Is PNL always this much of a slog?
Fairly new to the HF game with just over a year under my belt. Working at a Big 4 podshop, doing fundamental research for a PM. Sole analyst in my team.
We're trying to stay close ish to beta neutral so I've been trying to find shorts against my longs. Problem is in my asset class (I suspect in a lot of asset classes) the technical is just so punishing. EVERYTHING wants to grind higher. And any names which look like ok shorts have likely u/p already, so if there's a whiff of positive news they just rip.
Posting this after probably my shittiest day since I joined. Not one but two of my shorts blew up in my face on positive headlines. One was honestly pretty dumb; both I and my PM knew it was coming so don't know what we were doing tbh. The other one was totally out of left field and not even that positive, still a very shitty name IMO but the bottom line speaks for itself. Got shit from my PM about it all day.
What sucks is it comes after a really positive streak for us since liberation day. I think our overall PNL is still OK (not great not terrible) but my confidence is smashed and I'm scrambling for ideas. It feels like the easiest thing to do is just lazy longs and enjoy the grind, but I know that can't work in an absolute return mandate. I honestly just want to take a few months off and wait for some more vol or something.
I think the past month did take many people by surprise. A few useful tips I’ve gotten:
Look forward: what’s done is done. After the post-mortem - being able to bounce back reflects well on your ability to move on from losses and regain profitability.
Sometimes it’s great, other times it sucks. I find this job particularly punishing as drawdowns can feel like a reflection of your personal worth, which is really not true. Hang in there and good luck!
Its a tough game, depending on your PM and their general mindset/mentality, asking to step away could be a bad look.
My best advice is to try to learn constantly and improve based on the good and bad. This is pretty cliche and everyone says it, so to be more specific and think outside of the box, just quant out some simple stuff related to what happened. Maybe it helps, maybe it doesn't, but if I was your PM, I'd love to see the attitude of taking initiative, digging in, and finding ways to do better.
To be even more specific, you dont need to be a rocket scientist for a lot of this stuff, you just need experiences like you just had. Is the broader market trend up? Are you at the stage where quality is leading the gains? If quality is still leading, taking shorts in bad companies often works the exact opposite of what most people would expect.
I don't do too much on L/S side, but working on getting some strats going in trial size.. Simple framworks are often the best. Trash names rallying is typically a good indicator of a broader inflection point for a mkt/sector, so in a bull trend, keep shorts/remain mkt neutral via quality, and wait for the trash to squeeze out.
What you've just experienced is great to learn from, mkts work in funny ways, bc most pods/funds are all running a pretty similar strat/framework, there is alpha in just knowing how your PM and others trade/position.
just to be clear, are you saying keep garbage shorts on as they are rallying or go mkt neutral with respect to quality as they are rallying?
riding longs pays 1/10 with hurdles
squeezing out pennies on true neutral pays 3/50
guess which one is harder to do?
IMHO too many market neutral PMs crowd too many obvious, popular shorts into their book, which leads to them blowing up when the inevitable squeeze or factor unwind comes.
It doesn't matter if the stock ends up going to zero if the 30% squeeze move puts you out of business. Vanilla long/short funds can run a book made of up alpha longs and alpha shorts. But a book that looks like that is almost never going to make it under a market neutral construct with tight stops.
The "trick in theory" is to run that concentrated book at 50% gross (or down to where CTR to VAR is ~25-40bp) and fill the rest of with liquid pairs...
Depends on strategy, but this is one of the toughest news cycles I've seen in the last 10yrs. For us, it requires constantly adjusting approach to changing conditions vs. more persistent environments. Making money is never easy, but there are certainly environments where it is less levered to hours worked.
I think its always tough in market neutral. Every day, and every month is a grind. Everybody talks about the PM who is killing it/had a massive year but nobody wants to talk about the down/flat years in between. This forum has had a weirdly positive view on pods lately thats just not very realistic.
The people on this forum who are positive on pods are people with no actual PM experience and are likely just young graduates who have a very rosy outlook for the industry. Actual L/S equities is extremely crowded now and basically 95% of moves is positioning or reacting to news headlines. Fundamentals starting to not matter much at all and I find technical analysis to be far more helpful.
Yep, exactly what I was saying above but the point on technicals etc is especially true these days… when I first started I thought technical / chart analysis was too simplistic.. but technicals + knowing your mkt/positioning/where the bodies are buried is a big part of the job.
With dozens of pod shops, with hundreds of billions in capital and trillions in GMV, it's only getting harder and the unwinds more frequent. There's still alpha to be gained against slower money (there's a lot of slow money out there). But trying to game & time all these events, earnings and catalysts is only going to get tougher and tougher. Or you can take advantage of the de-grossing.
Unlikely ur beta neutral if all ur PnL has come post liberation day
You need to be very disciplined about sizing in between catalysts. I’m constantly adjusting size depending on my expected path. Does it produce lots of alpha? No but it helps me stay within my var limits. Tl;dr always make sure your sizing is congruent to your view.
The problem is what you view are "catalysts", the market tends to frontrun quickly now. So unlikely your "catalyst" actually is a the catalyst and more like you're playing for the frontrunning of that catalyst, as the market 90% of the time will actually unwind the moment the catalyst actually happens.
You ever wonder why stock A is up only to read later that it was because of comments from a downstream supplier? That's us...
Make friends with value investors or guys at third point.
short their longs. voila. (jk)
Anyone in Healthcare? Need to vent lmao what a year so far…
Healthcare seems like people have done well since people were short MCOs and hospitals. Biotech/pharma related continues to be a slog.
Voluptas est voluptate illo consequatur tempora et officia. Eos dolor et molestias est dolorum sapiente eos. Voluptas voluptate ut quasi consectetur aperiam nesciunt tempore. Voluptate vel quae commodi asperiores expedita nesciunt distinctio quae. Ut voluptatum est debitis ut neque in.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...