Compensation range is so wide for hedge fund analysts / PMs. On average I made $2Mn annually ($3Mn at peak). PM made the most - was probably pulling-in $25-70Mn annually over that stretch depending on the year. I was fortunate to be on a successful team. The majority of funds don't make money. I would say the average analyst salary at my firm was ~$450k and the average PM pay was $1Mn.

We personally did not use charts a ton.

I think I can make a decent amount of money this year since I still have ideas from the work I did at the hedge fund. Once they play out (hopefully right), it's going to be tough since you need to spend a decent amount of money on research tools (Bloomberg, sell-side research). I will not make as much money as I made at the HF since I'm only managing my money and need to be somewhat risk-averse. My best idea will only be 12% of my net worth as an example.

Answered your return question in the prior post.

First of all, thanks for creating the thread.

In what I quoted from your post it implies to me that you use sentiment indicators of some sort. Am I correct in that conclusion and if so can you describe them in general terms? Hope this question makes sense.

No problem, I have a lot of free time and like the attention

You can normally just look at a stock chart to get a sense of the sentiment. NVDA's sentiment is awesome right now; SHLD's is awful...etc, etc. The distribution of sell-side analyst ratings is a pretty good tell - beloved stocks will normally have >90% of sell-side ratings a Buy with no Sells.

People just generally like buying companies that are doing really well. The issue they inevitably run into, however, is that many companies don't have a large competitive moat, thereby enabling other competitors to enter and erode returns. As an example, one of my big short calls going into 2017 was SLCA. It's a sand mining company that saw a spike in profitability as oil & gas companies realized that more sand per well meant higher well production. As you would expect, higher demand for the product meant that SLCA could charge higher prices. As SLCA's profits increased, the market chose to bid the stock price up even more than earnings (i.e., the P/E expanded to a level never seen before). Unfortunately, there are minimal barriers to entry for sand mining, so I thought that it was only a matter of time before more sand would enter the market and prices would fall. By shorting cyclicals at the top (and being right), you get the benefit of not only earnings falling but also the multiple collapsing.

10% in that time seems pretty unimpressive.

I am a noob investor that made a decent chunk in crypto... I put 25% in AMZN and the rest in tech stocks in the Feb dip. Do you think the president can do more damage to AMZN? Should I sell and dollar cost average into the market since I'm looking long term 5+ years or just wait for a 20% correction. If not the stock market or crypto any suggestions to put money in this current environment?

I can't give you investing advice. In general, dollar cost averaging typically makes sense. Make sure you truly do have a very long term investment horizon (10 years +) if you want to be fully invested in the market at these levels.

In a world with negative interest rates, a 10% return is quite attractive if you earned it with essentially no market beta and minimal monthly return volatility over that period. A large amount of institutional money would much rather be invested in that strategy than a fund that has been / is ballz long the market and earning a 20% annualized return since 2010. You'll see who's good when the tide goes out.

adjusted for inflation? S&P500 beat you if you take your fees into account anyway.

How did you/do traders find edges in the market? That might seem like a broad question but when you're developing a strategy you must have some kind of edge. Otherwise why trade right?

So did you just stumble upon some by trial and error? Were you taught about some edges by older traders?

It just seems like, if you're just starting, where the hell do you start looking?

lol wat

1. what inflation

2. those returns were net of fees

3. most importantly, we were fully hedged. we did not have market exposure. you're comparing a return that had minimal risk vs. a return that had substantial risk. this will became more apparent when the market goes through it's first major correction in several years. you're comparing apples and oranges, but it's hard to see that since the market has been on one of its most epically bullish runs in history.

I think the biggest edge you have is gained by following a certain industry for a particular amount of time. After awhile, you really know that industry / stocks well and can identify when a certain good idea exists. You need to be very fast these days given how quickly information travels, so by staying on top of a company / industry you know when to pounce as information comes out.

Every edge I now know was through trial and error as opposed to learning from others. It's not like I can tell you "you need to look for this one thing to make money"...because it doesn't work that way. Attractive investments have several criteria, and it takes awhile to learn that. The best analogy I can give you on this website is poker...there is a reason why very good poker players who also teach are still better than those they teach to. It's because there isn't just one golden rule, there are thousands that you learn over time.

You just need to follow the markets closely, constantly look at new ideas, and learn. There was a BFI poster here a few years ago that pitched a stock that I knew at the time was just not a great idea. At worst, the company was BK, and at best (s)he was way too early on the trade. I would not have known that when I first started out, but I eventually learned it through one of the iterations I learned during my career.

Any fund making 10% on an uncrowded and uncorrelated strategy will justifiably have people lining up to invest. No way we can know if that's true for his fund, but if it is true than your hating is just silly.

Biggy:

Best idea/biggest winner?

Worst idea/biggest loser?

Did you specialize in a sector or even more granular?

If you had to suddenly start issuing recommendations/suggestions on the whole universe what 3 tools/resources would you keep in your arsenal to maintain some edge without spending your whole life on analysis?

How do you time your exits? Momentum, intuition, rules?

How many hours a week did you work?

How do I get a job at a hedge fund?

First 3-5 years, I would work maybe ~70 hours per week. Towards the end closer to 55 hours (I was burnt out).

Depends on the style of the fund. For the type of fund I worked (fundamental L/S), you needed to have a background in finance (banking, PE, hedge fund) and able to demonstrate that you could be a good stock picker.

The biggest call I had was being short oil going into 2H14. At peak, 30% of our fund was positioned this way in the summer when we started seeing very negative physical market indicators / anecdotes (e.g., Nigerian cargoes being turned back due to a lack of storage availability). Literally one week before Brent started spiraling, I gave a presentation to a prospective investor (FoF) who said he just came from another fund meeting who was very bullish - it was an extremely contrarian call at the time. Anyway, we were short everything and everything - GLNG, SLCA (we shorted this again a few years later), RES, etc., etc.

I've had a ton of bad calls so it's hard to pick the worst. I've fortunately never been on the bad-end of a takeout. As someone who primarily looks at cyclicals, a lot of times your worst calls are simply a timing issue. ALB is a good example (I was short). It's a lithium company that bulls fell in love with given its EV exposure (used in batteries). I underestimated how high the multiple could go in 2017 (guessing I lost 30% at peak). Fortunately, the short was sized well by the PM and we were able to get bigger when we noticed sentiment was finally starting to turn negative.

I specialized in any sector that had commodity exposure; cyclicals as well. I loved being contrarian from a style perspective...even if you were right 40% of the time, you were still +EV since the payoffs were so sweet.

I would definitely need Bloomberg, excel, and research from at least one large bank. I've just become very efficient with those tools (Bloomberg with excel); the research from one bank is just necessary to have some time of fundamental flow. I'm assuming access from SEC documents is a given.

Entry and exit is typically based on what I think a company is worth. Normally, the majority of other buyers/sellers adhere to a somewhat similar thought process, so stock prices do tend to move towards these levels. Nothing worse than buying a stock that you know is overvalued for whatever reason...because if you're wrong and it goes down, you're screwed and can't get bigger. I like being able to get bigger in a stock that goes down if I think it's cheap.

This question came to mind. I get why you gravitated toward cyclicals, companies that have earnings that rise and fall with the business cycle. What about something like non durables such consumer staples that are recession "resistant" regarding trading. I'm guessing that in economic slumps they get over valued. Hopes this makes sense. Did your fund get involved with the these types of stocks?

Well ... for sure will have to pay capital gains taxes on any potential profits - which isn't something am having to do with any of the rest of my money, since the rest of it's in tax-free accounts

My brokerage/bank has reassured me that they don't charge interest for borrowing shares - have called several times to try and see if anyone is able to come up with a figure, and they've all said there isn't one??

Wasn't sure what to do - but it seemed like everyone was saying that Sears seemed likely to go bankrupt very soon ... so hopefully if there is a borrowing fee and it's high, will still be left with a profit? Otherwise that's going to super suck if SHLD winds up going down 200% or whatever, and Sam winds up down 10% in the net? lol

Ahhh, guess will have to wait and see


Hey you know what - there was another hedge fund person who plays poker, who was on Jeopardy a couple of years ago ... there was a huge thread in NVG about it that you might enjoy reading about: https://forumserver.twoplustwo.com/2...pardy-1524695/

Thanks so much for answering my questions - very interesting thread! The trips should be tons of fun!!

Any suggestions on learning how to utilize BBG? I'm competent with it but you'd probably look at me the same as excel user who doesn't know any VBA or hotkeys. While there's a ton of excel modelling stuff online there doesn't seem to be an equivalent for BBG.

What percentage of your net worth would you keep in your fund? Were there any requirements around this to ensure the employees had material skin in the game?

Yes, we traded everything across the team (1 PM, 8 analysts). This included Staples. Defensive companies do significantly outperform during economic slumps. The Defense sector itself is really interesting to me...names like NOC, RTC, etc. have 3.5% FCF yields (this is my primary valuation metric since it's a good shortcut to what type of return you can receive as a shareholder). The 10-year is going to be approaching this at some point in the not-too-distant future. Why would you want to own these names at these levels when the 10-year is offering a better return?

At peak I kept 80% and more recently it was 60%. Now it's 0% since I'd rather be trading my own money. My advice is for people to keep as minimal as possible...it just adds a huge element of stress to your life when your salary and existing net worth are impacted by one factor.

I completely get your point in terms of hedge fund managers needing to have skin in the game so that incentives are aligned. First, it's worth noting that the PM of the fund had all of his money invested in it (I think the PM should bear this risk since he's also taking home ~80% of the team's profits). I think the better way to align incentives is by having a minimal management fee (something that only covers the cost of research) and a performance fee that is retroactive. What do I mean by this? Let's say you make 10% one year but lose 20% the next (such that you're down over a 2-yr period). Typical HF managers would get paid a significant amount of money year 1, and then would not be able to get paid again until they get back to over break-even (high water mark). Since it's hard making that money back, many of those managers leave to go somewhere else. I personally think that's a joke and that they should not get paid any money over that 2-yr period.

Honestly it's just through experience. You'll pick up a couple of shortcuts every month or two and get faster and faster. I think the IRH function is cool where you can store your own research under various stock tickers.

Thanks for sharing.

I am as sure Tesla is ****ed as I am the sun will rise tomorrow. Simply shorting the stock is too risky. How do I make money besides buying options?

This begs another question. What is your view of current Fed monetary policy, too tight, too aggressive, about right? Seems like you think it is too loose.