Why and how are Hedge Fund Analysts / Portfolio Managers so knowledgable?
I've always had interviews with just investment banks and I do quite well. All it needs is competency, technicals and some general macroeconomic overviews. I applied to a couple hedge funds for an internship as I've always been interested, and I had my first ever interview. I went in with 0 expectations and just my IB knowledge and a couple competencies and I got absolutely destroyed. The interviewer went from talking about the history of socialism in the 18th century (which I had no clue about) to what books am I reading now to what is the best business in the world and why, which we both agreed was apple, but his justification was much much more sophisticated than mine.
He was a consultant at MBB and worked in Equity Research at one of the American banks, so nothing special. But firstly, why are he (and I assume other hedge fund workers) so knowledgeable? And how do I get there? What does perfection look like? I do understand that it's about reading more books / articles, watching more docs, but what exactly do I read into? What categories do I focus on? I do enjoy reading books but I just like reading auto-biographies and interesting things like a prison officers experience or whatever. I do invest my own money but I am a very casual retail trader. My goal is to have some in depth sophisticated knowledge in the business & finance space as thats the space I wanna be in long term.
I don't think I want to work for a Hedge Fund (and i know for sure im not getting any offer / extra interviews) but I do want to reach that level of knowledge where I can have conversations and be aware of things around me. I thought I was good with IB prep knowledge but its no where near enough.
Ikr? You described it very vividly - it's always such a pleasant experience to talk and exchange ideas with these people all day. You need a lot of curiosity to always want to dig deeper into a name and never take anything at face value because that's where edge in the markets come from, so that curiosity lends itself to always wanting to know more about tangential fields as well, which can come full circle to aid the investment process and give yourself more ideas. It's a great field to work in if you're a curious person (but you also have to pace yourself and keep calm when things don't go well)
what did the other guy say, i missed his response?
When you are trying to invest and have to look at a lot of different businesses over 10 years, you learn a lot about the world. You can't participate in the markets without understanding how the financial system works (a lot of knowledge), politics (to a certain extent), and how every industry in the world works, and the history of all these things informs the present. You are constantly learning new information about how every system in the world works, and that is probably what drove me to this game (even if I am not really "part" of the game). It accumulates quickly because being a rapid consumer of information (and the key elements of any piece of information) is an important skill.
Short answer: it accumulates because you are reading and learning non-stop all day for years and years. Volume of information =/= intelligence
is the ultimate aim of all that information to create essentially a stock pitch to decide which stock you think is best to short or long?
secondly, this may sound stupid, but how do you learn? like from college we are taught to learn the facts first, then entertain different schools of thought on said topic and then use critical thinking to come to our own view (which can be or not be similar to someone else). at HFs i assume you follow this system, apply it to loads of different topics and over a span of 10 years, you've built up a wealth of knowledge? but linking to your 'volume of information doesnt equal intelligence, the real value is your critical thinking; to be able to look through all the different opinions and the facts to come up with a good but diversified outlook? and that criticla thinking skill is just built over time right, if i wanted to strengthen that, id just have to look through different opinions that exisit and come up with my own and over time i should be able to do it quickly?
and thirdly, how do you personally retain all of that knowledge? like do you have a 'learning' system in place?
I'll chime in with a differentiated view. During recruitment, I was never able to get past the initial rounds of any IB firms. However, I did make it to the Superday and got various offers from multiple prominent HFs. Here's what I believe is the key differentiator to why I am able to get HF offers but not IB offers:
1) Both IB and HFs require very different skill sets.
Throughout IB interviews, I was grilled a lot on technical questions and market outlook. While I had no issues with technical questions, each time a market outlook question is asked, I would always reply with my view vs what the street currently thinks. I believe that's already the first mistake when it comes to interviewing for an IB role - in IB, all you're really doing is scanning the universe for a consensus rather than speaking your view. Whereas in HF interviews, they love it when I talk about my differentiated view - and will almost more than always dive deeper into the rationale and thought process.
I'd even go as far as to argue that in a HF setting, you don't really need a finance major (all you really need to know is how the 3FS work, some basic modelling and valuation methodologies). However, what you really need to have is a lot of healthy skepticism, ability to piece different pieces of information together, and have a thought process to think through differentiated views. And tbh, all of these come from your various life experiences/ just being curious in general - and when you're curious, you will naturally want to read up more about the world. For example, I am not studying law at the moment, but it is a topic that piqued my curiousity - as such I've been reading about criminal law, civil law, etc., and naturally from there, your knowledge base just expands.
2) IB is about being perfect; HF is about making mistakes.
"Attention to detail" would probably be the most important skill for an AN1 in IB - after all, most of your day is going to be slide alignment and formatting. You have to make sure the numbers you present to the client is right, there is no typo, no formatting errors, etc. However, on the contrary, in a HF setting, you will definitely make mistakes. Assuming you're in a L/S fund, and you have a thesis based on a certain evidence, the evidence is not telling 100% of the story (otherwise it'd already be priced in). You'd at most be 55-60% confident that this thesis will make you $, and you take a bet. You will definitely be wrong, and that's where you have to be quick on your feet, learn what went wrong and try not to make that same mistake again.
1) I completely agree with you on this. IB tends to be what the consensus is whereas HFs are a level deeper and wants you to use critical thinking to come down to your own view, which is why I found IB interviews so easy and this one so hard, I cant form my own opinion instead I just spit what I read. Even most poeple on campus are liek me, where our opinions tend to be what consensus says. Naturally we do sometimes have our own views but this is never the focus. I have never come across someone who has the ability to come up with their own view - unless you're very senior - so I kinda was in awe of the interviewer lol. I wanted to know whether it was just him or its a consequence of the job, and I realise it is. And even though I dont really have interest in HF at this point in my career (ive realised id be completely out of my depth), it was an interview just for an internship, it has humbled me and I do want to develop that skillset in my own life independently so I wanted to ask people in the industry how I could get there. What you're saying is that there is no specific way, its just being curious about everything and anything, always questioning why.
But to go a level deeper, how do you learn? whats your system where you go from a topic you have no idea about to being able to make your own differentiated opinion on? Like lets suppose you was given a topic like Law for example and the different parts within it. First you obviously learn the level 1 stuff; the facts aka the black and white stuff, level 2 stuff: the grey stuff aka the opinion stuff, where there are usually different schools of thoughts, you analyse each school of thought and realise which one makes most sense to you, and you form your opinion? Now in a hedge fund context, where the point of forming opinions is to create original ideas / alpha, are you trying to create your own school of thought?
2) Again, I completely agree. Kinda highlights why IB is the sell-side and why HF is the buy-side
Apologies - haven't been very active on WSO as of late. On your questions:
How do I learn? Tbh, there really isn't a magic formula. You just read up on current affairs, and question everything that happens around you. For example, if a regulator blocks an M&A deal, what was their key consideration for doing so? If a company divests a high-performing segment of their business, what was their intention for doing so? Question everything that you see and try to look out for the answers (Could be talking with friends in the industry, management meetings, etc.) and add it to your "database". In future, if you see a similar activity happen, know that what happened in the past could be a possibility, but be open to the idea that there could be other possibilities too.
What's my system to form a differentiated view? Again, to me, it is more of being able to leverage past information to current issues. However, if you're looking for a process, I tend to form different hypothesis and look for evidence to support/reject my hypothesis. It's like the textbook answer of what we learn in basic statistics. If I find evidence that rejects my hypothesis, than I'll move on to the next hypothesis, rinse and repeat till I find something that supports my hypothesis and do a lot more digging. It's also kind of just understanding how businesses work - how is their value chain like? From there, you will know what kind of evidence to look out for from your past "database" and you slowly continue to add on.
Same here--In my IB/PE interviews, they always wanted the basic, rote answers most people have memorized. Which I tried to give but any time I veered off course, they dinged me. Whereas for every HF, any time I gave a specific market outlook, or talked about academic interests outside finance (I study History), they really dove in--part of the reason I went with the HF I'm working at is because I thoroughly enjoyed the interview process and the PMs I talked to much much more than IB/PE.
Assuming this was for P72 Academy; the best business question is p classic for them to ask lol
people at HFs are just very passionate and nerdy, they don’t really do anything specific to get that knowledgeable it’s more of a consequence of being curious and constantly looking into companies and developing ideas about them
im personally not interested in HFs right now in my career, i think id be out of my depth personally. its just speaking in the interview i was in awe of this skillset that the interviewer had, i kinda wanted to know whether its linked to the job and if so, how they got to that point.
They read a lot, talk to a lot of people and know how the world works and how businesses compete.
There is no secret shortcut, if that's what you are wondering.
Not a shortcut. I was wondering whether it was a consequence of the job, and if so how do they get to that point? Like how do they learn in a way where they cover a breadth of topics and each topic is done so deeply. Whats their system? How do they learn it, how do they retain so much information. And then how do they do it so quickly? Like it would take me ages right now to learn a lot about a single topic. Someone mentioned earlier about mastering the art of being a rapid consumer of information and taking the key elments of any piece of information, how do you master that?
What part of "a lot" did you not understand? Repetition, experience, time. Doing this over months, quarters, years, decades.
ergo masters of the universe
is there a career out there that requires as much reading as these guys?
When you are interviewing for a banking job; the firm has a predicted deal flow pipeline, specific tasks that need to be done. There is also an annual budget to hit and expectations of resources needed.
As much in the HF world we try at a high level to plan the same budget/resource process it never ends up playing out that way. The job itself is the same everyday; buy/sell/index none of that ever changes but the circumstances of your day/week/month can change in an instant.
For this reason we need people who can adapt fast, are well read, look beyond their current scope.
As mentioned I do not think any HF person will go in and say they are better read in a topic to a PhD/Doctor/Lawyer etc…But they can adapt the way they think of the situation a lot faster than those people and that requires a lot of reading and ability to push the bounds of your interests.
thats called autism
To add on to others and try to answer your question, I think part of it is ability to retain, synthesize, and recall knowledge. I've worked at HFs but am by no means a HF guy. I have friends who have gone to top HF programs (P72 Academy etc.) and these people are amazing at pulling some random thing out of no where that relates to what the issue is at hand. So maybe it's not necessarily the consuming of knowledge they do differently (everyone can do this, we have the internet), but the way they are able to retain that knowledge and then put it to use.
These friends of mine tend to think in very causal ways as well if thats any help. ie X happened, so Y happened rather than X happened, then Y happened. I guess its more about looking for reasoning for them.
Idk id love for someone to pick apart some of these guys brains. Maybe read some of Nassim Taleb's stuff that guy has some great thoughts.
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