HF Interview - 3 Stock Ideas
Have an interview at a SM (45min) and was told to be prepared to discuss 3 stocks (my choice). This would be round 4 or so of interviews (been about two months since my first convo) - does anyone have insight into how in-depth my valuations for the stocks should be? I’m not entirely clear if I should be building full models for each of them heading into the interview. Any guidance on how best to prepare or what to expect appreciated.
How are we supposed to know bro. “SM” is not a monolith; in fact, it’s the total opposite. Every fund operates differently. You should just ask the people with whom you are interviewing. Or use common sense. It’s 3 stocks in 45 min…how much detail do you think you can feasibly discuss?
That said, just because 45 mins isn’t enough for each stock I would still recommend knowing everything inside out and covering all your bases since you don’t know what questions they'll ask you. Nothing worse than not being able to answer things or at least give good a rationale for why you don’t know stuff about your name.
bit excessive to have 3 pitches... imporant things is why you have a different view than the market, what are the main pushback to your thesis, valuation aspect. view on Mgmt maybe and compensation structure
dont build complex models, focus more on the idea itself. you dont win just because your model is sophisticated.
Idea without model isn’t really an idea
Also please do not spend excessive time looking at mgmt comp structure
i didnt say he doesnt need a model, just not one with 1000 rows as it defeats the purpose. what is the idea of model? to have an indication what the intrinsic value is. looking at mgmt compensation structure takes ~15min. how can one spend more time?
You said, verbatim:
dont build models
read again
It should take a day to put together a full 3 statement model (annual, not qtrly) with a rev build + industry/market analysis, read a few sell side reports, catch up with last few qtrs + investor day presentation, and review the company’s valuation and estimates. Do this for three companies. You may not have an actionable idea, but you’ll be able to pitch the stock (even if it’s a neutral today, you can discuss the set up into the next potential rerating event).
Guys & gals — just do things. Unless you’re among the 5-10% who truly need guidance, you probably already know what you need to do.
As longshort said, also its not even like you need to do a super integrated model or anything. They aren't gonna be asking you to whip out the model on your phone and then you go through each line of it and checking out if it ties out and then they grill you for a lazy working cap build
And most of the thesis is likely to just be somewhere on the income statement and in the revenue build / margins. (not ALWAYS of course it depends what matters, but ya know...)
And the thing that actually actually matters isn't from the model, its just the easiest way to demonstrate and back in + out what's priced in and the variant view
Also if your thesis heavily relies too heavily on the valuation side anyways, imo its likely to be not that great of a thesis. Especially in SM world where I'm guessing the bar for an idea is going to be at least like 50% upside and less on the smaller stuff (pod ex: multiple over-extended by 20% vs. peers following last quarter beat, but next q likely to be soft before the real inflection point in 2H26 and there won't be incremental read-through for that guide yet, sets up for whatever - less of a chunky idea for a SM but more common hunting ground in pod world).
Something like "I'm long xyz because we are in the midst of a 3yr supply/demand imbalance where supply is very inelastic and can't come on-line fast enough, and demand continues to inflect higher. Price likely moves 20% higher before blah, market still underestimates it because blah "
So your discussion point is going to be primarily focused around did you figure out the most important driver, and how good is your judgement and conviction on the evidence here.
Valuation wise, you just need to decompose today's price into go forward metrics that will inform us if its a good risk/reward relative to the above balance. Short and sweet. If you need to finagle something or your reverse DCF shows that it prices in 5% growth and you are 5.5% and there might be 15% upside, there isn't a real idea there
Ok
Firstly - Know what to pitch...Don't pitch some healthcare bullshit if the fund primarily invests in tech. Pitch a tech stock. Also this should match timelines...is your SM more of a C/M/P72 where aims for quarterly beats or does it buy and hold businesses for longer time periods? This should be in consideration for what you want to pitch...rule of thumb is to pitch what you know and what the
I don't believe that your model will have to be that built out...simple 3 statement model will probably do. Just be knowledgeable enough on the stock (investor presentations/sell side reports/estimates/headwinds/tailwinds/last few years).
Just know everything about the companies...they'll probably try and ask you random questions...have a good thesis for each company.
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