So a few weeks ago, I tossed my resume to L/S opportunity with a top hedge fund (Bridgewater, P72, etc.) expecting them to laugh at it and throw my resume away (no investing experience listed, banking at a small boutique...) but for god knows why, they somehow gave me an interview lol
I am completely lost tbh. I've never really studied up on the industry. I know how to evaluate stocks and generally what to look for in an investment, but much more from a PE standpoint. I'll have to prepare a L/S stock idea for this. Aside from understanding the business, building a basic valuation / comps, and coming up with a target price, what else do I do?
I particularly am not super familiar with various HF terms, volatility, volume-related metrics, etc. Are there any I should try and learn about beforehand?
I'm really not expecting to pass this interview I'll be honest...but would rather "lose gracefully" so I don't burn bridges with headhunters lol
If you have banking experience, I assume you can build a fully integrated 3 statement model. Instead of a price target, I would recommend coming up with a range (stock at $60, I think it can go to $75-$80 in XYZ circumstance).
Look at the stock chart and be able to explain any huge moves in the last few years (oh, the 20% decline was due to really bad/unexpected earnings in the third quarter of 2018).
Have some sort of marketshare/industry analysis as well. Be able to show how this company gains/loses market share and, most importantly, why.
Be able to articulate where you are different from the consensus view. If you are 10-20% below management guidance or something like that, be able to articulate why (and the catalysts that will make the consensus shift to you).
If you are pitching a long or short, have an offsetting position on the other side. This doesn't have to be detailed, but think about the natural other side of a pair trade.
Finally, make sure you thoughtfully recognize the risks to your long or short thesis. No equity story is perfect. Have follow-up questions for your interview. Ask them how they think about it. It will show genuine interest in investing which is pretty important.
Thank you! One question on the model. I'm actually pitching a recently IPOd SaaS business as a short, with an offsetting business in the same sub-segment as a long. Both companies are barely profitable and do not trade on profit metrics whatsoever. It's all revenue, so I while I was still going to run a DCF, I wasn't going to build an integrated 3-statements, and focus more of my time on revenue build. Is this an okay approach in this context?
Essentially the thesis is that the Short business is distracted as evidenced by recent acquisitions that attempt to enter an adjacency that's oversaturated. They have strong revenue growth over the last several years, driven by taking market share from older-tech incumbents in their core market. However, new players are arising in this core market along with incumbents consolidating by acquiring these new players. Revenue multiple is trading at ~3x the peer median, implying much of the growth from these acquisitions is priced in, but I believe they will fall short as competition intensifies in their core segment while they divert focus to a saturated adjacency.
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