Pod Shop Hate (Discussion)
Pod shops have performed remarkably well in the face of bad market conditions recently. I still hate them.
Here are some reasons:
(1) They capture talent in golden prisons and reduce competition in the industry.
(2) They're running enormous leverage to return what they've returned and I'm suspicious of the sustainability.
(3) MM Funds are literally black-boxes to institutional investors
(4) Ken Griffin's face and vocal inflection
(5) Steve Cohen's rap sheet
(5) All of the young people I know who went to work for pods are insufferably arrogant and don't really like finance very much.
(6) No loyalty. No honor. It's work for money. Total mercenaries. No love of the art.
All this being said, very happy for all of you pod members. Maybe the old people can have a conversation about the shift in the industry from SM to MM. Open to having my mind changed.
Okay, prospect..
>1
dunno what you mean by this at all
>2
sure
>3
not true at all. talk to an LP who actually allocates
>4
sure. i dont care
>5
sure. i dont care
>5 (2) (?)
no one should like finance very much
>6
you sound like a tool
>
you should be neither happy nor sad for the pods . things come and go, no need to get emotional about it
I guess the joking nature of this post was lost on you?
Also what? Since I was a kid I loved markets and finance. This attitude of no one should like finance very much is depressing. Can you imagine lawyers saying, I don't really like being a lawyer very much? The love of the game is why this industry is cool. The bonuses and salaries are what created this WSO career optimization. If you're in it for the money and the money alone, you're going to be completely miserable.
"Can you imagine lawyers saying "I don't really like being a lawyer very much?" yes this is basically all they ever say?
???
Nice back tracking on your post after you get pushback lmao.
No one really like there job. I’m a doctor. Hated practicing medicine. Touch grass prospect.
>5 (2) (?) killed me hahahaha
L/S analysts at pods are truly obsessed with finance. I know analysts who actively trade their PAs (outside their coverage) bc they just can’t stop trading/can’t turn it off. Other stuff is true
Don't know any big pods that let you trade PAs
Obviously a joke post. Why are people upset
You mean you don’t like to be in a meeting with a large cap mgmt team and 10 other dudes who ask the same question and are doing the pod shop circle jerk of trying to figure out if gross margins are going to be off by 10 bps? Ahh short it!!
Because of supply chain disruptions in Algeria which the market has yet to factor in, gross margin will be exactly 12 bps lower than guidance and eps will be 4 cents lower than consensus - every MM thesis
Till this day I have no clue what kind of alternative data would even let them forecast to that bps...
they're so obsessed with bps they should just work in bonds
You sound like an idiot.
I get that alot
Ngl I find most of the pod shop heads (juniors anyways) to be insufferable... I get they're all alpha or whatever, but they get grinded all day to make like what, 400k in a decent year as an associate? Might as well stick to IB, ECM, syndication, or ER if you're going to get worked all day... odds are you'll average about the same for comp in those fields vs. MMHFs over 10 years, plus you'll have better job security with less stress. They constantly jerk themselves off about shit that just doesn't really matter, are borderline contrarian just for the sake of it, and ask the worst questions to mgmt teams. Sit in a mgmt meeting and you can always tell who a pod shop head is. I definitely make less at a LO, but I feel I get to really understand moats and think about a business which is infinitely more interesting than traveling and reading all day and night just to nag a mgmt team who actually wants to create value or run a business. Why do they nag mgmt teams and decipher every fucking word they say, you ask? Just for the purpose of finding a few cents/bps of upside/downside every. single. quarter. The nerdiest hardos I know, have been at conferences with, and worked with when I was on the sell-side, are all pod heads. I just don't get the appeal. I'd rather go back to a bank than go to a pod shop. I just don't think it's a good value proposition if you want any sort of life or actually enjoy investing. Hats off to those who do it though because I could never.
To be contrarian, why do you think you deserve to get paid “to think about businesses”? Ultimately the job is to make money and as flows goes to pods the best way to do it is to have a variant view of earnings. Both in the NT (this quarter/next) with catalyst and the out years (street mismodels S&M because XYZ, or covid is over/under-extrapolated to out years). If you can’t do that, that is beta/factor not true idio alpha which is what you get (and should) get paid for.
If the answer is buying businesses at the “right price” that is less relevant too. Valuation is a non-sense argument because the market is willing to pay what it does, and worse case you hedge it out (if a 20x revenue company is gonna have EPS revisions and a good catalyst path, I am buying that and shorting another 20x rev company to offset, making valuation a nonissue). If anything the best shorts were cheap stocks that go nowhere because the market is no willing to pay up for them because numbers are weak or the narrative is hard to disprove
I deserve to get paid to think about businesses and pick winners over the next 2+ years because that's what endowments and sovereign funds want my firm to do... similar to how the same ones or other allocators pay the MMs to do what they do. For as you said, the market is willing to pay what it does lol. My point isn't about whether or not it's a good strategy, as they outperform SMs who do indeed ride beta. I'd just rather not be in investment management than do (in my opinion) boring ass analysis to scrape together a thesis for why X company will beat/miss by such a marginal amount. It's just not for me– I'd rather work at a bank lol. If you want to take the argument further, hell PE firms have higher returns vs. the MMs no? If you want less upside and risk, there's annuities and bonds for that, so why should allocators put money towards MMHFs over those? My point is that you can make an argument for most asset classes when you're an enterprise who manages hundreds of billions. I just would rather stay sell-side vs. risk losing my job over a bad quarter and not sleeping at night worrying about some company blowing up because I'm positioned wrong.
Do you have a statue of Ken Griffin that you worship to everyday or something?
This is barely investing. You're essentially trading.
L/S funds with 3yr+ theses that return money at 15-20% for 10 years will always be more impressive.
You model G&A by bps, they actually make thematic bets. They see the world, you see yipit.
Decided to go back to ib after leaving mmhf. Really depends on the group and your disposition. For me, the trade was for more consistent money for next few years for personal reasons. 7 figs the easy way or a question mark on your bonus and high blood pressure. Like trading a lot tho and do it in my PA and would considering going back at some point in right group/circumstances
Sounds like a good move, Mike (Jones).
Different game. Some people like doing pod and are good at it.
Others think it's stupid, so they should find a true long term public investing job (very rare), or go work in private equity, or some tech job and use their PA to express their learnings about business, moats, and compoundorrrs.
Funny enough I am in the latter category, but don't understand why anyone needs to shat on the former bunch.
I’m a pod guy. Why the hate? It’s a different game, that’s all. I don’t know why ppl think every pod guy is asking stupid questions to mgmt. I think the focus is just more on understanding current things as opposed to looking out couple of quarters/years.
My job is to consistently look for mispricings or whatever you want to call it within my sector and within the constraints of the MM risk model. You say pod guys don’t understand businesses and long term trends but that’s false. Any half decent pod guy will know every long term secular tailwind that drives the narrative for the stock. But I’m not here to understand the business, I’m here to understand the stock and what’s going to make it tick near term so I can make money.
I personally think it’s really fun. Everyday there’s some new piece of news or development I have to update or track instead of just looking at things big picture. It’s intellectually stimulating in a different way. And yes you’re less an investor, more of a trader.
I made the post as a joke. Mostly it's because analysts going into these pods from UG are insufferable.
Seems like you’re the insufferable one, Prospect. Is a pod guy fucking your girlfriend? Because it sure seems like it
Just college kids being college kids: the ones gunning for IB and MBB are not any less insufferable.
Yes. Pod guys know all the long term narratives but they can't (and aren't paid to) assess and bet on whether those narratives will get realized or not.
What they do assess and bet on: how an incremental piece of info will change everyone else's assessment of the narrative.
I always thought of pods as human labor arbitrageurs pushing spreads closer, but they also seem to cause outsized dislocations so not sure what to call them anymore.
As a pod guy, I don't care about whether a long term driver is true or not. All I'm researching on is "will LOs buy this long term driver or not?".
I don't find it less intellectual. Even more when you see how guys at different funds type are making their investments...
It's a different game but everyone largely knows the interest expense being changed by $4m in 4Q doesn't mean jack to management, nor is it how they think about the business, nor is it how investors actually invest in stocks.
Think of it this way - the best trades have typically been ones where you can find a thesis breaker (short) or a thesis creator (long). Where are the incremental buyers or sellers coming from? The vast majority of the mkt isn't buying or selling a stock because of some incremental datapoint that every pod will have within the hour. THAT is why people find pod guys insufferable - because it's a waste of management time to fine-tune your model for the quarter or try to find some hyper-specific line item that may beat/miss. The major holders of the stock don't own it for that, management certainly isn't managing their business to focus on that.
Think of any major earnings blow-up and it wasn't because you got your $0.02 miss on EPS.
You can look at things big picture and still pay attention to the path of achieving your thesis. I think the disdain for the pod process is as you say: "Everyday there’s some new piece of news or development I have to update or track." Every pod guy thinks every single new piece of news or development matters when in reality it doesn't.
.
Lots of pods out there are mercenaries yea. But when a successful one has been together for multiple years or experienced folks. While stress is still high, the WLB that is offered is way better. Be it remote work, be it vacation coverage and so on. Pod life is perform and no one bothers you about anything else.
Truth. Unfortunately many don’t perform so this life doesn’t get realised that often
Do you know if many pods are performing well this year?
caring this much is the real cringe
it's just a paycheck dude
Do pod analysts know how to do a DCF? Or is it not necessary when they are trying to see if margins are 10 bps higher than street?
do you think a DCF is some esoteric skill...?
Are you actually wondering if people who invest in, value, and trade stocks for a living need to know how a DCF works? A DCF is the fundamental backing for valuing all assets with cash flows. You are basically asking, do the people who try to predict stock prices need to know how to value stocks? Even if they don't run full DCFs and just use multiples the majority of the time, everyone obviously knows how to run one, because it informs the market's entire understanding of what a stock's price is... (it also takes about two seconds to add one in).
There's no intrinsic reason high competition stocks should trade towards consensus view of fair value (based on a DCF, or whatever). That's a low competition phenomenon. Incremental buying and selling matter much more and is why stocks can trade for huge premiums / discounts to what investors imagine is *fair* for long periods of time. Getting direction of numbers right and updating px targets accordingly generates far more idio than valuation work.
You missed the point - I am not suggesting pod shop guys or any investor needs to use a DCF to be effective. I am merely remarking that a DCF is the guiding principle for understanding how to value assets. So I don't understand how you can use a multiple based approach and not know how to do a DCF (or that you are using a DCF whether you like or not in a multiple based approach) - well I do understand it, I just don't think there are many analysts/PMs who don't know this, but maybe I am wrong. As the other person said, its not an esoteric skill, nor does it take long, and while it may not be used a ton explicitly with the purpose of finding some sense of intrinsic value for your typical pod shop analyst, I don't understand how you can operate in the space without fundamentally understanding how it works and how to do one.
As an example, what generates incremental buying when direction of numbers improves? The market extrapolates out this directionality, and it starts to impact the way people view the longer duration cash flows. Don't you kind of have to understand the discounting mechanism for a stock to work in this industry? Am I completely out of left field here?
I got some monkey shit so I'll try out this example. The entire med-tech sector has traded off. This largely due to the theories behind GLPs and the long term ramifications on the healthcare system. We have seen people saying the same for snack brands as well. You're telling me you can be a stock analyst and not know how to do a DCF. Come on
Love this thread. As someone at a non-pod who's constantly trying to evaluate whether I should bail to go to a pod, I'll opine on my thoughts having done ONLY L/S at my entire career, albeit for 5-6 years.
1) They don't actually reduce competition in the industry they just skew it -- meaning as AUM flows to pods and thus talent follows you have very talented individuals doing otherwise mundane/maniacal tasks as a function of their investment process. Hyper-fixation on the near-term mixed w/ some degree of FOMO does make the investment landscape far worse for everyone else, but it also just makes everything more competitive (in my opinion). The good SMs can take advantage of this environment and the talent who cares more "about the art" as someone mentioned above will prevail and work there. Or the existing talent at pods will burn out doing the same brutal exercises over and over, the ones remaining being the guys who are finance obsessed generally or can survive high seat volatility.
2) I too am suspicious of the sustainability with interest rates this high and have yet to find a good explanation for why we haven't seen tons more blow up.
3) I'm not sure what this means but if you mean LPs... they aren't. It's a system designed to hedge all risks ex-"left-tail" risk which I presume is interest/leverage. Pretty sure Ken was down MASSIVE in '08. At the pod level these aren't that complex but imagine the insane amount of quantitative analysis going into master fund portfolio construction is what you're referring to.
4) Lmfao
5) Lmfao x2
5a) They LOVE finance and stocks but yes some are very insufferable. I find the investment style and hyper-focus on near-term to be the insufferable part... 10 bps on margins this upcoming quarter is truly meaningless in the actual intrinsic worth of that company, or what the LT earnings power looks like.
6) Agree
I'd also suggest this entire thread implies we're at/near peak pod. Yes they'll continue to grow AUM as LPs get more risk-conscious. They'll take < 10% returns when the mkt is up 15% but rates are > 5% and they have 0 confidence in [insert Tiger Cub TMT beta boi here]. But all this AUM growth also entirely distorts markets and returns. It makes being a pod dramatically harder (see Schonfeld). If every single person is playing the NT print-risk pod game then there will be far fewer winners as the edge evaporates.
Combo response to this and another of your comments above... assuming you agree the 10bps g&a next quarter game is silly. But how do you tell apart those who can reliably execute the "thesis breaker/maker" process from the "TMT beta bois"? I imagine there's a good amount of overlap in the way they sound...
I mean it depends on the horizon of the investment and the way that a model is constructed. Some firms I've worked at place little emphasis on the gaap model. Essentially the entire model is a proxy for unit economics, sector economics, management, capital allocation, and cash conversion.
So let's take a company like INTC. Let's just assume the pods can probably project out G&A next quarter better than the L/S funds can. So suppose by Q4, there is a consensus among firms that you interface with that they'll have x units of foundry demand with some margin of error. Now a thesis breaker idea would be that you've actually gone to the plant or gotten some info through channel checks, expert networks etc. that tells you that in fact, that unit figure won't be hit, and in fact, there's actually big gulf that WS is about to understand. This is a thesis breaker, as in, people have held a thesis about this foundry play and further delays materially impact the LT outlook of the business.
Thesis breakers are more often shorter term but an example of a longer term one is take rate % in international payment software. Two years ago, cross-border payments was some of the hottest fintech in the world. Now pricing power is being destroyed. So suppose you realize this two years ago, there's a thesis broken.
Thesis maker just functions in reverse to this.
Just a sidenote. "TMT Beta bois" and Pods are different in process but may not be different in any particular ST thesis. But the non-hedged "beta boi" focused on some particular sector is considering performance more than dispersion. A pod boy can lever and make the split on (winner - sector). A beta boi usually does not hedge the position in the same way and thus is not buying things on a relative value basis.
No way to truly confirm the difference but having a few friends at those TMT beta shops and seeing their work product/investment process is a pretty clear tell that their work is pretty meaningless.
Like yeah your $2bn security software company doesn't have a $4tn TAM that's a fraction of the US GDP, but they'll surely engineer a DCF or valuation that suggests it does
I'm glad this bait thread brought out such good discourse. I feel like I too learned quite a bit about the pod mentality.
Yeah in (3) I'm referring to total fund construction, not on the pod level. To run a fund market-neutral you require hedging of some degree, but to run a series of hedged pods in a master vehicle must be just ridiculous. At some level, LPs can understand hedging but when you move from the pod to the pooled vehicle, I'm not sure if even if they understood it, they'd believe it. I like the sophisticated endowments and management companies because when their CIO has been around for 30 years, claims of engineered perfection are met with suspicion. Sure if the factors moved outside some 2sigma band you can cut the position, but it's difficult to delever + reposition the whole portfolio to again be market neutral. So in a year where Kenny boy is up 30%+ but other funds aren't, there must be some risk on their end that is difficult to factor in. In my conversations with blue-chip Institutional CIOs (I'm not really a prospect), they are hesitant to move money into these shops because there isn't the same kind of due diligence that investing in Elliot or Baupost would yield. CIOs aren't quants and the high churn makes trust difficult to build between LPs and PMs/Analysts.
Agreed on your final points. I think we're at peak pod for certain types of LPs, especially the more sophisticated. Sovereigns and pensions will likely continue to pour money into the strategy as it fits portfolio construction models superbly. The world of Tiger Cubs got eviscerated in LP eyes by the bad press on Tiger, Lone Pine, Viking, etc sort of because the tree of 0 rates and tech beta got chopped down. It's hard to justify a -40% year as a hedge fund; you're not a VC firm. I'm not sure if LT the pod game goes away, but it would really only take one blowup for people to realize the structural issues apparent there.
This is just a sidenote, but for some reason I don't trust Ken Griffin. I don't really have a good reason, but something feels fishy about him. I think it's just an aversion to this sort of boy scout super boy caricature he tries to show the world and his employees. The best investors ever (Druckenmiller, Soros, Buffett, Hohn, Gross, Icahn, Singer, Lynch) and even the new crop (Chamath, Ackman, etc.) are all polarizing figures. They're people who don't feel as if they are manufacturing anything subtlety. Whether it's Gross talking about his ex-wife and autism or Soros trying to change the political climate of the West, or Buffett and his polyamory, or Chamath and the Uyghurs, they're all just forthright in their humanity.
The only guy who I can compare to Ken Griffin in this way is Ray Dalio and his PR campaign around long term debt cycles and China bullishness. This is pretty attributable to the fact that some of his biggest LPs are China State funds which is always conveniently left out. Maybe I'd compare Schwarzmann to Ken in that way. If you read Schwarzmann's autobiography it's just two hundred pages of autofellatio. I am not joking I had to stop the audiobook at certain points because it was just too much.
Luckily for the SM funds, an era of higher macro vol will see assets flow back towards actual investing. Pod boys will disagree, but LPs don't appreciate geopolitical uncertainty, rate uncertainty, and the last thing they want to think about is some Lovecraftian risk model. Why not give it to PIMCO or Blackstone and do some easy 9-12% yield. Private credit and private equity is a whole other bubble for a whole other thread.
This reply has gotten rather long but of all the replies I've gotten I enjoyed this one the most. The sad part is that Citadel and P72 have taken over the campus recruiting scene like GS/MS or MBB promising biz/math/cs kids the opportunity to "go straight to the buyside". Ironically, the kids who seem to really enjoy finance end up in credit trading at JPM or scattered across the industry in AM/ER/S&T. The thing is that the P72/Citadel campus recruiting blitz has the wrong kind of kid chasing finance for all the wrong reasons, leading to this pipeline of insufferable pod analysts.
For sake of not being redundant agree with most of what you're saying. I'd highlight two major things though that I think are important.
1) Reasons you invest or don't invest in Blackstone or PIMCO for a lower yield is because those spreads have probably contracted vs. risk-free rates.. so if you can own treasuries at ~5% at 0 risk then those don't look like great investments either. I think in general those risk/return profiles are geared towards taking liquidity/duration risk rather than market/credit risk, though. Just a completely different investment so I don't think LPs view it the way we do.
2) Leave out Viking/Coatue cause those guys actually did OK fwiw. Lone Pine/D1/Tiger all got absolutely slaughtered in comparison.. down 10-20% when tech was down 20-30% is actually more impressive for what those vehicles actually are vs. down 60% or more.
Just means that the SM LP capital should flow to the guys who have shown they can outperform their respective indices through a cycle. If you're an LP and you believe that markets naturally go up over time (they do) then generally speaking you should want to allocate inversely to the way you might invest in a pod... seeking outperformance as markets go up but underperformance as markets go down, but perhaps outperformance relative to sector-specific benchmarks. On a Citadel note you likely won't ever get outperformance in a market environment where stocks go up > 15% but you shouldn't really LOSE money unless you experience that left-tail event.
I also can't really speak for LP appetite and what makes more sense because largely comes down to risk tolerance more than anything probably but the original hedge funds were meant to sort of track up with markets loosely but dramatically outperform in higher volatility environments.
How about passive investing hate? At this rate every single penny in the markets is going to be blindly following an index in 20 years.
Will you still be eating grilled cheese off the radiator?
A thread where pod heads - which are supposed to be these math animals yada yada yada - essentially argue that the MM set up is free money for LPs.
I am so sick and tired of the pod guys coming to conferences, thwarting everyone's meeting to ask their idiotic questions and then going to office, putting on the most basic RV trade on a crossover name and if it goes well they made 60 bps of compression, if it doesn't they dont get paid. Get real, do your calls and crank your model, but don't tell us you are the stalwarts of real finance. I hope your PM does not net the cost of the bbg terminal off your bonus and that your central book does not front run your trades.
This really happened:
Meeting with CFO of company whose current cost of debt is below 3% and maturing after 2027, some pod guy asks: " what do you think of refiing early and adding more debt to finance this expansion project you have been talkimg about? Assuming cost of debt of 7%, you could arbitrage that vs a ROI of 10%+ on new project".
Took him 5 minutes to formulate the question, the CFO response took 15 seconds and went "we'll refi in 2026 and the cost of debt will be whatever it will be at the time and the return of the project will be whatever it will be".
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