Hedge funds and the stock market - ask me anything til i get bored

[Scorpion Man]

[ QUOTE ]
Hi Hap, thanks for joining in the thread.

With more and more advanced platforms and algorithms offered on these platforms, do you forsee a day when your job would be completely replaced by computers? I've met executioners that were pessimistic and joked about being replaced completely by algorithms in 5 years.

[/ QUOTE ]

Hap will know more than I do on this but a buddy runs over $1b and has used algorithms for years, exclusively I believe..but he still has a bunch of traders to manage the process, I dont think he has any fewer traders today than in the past.

[MrBlue]

[ QUOTE ]

Hap will know more than I do on this but a buddy runs over $1b and has used algorithms for years, exclusively I believe..but he still has a bunch of traders to manage the process, I dont think he has any fewer traders today than in the past.

[/ QUOTE ]

That is my feeling as well. One executioner might be able to do the job of 2 or 3 or more with the help of algorithms but still need someone to look over the intangibles that machines can't handle. So as the book grows, the number of traders needed might not grow as fast as they use to.

[mwgr5]

Thanks for answering all of these questions.
How did you get started in the industry out of college?
Also, what was your normal turnover rate?

[Scorpion Man]

[ QUOTE ]
Thanks for answering all of these questions.
How did you get started in the industry out of college?
Also, what was your normal turnover rate?

[/ QUOTE ]

I had bot stocks on my own since I was around 10 (I had no idea what I was doing, but it got me interested). I did a year at a small ibank in San Fran (i refused to work in NY) and made a key move to a well respected venture capital firm. While there I did VC deals. THe second year I ended up managing a small portfolio of public stocks they had sitting around for reasons that are not worth going into. I had planned on returning to vc...i had a real interest in entrepreneurship...but the long partner track and need for specialization (I did not have industry expertise...i was only 24 when i went back to biz school) made me pause. I read all the financial type books that were out as well as WSJ etc and identified hedge funds as the place to be. This was 1994. A 30 yr old HBS grad showed up and did interviews...it was extremely competitve. He made $11m his first year. I said, um, sign me up.

On turnover, we were strange. We really thought like investors, but we acted more like medium term traders. I would not do it this way if I returned to the business. I would shoot for an average holding of close to a year (that would mean some 6 mos..others 2-3 yrs, etc)

I would say our turnover was at least 4x per year. Part of that is we did a ton of shorting and its not fair to look at shorting the same way. You dont really want to be in a short for a long time.

[MrBlue]

This question is probably directed at Scorpion or Hap.

[Scorpion Man]

[ QUOTE ]
What would an entry level/internship/co-op job at hedge fund entail, and what kind of classes should I be taking to achieve that goal? Does it vary widely from company to company and if so, what type of companies are more apt to have hands on involvement early on?

[/ QUOTE ]

You MUST learn accounting. You also need to know finance...realistically you should get an ibanking analyst job first. Going to a hedge fund right out of school would be a disaster for most ugrads (i am talking about fundamental analysis here...quant might be different). There is just so much you don't know. YOu have very little to offer. We never hired anyone even close to right out of school.

What would internship entail? I dunno, probably plugging nubmers into a spreadsheet or making "channel checks" (i.e. call 50 managers of best buys and ask them how XMSR is selling.)

[Scorpion Man]

[ QUOTE ]
What is your take on Christopher Whalen’s recent article?

Hedge Fund Problems Start With the Fed

[/ QUOTE ]


I always found these articles strange because all of the hedge fudns I knew well were way UNDERLevered and took much LESS risk than the market. I don't understand what all the noise is around leverage. Look at Amaranth, who used it stupidly. Still did not create a problem for the system. LTCM was worse...I do not know if people still do that...the highly leveraged arb funds were not my world.

Generally all the noise about regulating funds is way misplaced and politically motivated, IMO.

[DOTTT]

[ QUOTE ]
It's tomorrow [img]/images/graemlins/grin.gif[/img]

This is one of the best threads I've read in a long time. Just a little info about the guy that keeps buging you, I've been intrested with the stock market all my life, and I currently swing trade e-mini futures part time. I'm looking to learn as much as I can about fundamental research for my long term portfolio. Thanks.


1. Were you always interested in working for a hedge fund?
2. What exactly did you do at the hedge fund you worked for? Were you allocated a certain amount of money to invest.
3. How much time did/do you put in to researching a company before taking a position?
4. How would you describe your investment method in stocks. From CHTR it seems like you like turnaround plays.
5. Can you walk us through your research routine before you take a position?
6. What three ratios tell you the most about a stock your interested in buying/shorting?
7. Does market direction affect your decision to take a long/short position? Are you more willing to go short if the market is in a slump? I read somewhere that 3 out of 4 stocks simply follow market direction most of the time.
8. The hedge fund business is booimng, what do you think the future holds for the industry.
9. How much capital is needed to start a hedge fund?
10. What are your plans for the future? I read about your day and it sounds like you have it made, do you miss anything about your job?

[/ QUOTE ]

[Scorpion Man]

[ QUOTE ]
[ QUOTE ]
It's tomorrow [img]/images/graemlins/grin.gif[/img]

This is one of the best threads I've read in a long time. Just a little info about the guy that keeps buging you, I've been intrested with the stock market all my life, and I currently swing trade e-mini futures part time. I'm looking to learn as much as I can about fundamental research for my long term portfolio. Thanks.


1. Were you always interested in working for a hedge fund?
2. What exactly did you do at the hedge fund you worked for? Were you allocated a certain amount of money to invest.
3. How much time did/do you put in to researching a company before taking a position?
4. How would you describe your investment method in stocks. From CHTR it seems like you like turnaround plays.
5. Can you walk us through your research routine before you take a position?
6. What three ratios tell you the most about a stock your interested in buying/shorting?
7. Does market direction affect your decision to take a long/short position? Are you more willing to go short if the market is in a slump? I read somewhere that 3 out of 4 stocks simply follow market direction most of the time.
8. The hedge fund business is booimng, what do you think the future holds for the industry.
9. How much capital is needed to start a hedge fund?
10. What are your plans for the future? I read about your day and it sounds like you have it made, do you miss anything about your job?

[/ QUOTE ]

[/ QUOTE ]

1. See above. Was always interested in stocks and getting rich. Considered entrepreneurship and VC
2. I was an original employee. Most important thing was picking stocks and training and hiring people. There was always capital around for good ideas.
3. Depended. When you had coverage of an area over time you migth get an incremental piece of info and pull the trigger on a company you had been following and meeting with for years. In terms of a brand new company and pulling the trigger...it was a broad range, but probably at least a couple hours reading and an hour on the phone with mgmt. THere were other situations that took a month.
4. I am willing to invest in all styles....my most natural is value, but special situations, arbitrage, growth, and momentum are all styles I use as well... there are many ways to skin the cat.
5. I am going to pass on this for the most past its just too involved....but lots of reading, Qs, Ks, research, competitor notes, conference call transcripts, maybe industry pieces. Speak and/or meet with management. Sometimes follw up with Wall Street analyssts. There are also third party research services for very indepth due diligence.
6. Depends on the company...its really much more of a holistic approach than is suggested by this question -- but if i had to pick three I guess operating margin, p/e, revenue growth. THat said, knowing these things in isolation is not worth much. I know some will say ROE, but book ROE has a lot of issues and I dont always trust it.
7. Hard to say. THe market is always affecting your emotions. OFten times it works the opposite of what you are saying.
8. HEdge funds are here to say, but they are run by aggressive guys and are always evolving, as you can see by the Fortress IPO and the Citadel strategic moves.
9. $100-150k if you do it shoestring. BIggest cost is legal fees.
10. Dont know what I will do in future. I mostly miss the camraderie and the winning/losing. ALthough that definitely had its downsides.

These answers are far from complete...but that is a lot of quesitons.

[Tien]

Thank you sir for this thread.

I will most definately come back to this thread in my bookmarks in the future when I decide to start investing in the stock market.