HF to LO?
Hi all. I’m currently an analyst at a relatively sizeable >$3b SM HF. I’ve been here for about 3 years now. Spent 2 years in BB IB before making the leap.
In my first 1-2 years at HF, I was mainly supporting the analysts ideas, updating models, doing calls, and the usual stuff. Over the past year, I’ve transitioned into more of a risk-taking role where I’ve been able to put on some positions. Individual performance has been ok thus far. Last year was decent, this year has been tougher with all the vol.
What I’m really struggling with is the huge impact the role is having on me mentally. We claim our strategy is long term but at the end of the day, all that matters is YTD performance. I find myself constantly glued to developments in my positions and persistently stressing out over them. Especially so on losing positions that keep losing due to positioning unwinds/rotations or whatever. The constant worry keeps me up at night and affects my mood every weekday. I feel like I have a breather over the weekend when markets are closed though so I tend to work on deeper research and new ideas then as I don’t get distracted by price movements in the stocks I own.
My question to those more experienced is: does it get better and do you have any tips on managing these daily stresses? I do enjoy investing in the public markets and so the other question I had was whether moving to a LO will address some of these worries. Way I see it is that they can absorb draw downs a lot better, have multi-year investing time horizons, and seems more institutionalised so you can build a stable career. The obvious downside is that they are less agile and comp will probably be lower but I don’t mind that if I get to sleep at night better while doing what I enjoy. What do you guys think? For what it’s worth, I don’t think I’m at risk of losing my job as my overall performance has been ok (not great, but not disaster).
Definitely less stress at a LO, but it's always going to be there in public markets. Is your PM breathing down your neck when positions are going against you or is it self imposed? If the latter, you just have to learn to deal with it or maybe a public markets role is not for you (not being flippant here, just recognize what you've said about your fund saying they are long term focused but caring about YTD performance is true at most funds, including LO). Two pieces of actionable advice off the top of my head: 1) focus on the process. Remember this is a numbers game. Stocks can move for a million reasons so at the end of the day you just have to focus on what you can control. Even the best are not hitting 100% and everyone goes through drawdowns. 2) try to do some cardio a few times a week. Meditation has always been tough for me but that also works. You'll feel much better and for whatever reason it helps put things into perspective.
Thanks for your response. It all makes sense. My PM is calm about things as I have a couple winners that net out the losers for now. The stress is mostly self-imposed (what if the winners fade and the losers continue to draw down type of thing). I think it’s the lack of appreciation that you can’t be right all the time that’s getting to me. As an analyst, it just feels like you have to be right because there’s such a small sample size of live positions you have on and obviously everyone wants a positive track record from day 1. I’ll stop bumming around my desk and make some time to get back to running and meditating. Thanks again.
That's the game you signed up for tho: even the very best have a 60% hit rate I believe?
Totally understand how you feel. You're probably thinking since you just got more responsibility you want to start off on the right foot (i.e. your PM might not trust you if your first few calls are wrong). I was there too, that feeling should go away once you've built up some equity and hopefully made more right calls than wrong. Your first few at bats is going to be scarier than your 100th.
Agree with most of what you've said but as Munger says, "show me the incentives and I'll show you the outcome." LO comp is generally centered around 5yr performance with 1yr playing a de minimis role. Their client base has been drilled over decades to understand this. That's why they can actually take a longer term view than the majority of SM funds
Reach out to WallStreetOasis.com>[email protected]
... Your background is interesting for something he's building behind the scenes at wso...
Thanks for flagging this. Maybe I’ll consider that.
I would focus on having a longer-term perspective. Stop looking at the daily gyrations of the stock prices, and concentrate on what you can control, which is continuous diligence and research
Thanks. Am working on this. It’s tough in periods of drawdowns but hopefully those happen far less often as I sharpen the process
I think I could have written your second paragraph. Unfortunately, as I can attest, it gets even more intense with greater portfolio responsibility.
I think moving over to LO might be less stressful incrementally. But I guarantee there is nobody at a LO who says...."Oh, my core position in FB is down 30% ytd. But that's OK, we are long-term oriented and can absorb drawdowns, so it's all good." I imagine you would be stressed out of your mind. It would be akin to someone at a MM looking at you and thinking that there is no reason for someone at an SM to be stressed out because we don't have such tight drawdown limits. Yet, here we are stressed out, anxious, and losing sleep.
That said, I think there are lot of good reasons to move over to LO. For me, I stress out in any given year about: (1) losing my job because of poor individual performance; and (2) the fund doing poorly and shutting down, which is entirely out of my control. At least at a LO, I can eliminate half of the reasons that create stress for me given that I don't have to worry about Fidelity shutting down. For others, there are other reasons that LO is attractive, including longer-term orientation (but to think that people at LO are less stressed when their positions go down would be a fallacy, IMO). Maybe someone at a LO can correct me.
I work at a boutique LO in the $10-$100B range. Year-end relative performance of course matters greatly and obviously is the driver of your year-end bonus. However, yes, there are many benefits over working at a MM when it comes to 'constraints' that impact your lifestyle/stress levels; but it would be incorrect to come away with the conclusion that performance didn't matter. 1) Longer-term investing is generally less stressful than event-driven trading at MMs where every daily or weekly move matters a ton. 2) There is no risk dept shutting you off when you are down 5-10%, and 3) you have much more leeway in any one year (you won't get fired if you have a 1 bad year if you have some tenure; but don't expect a great bonus either), and 4) the firm won't get shutdown after a bad year or two as assets are generally sticky (this varies on shop) due to clients being trained to think of performance in 3 or 5 year increments. These factors, coupled with the culture at most LOs that prioritizes LT staff development, help result in more durable investment careers at LOs. You can very visibly see the difference in average age at investment conferences when you look at the MM teams vs. the LO teams.
OP here and I thought I’d give an update. Things have changed so much since my post 1 year ago. I am 100% so much better at managing the daily stress and have become far more used to it. I’m actually thinking of moving to an MM soon because I want to bet on myself and I think the whole idea of being able to do longer term investing is made up anyway (will reference the above example where even ppl at LOs are stressing over daily MTM moves). Most importantly, the upside is big when you make money and of course it’s only big because you’re being compensated for the career risk you’re taking. You get paid shit in a down year at an SM anyway.
Many have been on this path. It's funny because I almost had this exact sequence when I was starting out (joined SM out of school, at first was stressed and wanted to move to LO, then got used to it, now thinking of moving to MM too).
SB'ed for updating. good luck.
(did you get shit pay last year?)
I don’t know what is considered shitty as that’s a relative term. Was 700k total comp but individual performance in my risk taking role and fund performance was great (I doubt I’ll be as lucky to make whatever pnl I made last year on a % basis for awhile). Figured if I want to make real money in the millions, I have to do it in the MM model (I’m single with no real responsibility or dependents so that helps). Could think about lateraling to another SM too but fuck the internal politics you have to play.
The thing that helped the most for me was having enough different types of trades on instead of having one single high conviction stock. That’s way more stressful. I think after awhile you get used to the volatility which isn’t that crazy if you’re sufficiently diversified. I don’t mean diversified like long one tech and then long another energy company. I mean different kind of trades like long secular growth / short secular headwind versus long company with SOTP value to be unlocked kinda thing.
I also think SM’s have so much politics that it’s just fucking annoying. You don’t really know how you get paid so once you think you have a good process and you’re able to export that, MM’s are where you can put that to use and get paid. Don’t get me wrong - I’d much prefer to be in an SM for career stability but I’ll never be the top 3 guys in the fund who get all the credit so have to be real with myself and settle for the MM construct.
At the end of the day, you can’t be in this industry if you think you’re no good. I also think the whole idea of long term investing is all bullshit. Ackman can get away with it with his Netflix trade or whatever, but his investors have been in wilder rides before. 95% of funds are YTD focused and say they’re long term just so they can create some differentiation versus the pods when they pitch to their investors.
Lastly - I realised I want HF comp and not LO comp so the choice to stay in the industry was made up for me already. So question was MM vs SM. Have laid out my thoughts above but main point is if you’re not gonna be the top guy in your SM and you wanna make big bucks - hone your skill and apply it while you’re at the SM then export it to an MM.
So I'm guessing ur bonus was discretionary and not tied to pnl? Don't risk taking analysts get direct pnl tie to their ideas? Or does it always get determined by what the top guy thinks u should be paid?
Discretionary. Never seen anyone at an SM with transparent pay outs - just my personal experience.
It's all discretionary. the risk taking analysts/sector heads have a stronger claim to PnL but at the end of the day it's never what you think you deserve - which could totally be fair for what it's worth, but MM is formulaic so everyone is on the same page.
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