Mastering the Stock Pitch
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  • 1. Welcome to the Evisors Webinar Visit us online at www.evisors.com Stock Pitches: Interviewing for sales and trading, hedge funds and research positions featuring James Aldige
  • 2. Stock Pitches: Interviewing for sales and trading, hedge funds and research positions I. About James II. Overview of the Industry and General Preparation III. The Interview Process IV. The Stock Pitch V. Q&A
  • 3. About James • Graduate of Harvard Business School (MBA, 2010), Oxford University (MPhil, 2005, in Economics/History); and University of Virginia (BA, 2003, in Economics/History) • Currently Investment Analyst at Tiger Eye Capital (2009-Current) – Tiger Eye is a global equity investment firm with a fundamental research focus – ie stockpicking – The firm was founded in 2009 with backing from Julian Robertson and Tiger Management, and resides at Tiger’s headquarters at 101 Park Avenue in New York • Investment Banker at Merrill Lynch, London (2004-2008) – M&A and ECM • Internships at Tiger Eye, Merrill Lynch, US Congress (Commerce Committee), and The Motley Fool • Joined Evisors in 2010
  • 4. Stock Pitches: Interviewing for sales and trading, hedge funds and research positions I. About James II. Overview of the Industry and General Preparation III. The Interview Process IV. Where You’ll Encounter Stock Pitch Questions V. How to Customize Preparation for this interview VI. Example Questions VII. Q&A
  • 5. Overview of the Investment Management (IM) Industry • The industry is extraordinarily fragmented – there are literally thousands of firms that come in all shapes and sizes; try to think about what can of work environment suits you best • Most, but not all, IM jobs hire people with previous finance or consulting experience • Investment banks – eg Goldman Sachs, Morgan Stanley, Deutsche Bank, JP Morgan – There are several different career paths here: sales and trading (will be less analytical and more client- focused); equity research (very analytical with specific sector focus); or asset management division (can range from broad asset allocation type roles to specific stock picking) • Large mutual funds – eg Fidelity, Capital Group, Wellington, T Rowe Price • Smaller long-only funds – there are hundreds • Hedge funds with a fundamental stock-picking focus – there are hundreds – Tiger cubs (eg Lone Pine, Maverick, Viking Global, Blue Ridge, plus several dozen others) – SAC Capital; Greenlight Capital; Pershing Square; Paulson and Company; Soros; Baupost Group; Omega Advisors; Third Point; JANA Partners; Highfields Capital
  • 6. Skills Required for Public Investment Careers • Everyone brings a different perspective to the table • The IM field is very inter-disciplinary, and can draw on a wide range of skills, abilities, and technical knowledge • No particular major / background is necessarily better than another • Basic skills/traits that nearly all analysts share: – Demonstrated passion for following the markets and particular companies / stocks – Comfort with numbers / math – General familiarity with accounting rules – accounting is the language of business – Well developed financial modelling skills • Should be able to create company models in Excel with quarterly earnings and cash flow projections, as well as valuation analysis (DCF, comparables) and M&A/LBO models – Strong communication skills: ability to distil complex investment ideas into concise thesis statements (both written and verbal)
  • 7. How to Research the Industry / Companies • Read – constantly • Make reading the Wall Street Journal and/or Financial Times a part of your daily routine • Make reading Barrons and The Economist a part of your weekly routine • Specialist titles about investment management / hedge funds include: Institutional Investor, Absolute Return • Blogs: MarketFolly.com tracks prominent hedge managers and their holdings / quarterly letters • Begin to follow particular sectors and companies that are of particular interest to you – know who the main players are, what is changing competitively, history of management teams and key executives • Start following well-regarded value investors – read their books and letters – Warren Buffett: read the annual letters of Berkshire Hathaway – Seth Klarman: Margin of Safety (out of print, but some libraries have it) – Peter Lynch: One Up on Wall Street – David Einhorn: Fooling Some of the People All of The Time – Kathryn Staley: The Art of Short Selling – Joel Greenblat: You Can Be A Stock Market Genius
  • 8. How to Research the Industry / Companies • Network as much as possible – Start with your own school’s alumni database – Look for anyone with a background in investment management – Send them an email highlighting your alumni connection, a bit about your background and interests, and potentially send a write-up of an investment idea if you think it is appropriate – Don’t ask for a job, but ask for advice on how to get into the industry or other potential contacts who might be willing to talk to you • Try to be a generally curious person, and think about what drives investment returns (revenues and expenses) – When you walk by a Redbox kiosk – ask yourself: is this a good business model? What about Zipcar? What is Amazon trying to do with the Kindle? Why is the housing market so important? Does it matter who wins an election? Jim Skinner of McDonald’s is retiring – why was he such a good CEO? What about his replacement? – Always be asking salespeople / friends / associates questions about their businesses – you’ll be amazed what you learn
  • 9. Stock Pitches: Interviewing for sales and trading, hedge funds and research positions I. About James II. Overview of the Industry and General Preparation III. The Interview Process IV. The Stock Pitch V. Q&A
  • 10. The Interview Process • The following are typical characteristics of the IM interview process – However, the IM interview process is notorious for its lack of standardization (versus, say, consulting or investment banking); the actual interview experience will depend highly on the firm itself • First round interview – Either on-campus or in the firm’s office – Typically with a junior / mid-level analyst (as opposed to the head of the firm or an HR person) – Will generally be about 30 minutes – Expect typical behavioral / fit questions like you would for any job – You may get some brainteasers / mental math problems – You may be asked to take a form of IQ test (can’t prepare for this) – You may be asked to take a financial modelling test (although more common in private equity interviews) – Typically, about 1/3 to 1/2 of the time will be allocated to a stock pitch (more on this later…) • Second and final round interviews – Typically at the firm’s office, typically over multiple hours – Will usually meet with the head of the firm (or the division if it is a larger bank or mutual fund) – You may be asked to prepare a case study in advance – You should have at least 1-2 stock pitches which are different than the one you used in Round 1
  • 11. Stock Pitches: Interviewing for sales and trading, hedge funds and research positions I. About James II. Overview of the Industry and General Preparation III. The Interview Process IV. The Stock Pitch V. Q&A
  • 12. What is a Stock Pitch? • An interview ‘stock pitch’ is typically a 10-15 minute discussion with your interviewer about a specific public company that answers the following basic questions: – Why is the current stock price significantly higher/lower than the intrinsic value of the shares? – What are some things that will cause the convergence of actual value and intrinsic value over time (catalysts)? • The first 2-3 minutes should consist of your introduction to the conversation and your overall thesis – Interviewers generally won’t mind if you bring in notes / supporting materials, although you should not read directly from these, and you should have a good grasp of a number of company-specific metrics (market cap, enterprise valuation, valuation multiples vs. peers, target price, expected return on investment) – I recommend that you prepare a one-page summary that you may or may not want to give to your interviewer at the end • The remaining 10+ minutes generally consist of a dialogue / Q&A session between you and the interviewer, discussing the merits of the potential investment – Some of the questions will just be clarification about what the company does / what the opportunity is – Other questions will be designed to poke holes in your thesis and see if you can persuasively defend your argument – If you don’t know the answer to a factual question (i.e. what is the company’s market share? When did the CEO take over?), just say you don’t know and can get back to them – don’t just make up an answer!
  • 13. What Makes a Good Stock Pitch? • There are no hard and fast rules about what makes a good pitch, but I would suggest the following guidelines • In general, it is better/easier to – Pitch a company that your interviewer has probably heard of (i.e. not some obscure microcap in Indonesia) – Pitch an company in a non-technical industry/sector (i.e. it is generally not a good idea to pitch biotech, specialty finance, semiconductors, exploration and production companies, among others) – Pitch a company that you own in your personal account (and, yes, you should definitely have a personal account that you can discuss in your interview; how long have you had it? What companies do you like to invest in? What have you learned from your mistakes? You can do this with as little as a couple hundred dollars) – Pitch a company that you found on your own rather than one you were assigned in school – Pitch a simple idea rather than a complex idea – Pitch a ‘cheap’ stock rather than a high multiple, expensive stock (although these can still work well) – Pitch a stock where the catalysts are ‘micro’-based and not ‘macro-based’ (i.e. where a rebound in the economy or a rise in commodity prices is needed to make the thesis work)
  • 14. Where Can I Find Stock Ideas? • You should generally prepare at least 2-3 ideas going into each interview; for long/short funds, you will definitely want to be able to pitch a short idea • You will already have a leg up if you are 1) well-read; 2) curious; 3) personally investing in your own account; if not, start doing these things now • Look at great companies / brands and try to figure out something that might not be appreciated or fully understood by the market • Look at the holdings of great investors you admire – these can be found in a variety of databases through quarterly 13D statements • Talk to your friends who are interested in investing
  • 15. What Should I Focus on in the Pitch • Your 2-minute pitch should be very simple and straightforward; it can take the following form: – Company X is involved in the business of Y and Z – Company X trades at [$22]; I think that the stock is worth [$32] and that over the next [year] the stock will reach that level as a result of [factor x], factor [y], and factor[z] – My downside case is that the stock goes to [$18], as a result of [factor t], which I think provides an adequate margin of safety and a good risk/reward at current levels – I think the market misunderstands [x, y] about the company – My view on the stock is differentiated from Wall Street consensus because of the following pieces of research I have performed: x, y, z
  • 16. Stock Pitches: Interviewing for sales and trading, hedge funds and research positions I. About James II. Overview of the Industry and General Preparation III. The Interview Process IV. The Stock Pitch V. Q&A
  • 17. Thanks for Joining & Good Luck! Book your session with James at http://www.evisors.com/expert/137