Generating Fresh Ideas as a Young Analyst?

I saw a previous post asking if ideas taken from VIC/other sites would fly in an interview (although this isn't really my concern). It got me wondering, how  did you guys start putting together your first investment idea(s)? Put a gun to my head, I don't think I could produce anything original, so I'm wondering how you guys approached this. I'm still deciding if the move to public markets is right for me.

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Comments (23)

  • Associate 2 in PE - Other
Mar 29, 2021 - 9:31am

You'll learn with experience the best way to learn the process of pitching is to triage potential ideas to see if there is merit to continuing additional work until eventually becoming a fully baked idea. As a young analyst, you'll ideally learn this process with support from a good PM who keeps you on task / efficient. This means you spend twenty minutes looking at something you think could be interesting before reporting back why which leads to spending another hour on it which leads to calling an analyst / the Company and so on. At any time during that process it could be killed and you move on to the next. As you gain experience, you'll figure out how you can get that initial full day's work into just several hours because you'll become more efficient. Eventually, you can spend 2-4 hours looking at something and check those boxes you know are pressure points for your PM and pitch a "real" idea you think is worth more work, or maybe you've done enough to get comfortable with a small tracking position. 

One of the tricks is figuring out a good process for identifying the things you think may be interesting. For me, it can be a news report, something that sticks out in some sell side sector piece or desk note, transaction announced by a company, pulling the thread on some piece of information, or just randomly poking around the internet and stumbling across something that sets a light bulb off. However, I'll reiterate that a critical skill set is learning what is worth spending time on vs what is not. There were several times early into my career that I spent too much time on something just so it could be "done" that were written off as an academic exercise, but that wouldn't fly for me now.

Mar 29, 2021 - 2:25pm

This is really helpful - thank you! Could you recommend any books / resources you found helpful in idea generation? Curious to learn more about the approach people use. Also, for interviews, was your angle generally to learn a lot about 1-2 industries, select a company, and defending your l/s view? Many thanks again! 

  • Associate 2 in PE - Other
Mar 29, 2021 - 3:45pm

I don't think idea generation can be taught from books, it is experience based. My approach to interviewing was to research whatever I thought was interesting and then seek out funds / managers that invested in a similar way. 

Mar 30, 2021 - 2:39am

What were some of the high level key questions you required answers for in order to pursue an opportunity / dive deeper? Were they primarily quantitative or qualitative in nature? Were there certain questions that were a must on each new idea generation as a screener / filter?

  • Associate 2 in PE - Other
Mar 30, 2021 - 8:50am

Most of the time it just comes down to understanding what the "thing" going on with the security is and if there is visibility into an event which can address the thing. Anything else is just company-specific questions generally. 

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Mar 30, 2021 - 11:09am

I'm only graduating from high school but I have been making decent returns from commodities and stocks since 2018. Here is a way to generate trade ideas which I use a lot. Hope this gonna help.

  1. Think in a top-down way. I take a look at the macro, see what's going on, make my prediction, then structure my trade to express my prediction.
  1. The majority profits of the trade should be coming from your analysis on macro.

For say(suppositional), in the first quarter, credit is widening, M1 is expanding faster than M2, inflation expectation is rising, so I predict the price level is gonna rise. Then look at the commodities, some of those are at their low inventory levels due to the seasonal reasons as in they are highly elastic rn. Plus futures/spots are fluctuating at a relative low price. Therefore, I go long on them. Since inflation rises, fixed income market is influenced, so I go short on treasury bonds.

And there is another similar example of how I profited huge earlier months in the China stock market. Under the onslaught of Covid, fed is printing more money. China, as a big holder of US bonds will get influenced. Plus China is in the second phase of Kitchin Cycle, commodity-allied stocks has been slumping since the last peak at 2007(especially copper). Then I calculate how is the rising copper price is gonna influence the EPS of copper-related stocks. Then I went long on those. The reason I went for stocks, not commodities is because there is not much hedge I can do under the CCP's braindead regulations, So if anything happen to the copper price, I have enough time to run(stock price are delayed)

Timing, PL ratio and etc are also important, however that's for another topic.

  • Associate 1 in PE - Other
Mar 30, 2021 - 11:47pm

summarizing a few bloomberg articles does not equate to an investment idea. Let the grown ups talk

Most Helpful
  • Associate 2 in PE - LBOs
Mar 31, 2021 - 11:17am

Don't be condescending, students are very impressionable at this age. This career needs more people who are encouraging. @starvingchinesekid, thanks for sharing this write-up. Keep sharing ideas with people around you and when people point out issues, you'll learn to refine your thinking.

  • Analyst 1 in HF - Other
Apr 1, 2021 - 6:27pm

You're getting downvotes because you're out of your depth commenting in this thread. People are looking for how to generate ideas in a professional public markets investing context. You're just out of high school, and while your post is interesting and you should definitely try to learn more/do more research, the thought process you outline isn't very relevant/helpful for this thread.

Mar 31, 2021 - 11:23am

If you're speaking specifically within the context of pitching to a fund during an interview, I'd emphasize that process and clarity of thinking are much more important than the idea being directly actionable. If you are coming into a (good) fund, most senior guys will fully expect that a junior hire isn't going to provide them with a fully baked idea. It's much more about how you think as opposed to what you think - the approach and or idea generation process specific to the fund you join will be taught to you, with the expectation that you'll quickly pick it up. As mentioned beforehand, you should spend time at least thinking about your own personal investing style (at least in terms of how you approach what you think makes a company 'good' vs 'bad') so that you can seek out funds with a similar approach. Based on your post it sounds like you mean fundamental bottom-up and if that's the case I'd spend time getting very familiar with reading through K's/Q's/earnings calls etc., so that you can be more compelling in your argument when presenting to a potential employer. Remember, at the end of the day stock picking is far from science so your ability to establish an argument and defend it will go much farther than regurgitating someone else's ideas that simply seem impressive. 

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