L/S fund with 3-5 investment horizon works? How do you manage volatility if you don't trade on quarters?
It works well when a rising tide (lower rates) is lifting all boats in your factor (growth/momo). As you've seen this year, "muh PE approach to public markets" has shown disastrous performance.
3-5 yr approach is fine if capital is actually sticky, less so when investors redeem when performance sucks in years 1-2 out of 3 hr horizon.
theyre not mutually exclusive, you can size postions up and down around periods of under/outperformance while still holding a core position over the 3 - 5 year horizon.
not to say eveyrone does this, but theres no reason you cant do it.
Yep.
There can be long-term core holdings on a secular trend mixed with shorter-term trading opps.
As long as the research and the process are sound, the two-time horizons are not mutually exclusive.
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