March 2022 Q&A Highlights

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I do a monthly Q&A on Instagram (typically the last week of the month as of the current schedule) where I answer audience's questions about career, investing, and other topics. 

Sell-side Research

Q: Seems like there are way more opening than qualified candidates, is the Equity Research value proposition broken?

A: Money is not there, but the stress and hours are. So I guess less people are interested.

Q: How to prepare and study for client calls?

A: If you care about the client (ie. someone who could hire you later), understand their investment style and know what they currently own in the portfolio to get the sense of what situations / businesses resonate with their philosophy. Know your customer. 

The most important thing remains knowing your covered names very well. If you don't know an answer, don't make it up. Tell them you will look into it and get back to them. And actually get back to them. 

Q: What are the hours for a sell-side associate? Free weekend? Busy periods?

A: Really busy four times a year when companies report earnings. Work 80-ish hours a week during those times. Otherwise, 60 hours and I did not work a lot of weekends. Your experience and work life balance 100% depend on the Analyst.

Investing / Buy-side Research

Q: How to manage being early or being wrong even if long-term oriented?

A: If wrong, sell. If early, hold. Otherwise, you are not as long-term as claim to be.

Q: Any upside to commodities (base or precious metal or energy/agriculture) at this point?

A: Yes in my opinion, some commodities have secular tailwinds. If new supply takes a decade to come online, base demand remains steady and some of the end markets have exponential demand, price will have to go up.

Q: How to stay long-term oriented in an industry that is set up to maximize short-term gain?

A: Companies need to earn their long-term investor base. A short-term focused management deserves to have a bad investor base. 

Q: Resources or advice for position sizing, assuming no or little benchmark orientation

A: It’s all about risk reward. A stock with a 4 to 1 upside/downside deserves more capital than a stock with 2 to 1 ratio. Ensemble Capital has a great write-up: Position Sizing.

Q: Are "pod shops" (multi-manager hedge fund platforms such as Citadel, Millennium and Point72) that bad in terms of job security?

A: It’s only bad for you as the PM or the analyst. It’s a brilliant business model for Ken Griffin (Citadel), Izzy Englander (Millennium) and Steve Cohen (Point72).

At a pod shop, each portfolio manager (“PM”) is like a stock and the platform has a diversified pool of PMs with each PM contractually agrees to a drawdown threshold / risk limit. If the PM experiences drawdown, no hard feelings - entire team (PM and their supporting analysts) is let go, but overall the pod shop is business as usual as long as the platform allocates capital to each PM appropriately.

Q: Do you think the market has learned its lesson with SPACs and avoiding buying their IPOs?

A: I think so. At least I hope so. That said, people are greedy and foolish. There will always, always be another form of sketchy financial product that steals from the dumb. In short, there will be another Chamath.

Q: Do you think change in credit cycle will change which sectors are most desirable? (ie. Tech vs. Oil and Gas)

A: Self-financed businesses will be fine. Capital will be harder to come by, hence growth will be harder to come by, especially for those who don’t create value on the invested capital.

MBA

Q: Is an MBA worth if you broke into buyside from undergraduate?

A: Depends on your goal. It’s worth it if it’s a dramatic career change that requires an MBA to break in. I can think of private equity as the only profession that is applicable in this case. People with laser focused goals get the most out of an MBA.

General Career

Q: How to explain a bad grade in a specific course if asked about in an interview?

A: Explain truthfully. Talk about what you learned from it. Don’t blame external factors excessively.

Miscellaneous

Q: How do you handle changes in revenue disclosures (segment reporting) when modeling?

A: I triangulate across the old and new disclosures. Use company investor relations if they are willing to help. Otherwise, have to make assumption or give up.

If you are ready for the transformation of becoming a professional equity research analyst, I invite you to sign up for a free call with me. Let's connect!

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