Generate Ideas... How?
Hedge fund investors - As someone who has only been involved in PE investments, I'm genuinely curious how a newer / junior HF investor comes across / generates investment ideas? Is this always news/event driven, betting on earnings results, etc..?
Pick stock, figure out key drivers and key debates, what does the market care about, what can I use to forecast this, take a probabilistic view on upside/downside scenarios, generate an EV for the trade and figure out optimal entry points (trade becomes interesting at XYZ due to crowding/sentiment etc, what’s in the price etc) work to understand risk profile and exposures to factors and macro, find a hedge (this usually means repeating this process for another name in the coverage). Rinse/repeat forever
So in terms of most of your investment decisions do you come in thinking (1)"This is a great/bad name because of XYZ" and then follow up with research, or is it more of (2)"This stock is in my coverage and I need to track the narrative and develop a view"
I'm going to intern at an MM next summer, and I never have things like (1) occur to me, so would appreciate some details about how I need to operate/change
You can go with either really, but when you’re working it’s 2) all the time. You have a coverage and you keep sourcing key debates, the price moves and incremental data/news/narrative shifts your perception of the risk/reward and viability of the bull/bear debate. You should think about it from an EV POV which means you should always have a certain price (ignoring information flow shifting this perception) where you’d be long or short, even if you think the short case is 10% likelihood.
You can come up with pitches/ideas by thinking about a thematic driver/narrative in the world right now, mind mapping the first - third order effects and finding names levered to it. Dilligence from there onwards…
1) top-down bucket... PM gives you a name to look at (and then you think of readthroughs for similar names as you build out coverage/thoughts.. maybe an exercise like someone else commented)
2) names that are topical/in the news... could also include names that SS/desks ping you about
3) thematic... take a view on XYZ sector/product and try to go down the rabbit hole of what's the best idea to express your view
For juniors it's likely the 1st bucket
Idea generation at a hedge fund depends on the strategy, but junior investors typically start by following sectors, tracking news, and analyzing earnings reports. Some ideas come from market dislocations, while others come from deep fundamental research—like spotting mispricings in a company’s financials or industry trends. Quant funds rely more on data-driven signals, while discretionary funds lean on a mix of macro themes, company-specific catalysts, and special situations. Over time, juniors develop their own frameworks by learning from senior investors and refining their process.
lol it’s you again giving poor advice on every thread acting like a know it all expert.
Ideas in this industry are a commodity, you get a dozen emails a day from the sell-side with top picks, top 10, low valuation & quality, you name it etc.
I never treat an idea as a secret, I'm happy to tell clients what we're currently looking at. It's of little value to an outsider because 9 times out of 10 the idea comes to nothing.
What is not a commodity is an idea where, a) you deeply understand why the market values the stock the way it does (not as easy as you think, it's not always what the sell-side says), b) the market is wrong. This requires a lot of work to establish.
Think of an idea as simple observation that warrants an investigation. For instance, and I'm just making this up right now because it's not my sector, but the divergence in 1yr stock performance of five large retailers is interesting - and probably wants an investigation.
Great comment love it
I don't know sorry, ask someone else
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