How long should it take to analyze a company for investment decisions
For HF that adopts variety of fundamental approach to investing, studying/analyzing a company is often a must.
My question is how long does it usually take for hedge fund (like Greenlight Capital) to analyze a company to arrive at a investment decision?
As little as a few days or as long as a year. It really all depends on what the situation is. There's plenty of stuff we know we'd want to buy if Mr. Market came up to us one day with the right price, and we wouldn't need to spend a ton of time on it to make that decision. However this is usually the case with something you're either familiar with or is a rare occasion. I'd say most fundamental shops that don't subscribe to one of the more extreme forms of value investing would probably spend a few weeks doing the diligence and maybe another few to make the pitch and get everyone on board with the position. Keep in mind this time frame gets squeezed down huge into a much shorter window if the firm is more diversified. Greenlight is fairly diversified relatively speaking but compared to the average fund outside of just the value space it's quite concentrated. Some managers will buy a business they only know the basics about just because they want exposure in that industry or something like that... but if it's 1 of 10 positions then you're obviously going to spend quite a lot more time on it than if it's going to be 1 of 100, a small position, or what have you.
for a more diversified fund, typically 1-2 weeks to get the initial pitch down and start buying (depending on whether we think it's time sensitive), then a couple weeks more of diligence to build confidence and build up
Varies a lot - where I interned sometimes you'd need an answer by that afternoon, other times it was really involved. I think at Baupost back in the day they had an analyst who was assigned to only look at Enron claims and docs, full time, for like a year. And it worked.
It only takes a few hours or a few days to read through all the publicly available information, build a model, maybe talk to the sell side to see where sentiment is.
You'll likely have to do more work to build confidence in your thesis - speak with management, talk to suppliers/customers, etc. This could be handled over the phone in a day, but it rarely works out that way. Plus, along the way, new questions arise and you'll find there's more diligence to be done to chase down those answers.
Ackman said they spent 12 months (or was it 18) researching HLF. It wasn't like one guy showed up to work everyday for a year doing nothing but research on HLF.
Where I work, I probably spend a few days (less than a week) on a name before I would pitch it. We'd likely then buy a small position and/or figure out what else we'd like to know before we get committed.
From there, it's an iterative process which goes on for as long as you own it. Does your thesis still hold true? Is there still appropriate upside, how has the downside changed?
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