Macro/Microecon needed?

Is the material in Econ 101 (intro level at undergrad) enough to work at a L/S fund? Looking to retake a refresher course both for personal interest and recruiting purposes, but not sure if also necessary to take 1) Macroecon and 2) Microecon courses on top of an intro to econ course...thanks for any insight!

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Comments (39)

Aug 20, 2015 - 9:06am
VALuation:

I don't think intro econ classes are enough. I'm an econ major and did not have my actual revelation of how the global economy works until my upper international finance, monetary economics, and advanced microeconomics courses. Just my $0.02.

I second this, the classes that got me some knowledge of real world ( if classes can even do that) were international finance, intermediate macro/micro, methodology and some finance courses

Best Response
Aug 20, 2015 - 10:04am

i was an econ major, and am now a trader. here is my 2 cents

1) economics is a great degree area if you want to get into trading / investments, but on its own it is not enough (and, i tool ALL the econ classes - i think 12 in total).
2) the most relevant econ classes were macro, micro, international banking & finance, international trade, labor econ, ect...but these just give you a mental background to understand all the other stuff that you are gonna have to learn.
3) there are lots of positions at investment banks and hedge funds where they are looking for people with quantitative backgrounds that can code (for example, able to write code to price a basket of both vanilla and exotic derivatives, able to build a tension spline yield curve model, multi-factor pricing models using stochastic volatility scenario analysis, ect..) That all sounds very mathy mathy, and quanty quanty....yup, that is the skillset that is in the highest demand. These things are leaned in a financial engineering course, and usually take a couple years to learn (you also have to learn the math). Those jobs also pay 150-200k to start. There is a real shortage of people with higher math skills that both can program and want to get into finance. This will typically take 4 full years in university to learn these skills.

A basic L/S fund is either looking for quants (from above), or people with deep industry specific experience, and able to do a deep dive into a companies operations to try to find the "true value" of a company, or for people who are investment banking generalists, but have a wealth of certain types of investment/finance knowledge.

It should have occurred to you by now that an intro econ 101 course is nowhere near enough to fulfill these requirements.

If you wanna be the guy deciding to go long Home Depot and short Lowes, and put on $1bln of that L/S trade...get in line...there are 5000 guys ahead of you who want to do the same thing. The typical career path to get into that gig is as an investment banker (1-2 years) in the same industry group where you want to specialize in picking L/S ideas. So, if you wanna go to a fund where you can pick L/S ideas in the oil & gas industry, your best bet will be to get a job as an investment banker in the oil & gas industry group. After your 1-2 years IB stint, you will be a prime candidate for a L/S fund in that area.

Assuming you get into that IB gig, you would also be considering PE as a potential exit.

If you just wanna put on the trade, and you don't care about all that "fancy education" then i hope you either have deep pockets, or friends that do, and are willing to trust you with their money....because the hurdle to get into the investment industry is not what it was 30 years ago. You have thousands of people who want to do the exact same thing, and so the competitive threshold is much higher. There are a few hundred guys a year who go the IB route, specifically with the intention of getting hired at a fund 2 years later....so every year, there is a pool of these people with 1-2 years of industry specific IB work competing for every spot at the L/S and PE funds.

What is your competitive advantage against these people? If you don't have one, then might i suggest "if you can't beat'em....join'em." That means, do what you have to do to get a job as an IB, and then use that job 1-2 years later to move into a fund.

Aug 20, 2015 - 12:55pm

the next step would be recruitment via headhunters, in an attempt to get a job as an analyst at a fund. You could probably find a handful of openings on your own, but recruiters will have dozens.

Since you are not coming from a trading background, your value proposition is valuation.
I'm assuming you've been involved in M&A, leveraged finance, capital raising. These are the bread and butter of IB. They also provide the opportunity to build the valuation skillset within an industry.

Economics is at it heart very basic. you have supply and demand, relative value, game theory, and econometrics, which is more macro statistics.

Financial engineering is all about future value vs present value, derivative pricing, and "curve fitting and smoothing techniques."

But a L/S fund is all about relative valuation and multiples. If Home Depot is trading at 18x, then Lowes should be similar. But the question is...what figure is driving that multiple, and which multiple is really most important? Each industry will have its own esoteric factors that drive multiples and future expectations. So, depending on what industry you are focusing on will determine what education will best suit your future endeavor.

If you are in the oil and gas industry.....that's a big difference from, say, the video game industry.

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Aug 20, 2015 - 2:08pm

macro/micro economics is just all about the concept of supply and demand.

i would think that you already already know all that stuff...and if not, i'm sure you can find a few youtube videos...basic educational videos are free these days

Aug 20, 2015 - 8:05pm

This is an interesting question because all value based L/S managers will tell you that they don't care too much about markets. Despite this I think the thought process behind more advanced macro and micro principles are necessary to understand some of the philosophy behind why some business meet the definition of a "good business". The value part of it has much less to do with econ.

Aug 28, 2015 - 11:48pm

This has to be the stupidest post I've ever seen on here. If you are legitimately asking if you think taking some intro Econ classes will suffice for a HF job, you fell out of the running a long time ago. Go work Commercial Banking at PNC or some shit.

Aug 28, 2015 - 11:49pm

Lessons of Macroeconomics by Mr Cramer (Originally Posted: 08/07/2007)

Lessons of macroeconomics by Mr Cramer @ Stop Trading last Friday

"...and bernanke has been an academic, it is no time to be an academic, it is time to get up on this bear stearns call; listen, open that FED discount window, he has no idea how bad things are out there, he has no idea, he has noooo idea. I have talked to every single one of these firms in the last 72 hours and he has no idea how bad it is out there; and bill poole has no idea, no idea what it is like out there...he's nuts they;re nuts they know nothing!"

Aug 28, 2015 - 11:55pm
grandpabuzz:
Wouldn't lowering the rate yesterday be a sign of panic by the Fed and consequently lower all markets as an ending result?

No. It would have been viewed as a sign that the Fed was seeking to decrease the cost of borrowing in general, which would have helped alleviate to an extent the dislocation between supply and demand in the current debt markets (which is being driven by liquidity issues, not credit ones).

The Fed's decision to keep rates at 5.25% was also viewed negatively on the street because people now have lowered expectations for another potential rate cut in early 2008, which had previously been part of the consensus view.

Aug 28, 2015 - 11:57pm

As it affects M&A:

Lenders aren't willing to lend as much money. What this means is that a PE firm trying to load on the debt in order to finance an acquisition is going to have a harder time. This means more equity will need to be dumped into the deal and returns will be lower.

Hope this helps (and anyone feel free to correct me if I'm wrong ... I'm just going by buzz as I haven't been up to date reading the paper).

CompBanker

  • 1
Aug 29, 2015 - 12:01am

Need some quick help with micro econ homework (Originally Posted: 02/28/2012)

So I'm feeling brain dead this week and have been struggling with this HW question for my intermediate micro class.

Consider a monopolist facing two demand curves for its product (from two different types of consumers):

P1 = 10 - Q1 P2 = 14 - Q2 where Q1 and Q2 are the quantities purchased. For simplicity sake, assume MC=AC=4.

a. The monopolist decides to price using a single two part tariff. Assume that the monopolist sets price equal to MC.

i. If there are 100 total customers, ½ of which are type 1 customers and ½ of which are type 2 customers, what fee would maximize the firms profits? Would it sell the good to both types of customers?

ii. Assuming that there are 100 total customers, what is the minimum number of type 1
customers that must exist so that the firm would find it profitable to sell to both types of
customers?

b. Now suppose the firm is deciding to offer a menu of two part tariffs. It will offer the following pricing choices:

Plan 1: P = 6 and Fee = 8, with a maximum quantity that can be bought = 4

Plan 2: P = 4 and Fee =??
If there are 100 total customers, 70 of which are type 1 customers and 30 of which are type 2 customers, what fee would the firm set in Plan 2 to maximize its profits?

Help would be appreciated

"There are only two opinions in this world: Mine and the wrong one." -Jeremy Clarkson
  • 3
Aug 29, 2015 - 12:02am

No

"Look, you're my best friend, so don't take this the wrong way. In twenty years, if you're still livin' here, comin' over to my house to watch the Patriots games, still workin' construction, I'll fuckin' kill you. That's not a threat, that's a fact.
Aug 29, 2015 - 12:04am

You got to be kidding me...

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!
Aug 29, 2015 - 12:07am

I copied and pasted it...

"There are only two opinions in this world: Mine and the wrong one." -Jeremy Clarkson
Aug 29, 2015 - 12:08am

I knew I'd take crap for asking about this, but its been a horrible week and nothing is clicking for me.

"There are only two opinions in this world: Mine and the wrong one." -Jeremy Clarkson
Aug 29, 2015 - 12:13am

If this monopolist has set AC=MC=price then he is a pretty shitty monopolist. Must be the government trying to minimize dead weight loss.

Tell him you don't believe in monopoly production functions because you are a finance student, and in finance...there are no such thing as market failures and dead weight loss is a mythical construct.

Aug 29, 2015 - 12:14am

Macro economics (Originally Posted: 06/25/2016)

Hi there,
I was wondering how i could improve my economics skills. I studied a bsc in an unrelated field but i feel the need to study economics for my job. After searching in this forum, i found some mixed opinions regarding the bsc in Economics, some saying that it is too theorical or even useless.
What do you recommend me?
- taking some Economics courses from the bsc in Economics
- studying toward a msc in economics?
- using coursera?
Thanks,

Aug 29, 2015 - 12:15am

To be honest, university level 1001 macro isn't life changing, particularly if you have a terrible lecturer. I'd suggest buying a respected textbook, and going through all the concepts. Youtube + textbook should be fine.

Array
Aug 29, 2015 - 12:16am

I don't think that doing an MSc in economics will be the right fix. Economics is fairly simple for the level you are aiming at I think, so figure out how you learn best and if you need a structured approach, you can easily use coursera or pick up an explanatory textbook.

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing.

See my Blog & AMA

Aug 29, 2015 - 12:17am

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I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing.

See my Blog & AMA

Aug 29, 2015 - 12:18am

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