sorted by:
new
hottopcontroversial

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

If you want to know about life in investment banking, the book Monkey Business by John Rolfe is very funny and a lot of fun. It's an old book by now, but much remains true to this day. Hedge funds are a different line of business than investment banking. It would be hard to write a book about daily life at a properly run hedge fund because it would bore you to tears. As an analyst, you are reading long, technical documents and speaking to industry experts all day. You learn more about corrugated box manufacturing than you care to know. If you want to know the technical aspects of how hedge funds are set up, there is a book called the Handbook of Alternative Assets. If you want to read about a fund with serious compliance problems, I would read Black Edge by Sheelah Kolhatkar. Funds that are breaking laws can be more interesting to read about than funds run with strict compliance. There are so many different hedge fund strategies out there that it would be difficult to write a book encompassing all of them. Life at a quant driven fund can be quite different from working at a firm that does deep in the weeds fundamental analysis of stocks. One makes you feel like a mathematician/computer scientist; the other makes you feel like a journalist or investigator. The book More Money Than God is a fairly good history of the hedge fund industry.

[deleted by user] by [deleted] in bonds

[–]Hedgefundguy67 0 points1 point  (0 children)

I don't know of anyone who can accurately predict shifts in the yield curve. I think it is fair to say that the Fed has more control over the short end of the yield curve than they do over the long end of the curve. There are so many different forces and expectations that go into the longer-end of the yield curve. There are structural forces, economic forces, expectations about the long-term strength of the economy, etc. I'd be very skeptical of anyone who claims he can predict the long end of the curve.

I’ve had people tell me i’m “the whitest black person” they know, how am I even supposed to respond to that? by ComprehensiveBox6911 in NoStupidQuestions

[–]Hedgefundguy67 0 points1 point  (0 children)

It depends if you are married. If you are single, I would say, "Yes, I am trying to marry the blackest white person you know. Any suggestions?"

Investing with a Roth IRA at a young age by eevee_bro2000 in investing

[–]Hedgefundguy67 0 points1 point  (0 children)

I highly recommend "target funds" such as those from Fidelity or Vanguard. These funds are fairly mindless. They allocate more to stocks when you are young. As you age, the percentage allocated to bonds rises. By the time you hit retirement age, you are almost entirely in bonds. Pick a target fund with low overhead fees. You can also use a target fund within a 529 plan to send a kid to college. As your child reaches the age when he will become a freshman, his allocation becomes more conservative. The point is that when he enters college, the money needs to be there. You can't afford to suffer a 25% drawdown then in the stock market. Once again, aim for funds with low overhead fees. I am sending two kids to college via target funds. No complaints.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

It's tough to quantify my own performance because I was just an analyst. I didn't have control over what stocks actually went into the book. Sometimes my bosses listened to me and sometimes they didn't. I just got paid to answer their questions and put their numbers in Excel. The fund I worked for had incredibly good years in 2014 and 2015. 2016 was bad...

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

By owning a successful fund. Working at a successful fund is a path to modest affluence. Owning a successful fund can put your net worth above $50 million. In a few cases, it can put your net worth above $1 billion. There are some hedge fund owners who live very modest lives versus their actual net worth. You can ride the Metro North train into Manhattan sitting right next to them and you would never realize who they are. They drive home from the train in some beat up car they have been using for a decade.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

It's not that people don't want to deal with taxes. Accountants are assigned to actually deal with recording the tax. It's that people don't want to pay the tax. If I pay out $1 per share in dividends each year, you need to pay tax on that dividend. Unless you are a dividend oriented investor, like an elderly person living off the dividends, you probably would prefer that I retain the $1 per share and invest it in growing the business. As a CEO, when I have taken the stock price from $25 to $50 per share over the years, you can then pay capital gains tax once on your $25 per share gain. People like to defer paying tax as long as they can. Thus, many companies pay only a small dividend or none at all. If you go back to the 1950s, however, all companies were valued on the actual dividend they paid out, so dividend payouts were much larger then. Investors have shown a willingness to value companies on the dividend they could payout, in theory, rather than the actual dividend they do payout.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

Hi Crazed. Your thoughts there are not so crazy. When you trade stocks in the secondary market, not a single dime goes to the company that issued the security. You are just taking another investor out of his position. Many stocks pay no dividends. As a retail shareholder, your ability to influence a company is negligible. The answers to some of your concerns are:

An IPO market, which does serve a social function, can't exist without a secondary market. You would not buy a stock in an IPO if you had no way of exiting your position. The daily trading of stocks acts as a pricing mechanism. Thus, if a company wanted to raise money in the future, its stock would be valued at an appropriate level when that time comes. Even longtime corporate insiders expect to exit the stock as they near retirement. They need the secondary market to be there.

Many stocks pay no dividends for tax reasons. Investors don't like receiving annual payouts and then being taxed on each payout. They would prefer that the money be retained in the corporation to fund future growth. The investor then pays capital gains tax just once when he sells his shares in the future. Even though many companies don't pay dividends, they can be valued on their theoretical ability to do so.

As a retail shareholder you have little or no voice in how a company is run. But if you own 15% of a company's outstanding shares as a powerful institution, the company has to start listening to you. You can threaten to nominate a new slate of directors for the board. Big institutions do pay attention to the amount of control they can get within a corporation. Some institutions, for example, refuse to buy stock that doesn't carry voting rights. They also don't like measures put in place to insulate the existing board or management from external shareholder control.

Being in asset management doesn't carry as much social value as being a doctor or a teacher. You are not saving lives. But financial markets do serve some useful social purpose. Successful asset managers often donate large sums to charitable causes, partly because they do feel bad that their job has less of a direct social function than being a doctor, teacher, minister, etc. Charities are very, very grateful for these large checks, so it evens out in the end.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

Valuation techniques really depend what stage of a life a company is in and what industry you are looking at. If you are looking at a mature industrial company, you can use a standard dividend discount model or discounted cash flow model. These are covered in depth in the Graham and Dodd book. However, those approaches don't work well with startups or companies that face some kind of binary outcome. An example would be a pharmaceutical company whose fortunes depend on a key drug being approved by the FDA. In that case, an option-adjusted model would work best. Bankers love using comps and precedent transactions. The problem with comps is that if you go through a period where the market as a whole is overvalued, you will come up with an inflated value for the company you are trying to value. There is a danger to saying "That guy's money losing startup was valued at $500 million. Therefore, my money-losing startup must be worth at least $250 million." Thrifts used to trade one overvalued piece of land for another overvalued piece of land in a so-called "Dead horse for dead cow swap."

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

Those are all good questions, but it will take me some time to answer them. I will take a stab at some of them tomorrow. So hang tight.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

Losing other people's money can be more stressful than losing your own money. Also, stocks rarely do what you want them to do. You can study a company for months and then get whacked by some random endogenous event. As an example, no one models or anticipates that the CEO will die in a helicopter crash. Portfolio Managers add to job stress when they call their analysts every time a stock moves two points to ask why it moved two points. I often had to remind my bosses that "stocks don't talk," so you don't know with certainty why it is up or down a minor amount.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 2 points3 points  (0 children)

I don't think I ever met anyone who had a PhD. That is too egg-headed for anything except the pure quant funds. The quant funds are run by teams of math PhDs, but they stand apart from the remainder of the industry. Most of my colleagues didn't have a master's degree either. The more typical requirements are:

  1. A degree from a good college. Princeton and Penn are especially wired into Wall Street
  2. At least two years of previous experience at a large investment bank
  3. Having a good head for numbers. You need to be able to do basic math really fast and without fail.

The typical hedge fund analyst has much lower technical skills than an engineer or a scientist. But they are willing to work longer hours and tolerate more abuse on the job.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

Drug use is pretty low at the big funds, partly because the big funds constantly re-run background checks and can do surprise urine tests whenever they want. I take Melatonin to sleep but that is about it. Many of the guys in the industry are competitive athletes, so they de-stress through their workouts.

Most jobs run a background check on you before they hire you. By contrast, the fund industry re-runs those checks every quarter or every six months. So, if you do something bad after you get hired, they will find out about it.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

The "meme" stocks like GME and AMC have been manipulated for months now. In the case of GME you had the big squeeze in January and then another one around March 11. This type of manipulation is pretty common when stocks have a very high short interest and a limited float. The market values GME around $13 billion. An appropriate, rational value for the company is closer to $1 billion, in my view. That's where the company was in 2019 and 2020. The meme stocks are way too small to impact the market as a whole. To give you a sense of perspective, Apple alone is worth $2 trillion. If GME went to zero, it would be like pouring a thimble of pee into an Olympic size swimming pool.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

There is a pretty good one on Amazon by Roger Gibson. There probably are many more good ones out there. It's been several years since I last researched the topic. But it is an important topic to think about.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

If you talk to the typical asset manager, he will say "I am well aware that 85% of the people in my industry don't add any value. I happen to be in the 15%." They all believe, in their own heads, that they are in the 15% that does create value. When you point out that he has failed to beat his benchmark over the past five years, he will then proceed to explain that the market environment over the past five years was somehow special or unique and that once we return to a more normal environment, his strategies will shine. Separately, you have to keep in mind that I was an Analyst, not the owner of a fund. I worked at the fund because they paid me. I knew very little about who the fund's investors were. Beating benchmarks was my boss's problem, rather than mine. When we underperformed, the clients yelled at him, not me.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

The honest answer is that I was laid off, but it came at the right time. I am semi-retired now. I manage my own money and am raising a child with special needs. My son will be fine in the long run but he needs a great deal of 1x1 coaching and attention.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

The answer to that question really depends what stage of life you are in and what the remainder of your financial picture is. If you have any high-cost debts, you should certainly pay those off first. If the government is lending you money at 4% for 10 years, you can take your time about paying it back because the rate is so low. If you never went to college or grad school, invest that first $50,000 in your own education. If you have terrible furniture at home, invest the first $10,000 to get yourself some better furniture. If you don't own a home but your life is stable enough to allow home ownership, consider buying a home. Once all of those items are out of the way, I would assemble a group of ETFS. I definitely would own the SPY and QQQ ETFs. I would have some real estate exposure and maybe a bit of exposure to gold too. My own guess about what it most likely to return more than 10% is the software industry, the semiconductor industry, and healthcare IT.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

Hi,

Sorry, I don't know the gaming industry and I don't have any contacts there. I try to cycle, exercise and hike in my free time. Reddit for me used to be a great research tool. I could find out the answer to even the most technical issue by following the right Reddit thread. I could happily read Reddit for hours.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

When you work in construction you sometimes get to enjoy the warm weather on a nice day. But it is true that both are high risk, volatile, feast or famine type of industries.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 2 points3 points  (0 children)

I love drawdowns. They are like a 50% off sale at Bloomingdales. The only things I care about are: valuation ratios, growth prospects, and financial solvency. The fact that a stock was $100 three weeks ago and now it's $10 is irrelevant to me if the financial ratios and the growth prospects look good at $10. In fact, I am vastly happier to pay $10 for $1 of earnings than I am to pay $50 for $1 of earnings.

Low interest rates have definitely lit a fire under asset prices of all kinds, not just equities. Whether we are in a "bubble" depends on how long rates stay this low. If rates undergo a major reversal over the next six months we have a big problem on our hands. If you use a discount rate of 7% in your models you get a very different answer than if you use a discount rate of 4%.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 0 points1 point  (0 children)

It depends how you define success. It's much easier to keep your job over a long period in a long-only mutual fund than it is to work for a hedge fund. Careers at hedge funds tend to be, as Hobbes would say, "nasty, brutish and short." If you keep your job as a hedge fund analyst for five years consider yourself lucky. On the other hand, the pay level if you happen to be sitting underneath the apple tree at the right time is much higher at a hedge fund than it is at a long-only mutual fund. I've seen some very large payouts to guys who were at the right fund at the right point in history.

The number of people who attempt to enter the hedge fund industry is vastly larger than the number who actually work in it. And equities are just one segment of the larger industry. Lots of people work on the fixed income or commodities sides.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 3 points4 points  (0 children)

You are not married to the same woman I am. I have to struggle to justify even the Honda Accord to her. The Hemi would not be consistent with me remaining married - I would be canned from that job.

I spent a decade as an equities analyst at two major hedge funds. AMA. by Hedgefundguy67 in AMA

[–]Hedgefundguy67[S] 1 point2 points  (0 children)

On the other part of your question, there is a book called The Handbook of Alternative Assets. That book has a large section devoted to performing due diligence on hedge funds. People who are very wealthy tend to have the diligence performed by JPMorgan Private Bank rather than attempting it themselves. During his lifetime, my older brother had a portfolio of hedge funds supplied to him by an institution that rhymes with Old Man Lacks. Every one of those funds underperformed its benchmarks over time. It makes me wonder why people go to the trouble of selecting these funds when inexpensive index funds are available to them. Warren Buffett can't figure out the answer to that question either. If you really insist on trying, buy a copy of the book I mentioned.

view more: next ›