Is it possible for L/S equity pods at MMs to take long term views on stocks?
I was having a discussion with someone about the pod shop industry and I asked him a question about whether L/S equity pods at a Millennium or Citadel could take long-term views on stocks (ie. you think Walmart is 35% undervalued now and think the market will realize this in 1-2 years).
I figured that the pressure to call quarters and the tight drawdown limits prevented PMs from taking longer term calls but he insisted they could, even if the company missed earnings for the near-term quarters. Obviously, each pod will have varying drawdown agreements and different strategies but can anyone confirm if this is generally true or not?
A thesis at a pod shop wouldn’t really be framed that way. You wouldn’t have a singular catalyst/idea that you think would move the stock that way over x years.
I interned with a PM that took pride in their team looking more thematically at their coverage and having a strong fundamental long term perspective on the stocks they trade relative to other pods…they were still modelling out gross margin progression/whatever price volume thesis they had for top line to get a beat/miss on EPS relative to consensus each quarter though
as I understand it, they would try have a strong big picture idea on what thematics/macro story will shape the tides over the next 2 years but really dive into the unit economics/key debate that is relevant for the quarter’s print so they can position accordingly.
Maybe it’s something like hardware into software and there’s a TAM calculation that’s been done and this will play out over x years. You can’t bet directly on that like you can at a long/only, but you can use this to colour your revenue build by segment and understand how unit economics are going to be impacted each quarter as this plays out.
All this filters into a better EPS/EBITDA/whatever on the print Vs the Street
"Obviously, each pod will have varying drawdown agreements"
Nothing obvious about that. In fact, a single common % drawdown limit tends to be the only thing that different teams and strategies will have in common.
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