Year 1 on the Buy-Side: 6 Pieces of Advice
It's now been several years since I hung up my B-unit after 13 years of professional investing.
While my retirement was primarily for personal reasons (read: I was running FROM something, not TOWARD something), I have found a surprising amount of meaning & purpose in doing what I'm doing now - training junior buy-side analysts.
(And let me tell you one thing, being "retired" at 36 is not all it's cracked up to be. The intellectual atrophy and lack of mission for me was no bueno).
And it's not because I'm the most pro hedge fund person out there. While efficient & liquid capital markets are important for a well-functioning economy, we aren't curing cancer. Morally, I feel neutral about the asset management industry.
Through now nearly a decade of a fairly intense personal spiritual study, I have concluded that the way I want to spend my remaining decades (god willing) is by doing what I can to help "earlier versions of myself". My mantra in life is to try to be the version of a father to my three sons I wish I had. Professor to my students I wish I had. The coach to my players I wish I had. And the mentor to young buy-side analysts I wish I had. I am so grateful for that trust and to be in a position where I can have an impact on the next generation.
So we are done with the mushy preamble, but I thought it was important to contextualize. I obviously don't have all the answers. I had a solid, not spectacular career. But what I do have is value to earlier versions of myself: simply, I've walked the path. So when I write blogs like this, which are fundamentally a bit hubristic ("listen to me, I have all the answers"), just know that in my mind I'm penning this missive to my 23-year-old self.
With that, six pieces of advice for Year 1 in the buy-side seat:
WORK HARD
Yeah, there is no way around it. As a newbie, you will be slow & inefficient. And the pace of your team won't slow down to accommodate your slowness. The only answer in the early years is: work more hours. People obviously lie about the hours they work ("I worked 100-hour weeks" - no, you didn't), but in Year 1 my schedule was consistently 7:30 am-9:30 pm M-TH, 7:30 am-6:30 pm Friday, Saturday off, and Noon-6 pm Sunday. 70-75 hours per week.
Each year, I was able to shave a bit of time off those allocated hours. And if you walk through the trading floor at a big MM, generally you will see a big influx around 7:30 am and a big outflux around 6:00 pm. Compared to IBD/PE, the hours in the office at an HF/LO can be shorter & more consistent. That doesn't mean HF pros are checked out. To the contrary, away from the office, good buy-siders are obsessed with constantly digesting e-mail & news relevant to the portfolio and virtually never put down the sword. In a highly competitive game, that obsession becomes table stakes for a long & successful career.
As a first-year analyst, adopt the "FILO" approach: first in, last out. PM's might say they don't care about Facetime. And that may be true for their experienced analysts. But in year 1, I don't have much to evaluate you on beyond the quality of your work and my perception of your engagement & dedication. Control what you can control, and your working hours is easily controllable.
ADD VALUE & BUILD TRUST
As a junior analyst, your presence may be frustrating to your team at times. You are a cost center full of inadequacy & dumb questions. You are a puppy in need of training.
Your job is to try to find ways to add value. You must create a reputation for delivering error-free work. This was an adjustment for me as an investment banker - I was used to just rushing through a big deck, knowing I'd get associate and then VP red-lines before the deck went to the MD (I was also not the best IBD analyst to ever live). There is no error-checking hierarchy at an HF. Triple-check your work and deliver error-free work. Your credibility is very tenuous in Year 1, and consistently delivering error-riddled work can really impair your trajectory. Do a good job on your early projects - your career beta to your first project is high.
Seek ways to be a value-added team member. Observe the team processes and try to identify what you can do to help. Be the analyst who helps put the investor PPT deck together, who distributes the weekly comp & revision sheet, who puts together industry trackers. I know it's a generational thing to try to see "what's in it for me", but please flip that and approach your work with a mindset of "what can I do to help the team win". In Year 1 when you have a weak skillset to drive P&L, focus on the little contributions to the broader process.
Build trust by understanding the cadence of your team. If you get a "3-day task", make sure it is done in 3 days. The tricky part is your PM might not tell you it's a 3-day task. If I ask an analyst to do an earnings preview and it takes 8 days, that's a problem. "What the hell is this analyst doing spinning wheels for 8 days". is my thought. If you get a project, simply ask "What is a reasonable turnaround time for this?". And hit that target, even if you are there until midnight. That's how you build trust and allow your PM to be comfortable with giving you increasingly value-added tasks.
LEARN TO COMMUNICATE
I thought I knew how to communicate before I landed at a hedge fund. Now I see how woeful I was. I still chuckle thinking about a senior trader training a junior analyst, "Spit it out!".
Good buy-side communication is succinct. I don't have time for a long rambling explanation. And please pick up the pace. If it should take 2 minutes, make it take 2 minutes, not 10 minutes. I'm busy. As a Year 1 analyst, mirror how your team communicates. Ideally, there is a successful senior analyst on the team - what does he/she do on the communication front? Study that person like Darwin studied a Gila Monster, and replicate what you think they do well.
Be careful of unverified statements. In year 1, I constantly was challenged "Do you think that or do you know that". My team was very focused on fact vs. opinion. Unfounded optimism or pessimism can be dangerous. Make it dispassionate & data-driven.
Your job is to rational & fact-driven. Leave hope at the door. Learn to express conviction well, but to clearly articulate lack of conviction when the pre-conditions are not there. Don't "pound the table" when the trade isn't compelling. Modulate your conviction with the facts, and you will gain credibility & trust. Be responsive. Get an e-mail at 10 pm?
Respond that night. Get a weekend e-mail? Respond that day. Be reachable if you have to step away from the desk.
BECOME RESEARCH "SELF-SUFFICIENT"
You've all heard me spout the "sink or swim...it's an apprenticeship business" line. The hard truth is that the vast majority of PMs are so overwhelmed with their responsibility stack that they have minimal time to hold your hand. This frustrated me as an analyst at times, but as a PM I saw the other side of the table. Is that a license for PM to neglect a new analyst, absolutely not. But as an analyst, your responsibility is to become a super learner.
I owe an insane debt of gratitude to the analysts 1 and 2 years ahead of me on my team. At 9 pm on a Tuesday when I was stuck on a problem, they helped me and patiently explained how to complete an analysis while my PM was at home likely with his family. Seek out the person 1-2 years ahead of you at your firm. If there is no person like that, seek out a similar person at another firm as a friend/mentor.
Your job in Year 1 is to build your "toolkit". A global company with translational & transactional FX exposures? Yup, I know how to analyze that. Highly leveraged company with covenant trip risk? Yup, I know how to analyze that.
Listen, I certainly think there are some best practices for the buy-side seat (I have 1,200 pages of PPT decks in support of that view). But good analysts aren't born, they are developed. Your job is to develop research self-sufficiency so that for any question your PM asks, you have a framework & process to analyze & respond in a thoughtful fashion.
Then when the inevitable "Hey go look at XYZ stock and let me know what you think" question comes, you will have a playbook to come back with a real response.
BECOME A MODELING MONSTER
As the most junior person on the team, there is likely one skill where you will have superior skills vs. the rest of your team: modeling.
Tiger funds in particular have always hired almost exclusively from IBD/PE because the ability to rip through a business in great detail, build an extensive model, and articulate scenarios in a numbers-driven fashion is hugely valuable to the research motion, even starting from Day 1.
Not from an IBD/PE background? This is a learnable skill. Sure, the pressure of your IBD VP breathing down your neck turns modeling coal into a diamond. But there are many resources out there to learn modeling. An HF model isn't rocket science - the recipe for modeling efficacy is simply reps. Build 20-30-40-50+ models from scratch and I guarantee you model 50 will be light years better than model 1. (and, btw, even PM interviews at MMs are likely to include a from-scratch modeling test).
CREATE A LEARNING PLAN
Please simply know that if you are struggling in Year 1 on the buy-side, you are right on track. There is virtually zero probability of you landing at a buy-side firm and being an alpha generator from Day 1. The learning process is supposed to be messy.
Most firms that I respect, view the learning journey of analysts as a 2-5 year process. So know, it's a process. Consistent effort & intentional learning will help accelerate that process.
A framework I like is called "50 reps": basic stock picking stills will be refined after working through roughly 50 models/ideas/theses. The harder you work, the faster you get 50 reps. Don't expect rep 1 to be your masterpiece.
Seek out mentors. Yes, your PM is busy. Don't be an annoying puppy. But the power of selectively asking "Hey can you teach me how you think about this" can be really powerful. NOT "Hey can you tell me all the steps to build a model". But selective, value-added learnings.
"Hey, do you have a quick second? You mentioned in the team meeting how you view the growth algorithm as a proxy for the 3-year IRR on the stock, can you walk me through that?" - this doesn't have to be some scheduled 1-hour training, this can be a 3-minute interaction. Do this a bunch of times per week. "Hey I've been thinking the concept of biz quality, I'm curious how you think about business quality?" Come from a place of humility & true intellectual curiosity.
Read like crazy in your early years. Books, blogs, tweets. Consume everything @patrick_oshag , @InvestLikeBest , and @tseides are putting out relevant to your seat - I can't overstate the learning service they are doing to the buy-side.
I also really like the practice of sitting down with your PM and creating a Joint Learning Plan. What does the PM want you to learn? What do you want to learn? Create a quarter-by-quarter, year-by-year plan. Be intentional about turning into the analyst you want to be.
THAT’S IT!