I've heard people talk on here about how some firms model out anything they can (claim it helps understand the business) and models can get to 1000+ lines. I've created a few models with full schedules, 3S, long unit-economics buids and they always top out around 500-600 lines. What are these guys including?
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Based on the most helpful WSO content, here's what you need to know about the granularity of L/S hedge fund models:
Granularity Limits:
Model Structure:
Critical Factors:
Detail Level:
Practical Approach:
In summary, while some firms may push for highly detailed models, the practical and effective approach in L/S hedge funds is to focus on critical factors and maintain a level of detail that provides clear, actionable insights without becoming unwieldy.
Sources: What does a model look like at a L/S hedge fund? What is the diligence process like?, What does a model look like at a L/S hedge fund? What is the diligence process like?, L/S vs LO from a non-monetary perspective, Is modeling more difficult in certain sectors versus others?, https://www.wallstreetoasis.com/forum/investment-banking/modelling-has-to-be-the-biggest-misnomer-in-this-industry?customgpt=1
interested to have a look at these long-ass models if you can share
have only heard of infra models getting this in depth. there comes a certain point where its just mental masturbation tbh
global telecom models are sometimes annoyingly long too
You only want to get granular if you're deploying like more than 100bps of AUM.
Can you elaborate? I've heard people say that for smaller positions your models don't have to be the most built out, but shouldn't all your models be fully built out?
Ok, let's say I'm looking at a company and I know because of it's developments it may have an impact on earnings because of timing. If the street knows then there's no alpha to be made, if the street doesn't because it never cares and there's a decent amount of stuff going online then you'll get a huge quarterly earnings beat, you need to know what the magnitude of this is so you then start building out the development line by line otherwise why would you spend 24h doing such an analysis?
And yes your model should be built out to give you some assessment of intrinsic value / valuation but I'm not going to start modelling it out five years and calculating what it's going to generate on de minimis capex programme that adds no value.
What are your long unit economics builds? I feel like college kids and juniors waste a ton of time doing these silly builds for KPIs that aren’t even reported; it just ends up making the model harder to update, more inaccurate, and your numbers become unreliable to use / no one trusts you. What are examples of these builds?
i am into NR/industrials--i usually don't go so granular, the issue was i kind of needed to do unit economics here. basically the company specialized in a specific kind of vehicle, and the market generally believes that rates for them will go up. I believe most rates will go flat except for a few specifications, so i wanted to show
also, the company had lots of debt problems, and has contracts that aren't recorded as deferred revenue, so I wanted to show specifically when the cash is coming in. the model itself wasn't that complex, I just needed a huge schedule where i could see when the revenue specifically was coming in so a.) i could match the new contracts with my quantitative model that has a differentiated view on these contract rates and b.) so i can make sure the company has cash in time to pay off debts.
I recently did a case study on a large C&R biz. My unit econ build was a couple hundred lines for 4 reportable segments. Realistically could’ve done it in with 50 less but as my banking VP always said - additional rows in excel are free.
Depends on your process. No amount of detailed modeling would’ve helped you on some of the biggest trades this year imo. LLY, NVDA, META to name some of the obvious ones.
Energy investor here. My E&P models have a ton of tabs but ive built 3s in single tab at times. Can easily get to over 1,000 lines without getting too crazy just by breaking out prod/pricing/diffs by basin, creating a detailed tax build, debt schedules, etc. Some of my large cap E&P models closer to 1,800 lines for single tab approach (prefer multi-tab). This doesn’t even account for the type curve tabs either, those are each 500 or so lines though they’re all the same format/formulas.
Ok but to be fair E&P is so rich in data getting into very specific unit economics, and potentially alt data and your type curves, so that is a bit different.
I think people mean for a more typical company like maybe an industrials or consumer name.
I think the answer to the question for most is you get to 1k pretty quickly if:
1) Alt data or trackers/assumptions for every minute detail (ex: estimate the cost structure for a software company by coming up with costs per seat for all the tools the software dev teams use -someone told me they do this btw- or like raw material costs and shipping costs across everything or sales team compensation or etc etc). There is so much stuff you can overlay if you want to have “evidence” for every single number, and if your whole job is to nail 1 KPI or EPS to the cent on every earnings to drive some thesis, I guess it can makes sense. Again just have to be thoughtful here as directionally correct can matter a lot more than precisely incorrect but hey these people are smarter and more successful than I am.
2) Company has a couple of segments and/or has resegmented/restated over the years, and then you can slice and dice the same stuff over and over just to get to one tiny detail you need.
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