I have been following Brett Caughran on Twitter and he has some great threads recently on his process at HFs as a PM. I was reading through a recent one about how he determines the buyside whisper, and it got me thinking about the kind of trades that HFs usually like to put on into earnings vs. what I am used to pitching for an investment thesis.
https://twitter.com/FundamentEdge/status/15644087…
The most frequent HF trades seem to be smaller set ups rather than finding some massive variant perception that for some reason or another the market has wrong. I come from LO so a lot of set ups I look for are building confidence in durability of cash flows in outer years and a reasonable valuation entry point + maybe an argument for why the market is underestimating this durability. Also the more traditional value plays (paid for now + upside optionality), etc. I am working to think more like a L/S analyst these days though.
When tailoring pitches for L/S HF, it seems more and more unlikely that I am going to uncover some data point the market has completely ignored, and it also seems like the investment scenarios that HFs frequent in the most are smaller set ups like: comping slightly higher this next Q so you get paid on the +revision & +re-rate.
Is pitching something like that small set up a good pitch for a HF interview (or if I am cold emailing my pitches to back door in)? My most usual pitch is focused on something like 1) here is great business 2) market is focused on near term concerns or wrong "xyz" 3) justification for why they should grow "xyz" in outer years - usually based on competitive review + industry trends 4) get paid to hold through ~2-3 years as growth comps higher than expectations. Should I be pitching situations that are mostly focused on why earnings should beat sell side/buy side whisper next Q?
Another thought I had is this is all less relevant because the pitch is mostly to determine 1) can you think like an investor 2) argue coherently and concisely 3)parse out key drivers in a thesis, and the majority of good theses/ ability to build variant perceptions come from access that is only available to institutional folks (alt data, access to multiple expert networks, etc.).
Thoughts, feedback, advice are all welcome!
For your purpose, the one on Tiger Cub to Pod Shop toolkit is prob useful too.
Honestly I guess the real question is can I pitch a typical SM 18-24 month stock thesis for a pod interview?
I have done that and I can tell you it did not work out in my favor. Keep your thesis to a 12 month time frame and try to find that one thing where you can be different on from consensus. It doesnt matter if that specific factor is not that important in the bigger (and long term) picture but it helps in showcasing how you can utilize tools to formulate a differentiated view. Your pitch may not be perfect but it can show some resemblance to the PMs process which is likely what they are looking for
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