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

[edtost]

[ QUOTE ]
Hey Ed, thanks for the info.

I always thought it seemed kinda silly to do physics research for 6 years so you can work at a hedge fund or whatever, looks like the job market is adapting a little to more practical options and backgrounds.

I'm curious...what's your entry level quant type position and what was your undergrad major?

[/ QUOTE ]

It's no problem. Though obviously my comments don't come from personal experience, it seems that, historically, banks started looking for quant-type people around the same time a lot of funding for physics research dried up, and the newly out-of-work physicists were comfortable with the necessary math of dynamic systems and not afraid to do their own research, so the banks started hiring a bunch of them.

I'll be starting after I graduate this June, but I believe my position will mostly involve researching trading strategies based on and factors for econometric models at a quantitatively managed hedge fund.

I'm currently majoring in Operations Research and Financial Engineering, with minors in Finance and Engineering Management Systems. My senior thesis research is on applications of Approximate Dynamic Programming to Equity Portfolio Management.

[hapaboii]

Wow, lots of replies already. Nice to read about your insights Scorp.

Do you think the standard 2/20 structure is sustainable going forward?

I'll also try to provide some color on the industry when possible. I am the trader for a successful $1bn l/s equity fund.

I didn't read all of the posts but some issues mentioned:

Poker on resume - I did it, but I'd be careful about this one. Try to get a sense of what type of fund you are applying. Conservative fundamental shop looking for ex-bankers, probably leave it off. Quirky quants, event driven punters, founders former prop traders or worked on the floor in past lives, go ahead and put it on.

Quant funds/PhD necessary? - Can't confirm, but under the impression that most shops are still looking for PhDs or at the very least a quantitative masters. I seriously think this is just a screening tool(they don't actually need you for your knowledge obtained in school) to get smart candidates and market the fund to investors.

[DOTTT]

Was it possible to see the Enron debacle by reading their financials, did you suspect anything, were you taken for a ride?

Name some of you favorite books, sites, and analyst/managers you follow.

Recommend some mutual funds for a young aggressive investor.

Why do you like CHTR so much?
I’ll probably have some more questions tomorrow; hopefully you won’t be bored by then.

Thanks for doing this.

[burkoboy]

[ QUOTE ]
scorp check PM please

[/ QUOTE ]

[DOTTT]

Hap,

Are you a technical trader?

What do you look for before taking a position?

Do you use stops, are they mental or at the market?

How important is a math background when it comes to trading?

How much $$$ do you risk on a single trade?

How does one know if their truely a good trader, what's a good sample size?

[Scorpion Man]

[ QUOTE ]
Was it possible to see the Enron debacle by reading their financials, did you suspect anything, were you taken for a ride?

Name some of you favorite books, sites, and analyst/managers you follow.

Recommend some mutual funds for a young aggressive investor.

Why do you like CHTR so much?
I’ll probably have some more questions tomorrow; hopefully you won’t be bored by then.

Thanks for doing this.

[/ QUOTE ]
I did not follow energy, but it was definitely possible to see something was amiss and there were some prominent short funds, one in particular, that was pretty vocal about it. I believe mgmt actually called one of them an as*hole on a widely broadcast conference call because he was getting to the truth.

Investing, particularly shorting, goes in waves in my opinion. A decade ago there were many, many games being played and I was an expert at catching them. What was difficult was getting other people to care, because sometimes it could take a very loong time to play out. There are many fewer of these situations around today. Enough people have gone to jail that people do not cook the books in the same way. Arthur Anderson disappearing in a puff of smoke also woke up the accounting industry that they were supposed to be watchdogs and not pole smokers. This was apparently news to them. I was absolutely disgusted by the public accountants and the job they did on the companies I covered. It was fraud and malfeasance, pure and simple. I have to admit...the only big scummy thing that has come out that I was not at least vaguely aware of was options backdating. I am a cynical mofo, but I cannot believe how widespread and egregious it was. These are people who would not steal a candy bar in a store but thought it was OK to grab a couple hundred million from shareholders with the stroke of a pen.


I named books above...i dont read websites or blogs...I like a firm called ValueAct in San Francisco and have made money using their holdigns as a screen for ideas. Lone Pine has an incredible track record, Greenlight has done a good job.

I have never bought a mutual fund...general advice is dont buy them, but ETFs or index funds or learn to buy stocks.

THe analysts I liked are mostly gone...Wall STreet changed, they could not make the big $ anymore and they left. An unkown guy who is great is Steve Binder at Bear Stearns in Aerospace/Defense.

CHTR has a lot of financial leverage, which is a good thing in a turnaround that has already turned the corner. Nobody talks about it, which means it is still undiscovered and way off teh mainstream. I am copying the notes of a friend a bit here, but they have a shot at growing EBITDA double digits for many years...just look at the cable stocks...Cox took itself private, CVC tried...there is a reason. VOIP and the bundle works and CHTR, because of their financial difficulties, will gain these benefits later than others. EWveryone thought they were going bankrupt. That is not happening. The balance sheet will get better and better.

[hapaboii]

Hap,

Are you a technical trader?

I do keep an eye on technical levels and make sure my PMs are also aware of them. But by no means would I consider myself a technical trader. I believe most l/s equity shops who trade size and have a fairly long term horizon will just try to beat VWAP or some I/S benchmark.

What do you look for before taking a position?

I don't run my own book, I am only responsible for the execution of our trades. I keep my PMs up to date with market news and activity, our executions, etc. I gauge intraday sentiment within the market to help advise on our executions and if we want to be doing anything else or try different execution strategies. I maintain relationships with our sales traders, hoping to gather useful information from them throughout the day that will help us get a feel for what others are doing/thinking. I make sure our sales traders execute to our liking, and if not, regulate on them. Keep up to date on what earnings are out for the day, economic data, aware of blocks that are looking to be placed and if we are interested in these, aware of IPOs/secondaries and whether or not we are interested in participating, a variety of other things including admin tasks. But at the end of day, I don't run my own book so the only p&l I generate for our firm is by beating execution benchmarks and seeking to minimize transaction costs.

Do you use stops, are they mental or at the market?

Sometimes, but I suppose instead of stops we have our own set of risk controls in place.

How important is a math background when it comes to trading?

Depends what type of trader and what products you trade. In general I'd say it certainly helps, but that doesn't mean it's absolutely necessary.

How much $$$ do you risk on a single trade?

Because we are longer term oriented, this is hard to answer. It varies depending on a variety of factors.

How does one know if he/she is truely a good trader, what's a good sample size?

I will come back to this one. But to clarify, you are referring to prop traders/hedge funds/buyside, correct? Not some MM/flow trader.

[crazy canuck]

How did your founder raise the funds? Is there an easier way than 5 years of solid track record (assuming no Ivy connections)?

Regarding PhD...very few people would recommend doing a physics PhD so that you can be a quant. If you want to be a quant study to be one...do an MSc or PhD in finance or mathematical finance. But even these will not be guarantees because quantitative finance is saturated at entry level. This is why an MBA from top school >>>>> MSc from top school.

Also, all aspiring quants should check out careers forum at wilmott.com

[ubiestmea]

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

Hedge Fund Problems Start With the Fed

[DOTTT]

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?