The most popular question I get on my YouTube channel, and one that I have answered numerous times from a variety of different angles, is “how do I get a job at a hedge fund or investment management company” or “how do I get into equity research/how do I get a job as an equity research analyst.” In this article I am going to break down what your approach should be for people at various stages of life: the college student (or soon to be college grad), the recent college graduate who is 1-2 years out of school, and the career switcher (mid career professional.)
Q4 2019 hedge fund letters, conferences and more
What Portfolio Managers Look vs. What You All Think
Let’s flip this around for a bit and look at what is going through the minds of the person sitting across the table during the interview. What is the company thinking as they look at your resume and hear you answer in the interview? What do they care about?
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First let me describe what they don’t care about (but all of you seem to think that they do).
#1 "I Have A 3.8 GPA And Passed CFA Level One On The First Attempt."
With the high salary that these jobs pay, there is no shortage of qualified applicants. They get the cream of the crop, top schools, CFA candidates, national math league champions. So let’s clarify first of all that the fact you passed CFA Level One is not really going to get you ahead.
#2 I'm Soooo Passionate About Investing
Secondly, almost everyone who applies for these jobs loves the stock market. You’re all Bloomberg news junkies, okay? You all worship Warren Buffett. They couldn’t care less if you love or hate the stock market; all they care about is how much money you can make them.
Let me clarify a truth that is going to be hard for some of you to accept: this is not a profession full of nice people. You are not applying for a job at the daycare.
Remember these are some of the coldest, most arrogant, and most calculating people on the planet Earth. They do not care about anyone’s feelings, especially the people who work for them. They care who gets the job done best, who can perform under pressure, and who is going to do things for them that aren’t in the job description when they need it the most. All of this benefits them, not you. Leave yourself out of the discussion when trying to convince someone to hire you; it’s 100% about them and what your skills can do for them and 0% about you and your standalone qualities as a person.
#3 I'm Really Hardworking
Along these same lines, saying that you’re really hardworking is another non-differentiator. Who cares? They’d pay you a full day’s pay if you came into work, plunked down in front of the Bloomberg terminal, and came up with the earnings forecast Excel model in 5 minutes, if it was right. Portfolio managers are very cutthroat kinds of people; they see things in black and white. They can get a computer program to plug in data to the maintenance models. And they care about critical thinking skills way more than they care about the fact that you’re willing to stare at the monitor all day.
News flash, folks, the reasons I stated above are what they hear all the time. They are practically useless in setting you apart. In fact by using these lines you’ll just make yourself look like everyone else. You’re better off almost saying something inane as long as it’s not one of the lines above. It might be kind of intriguing to them that somebody actually said something different.
So before you go on to the next part of the article, take a moment and ask yourself, is this really the right environment for me? Look, I’ll be honest; it wasn’t a cultural fit for the industry. I got out of it and am very happy where I am now. There’s nothing wrong with saying it’s not worth it based upon what I just told you.
The Biggest Thing Portfolio Managers Care About
The biggest factor they are evaluating you for is risk. It’s a portfolio manager’s worst nightmare to hire someone and find out that they can’t get the job done. Not that they don’t like your personality, not that you can’t pass the CFA level two, not that you cut out 15 minutes early every Thursday. They’ll put up with all of this if you get the job done like they want you to.
Think about what it means to a portfolio manager when an employee fails. Now you’ve got to either fire the person or manage them out. Now you’re faced with these issues, to name a few:
- The annoyance of having to go through another candidate search which consumes valuable time. It’s especially hard to do this in a volatile market when the portfolio requires constant attention.
- The risk that the employee is going to leave and take models, trade secrets, relationships with key vendors, client relationships, or other personnel with them
- The worry that you’ll be badmouthed publicly or on the internet
Now, being analytical and information-driven decision makers, the portfolio manager is going to look at you as if they were looking at a stock they were going to invest in. Of more importance than the potential return from their investment in you will be the risk that they are exposing themselves to by hiring you. Let’s examine how risk is perceived for each of the buckets I mentioned in the beginning of this article: the college student (or soon to be college grad), the recent college graduate who is 1-2 years out of school, and the career switcher (mid career professional.)
Equity Research Analyst: The College Student Or Recent Grad
Let’s say you are a college student or a recent graduate and you want to get an entry level job in equity research at a hedge fund or investment management company. You are probably participating in your school’s recruiting program. It’s best to start as early as you can, preferably by junior or senior year. Getting an internship helps. You may have to work for free. This stinks, but most people in college do not have children or a mortgage to worry about so you get a side gig to pay the bills.
My advice about the internship is get the biggest name you can and/or the best experience possible. Everyone knows the intern isn’t making $50MM trade decisions so it’s expected that internship work is menial. Name value will go a long way as the hiring manager will feel more confident in you if they see that a reputable company before them has already tried you on for size.
Start trading on your own to get an equity research analyst gig?
If you can’t get a job in the industry while in college, start trading your own money. If you don’t have your own money, invent a paper portfolio and track it using Yahoo!Finance. Folks, with all of the tools available on the internet for free there is no excuse for not doing this. I constantly hear from people who give me this line about how passionate they are about investing, and then when I ask them what stocks they like and they have nothing to say.
The risks that are perceived to come along with hiring a college student or recent grad are:
- What if they can’t do the work (showing some investment club experience, any internship or job experience, and a CFA attempt or relevant coursework is a plus here)
- And what if they aren’t emotionally mature enough to handle this job
- What if they aren’t serious about this profession and then leave after I spend my time training them
I have many more tips for those who are starting out and want to get the skills they will need; please see these playlists here on my YouTube channel.
The Early Stage Professional
I personally believe that the professional who is 1-2 years out of college is in the best possible position to embark upon a career in investment management. The reason is with just a few years of experience, the risks of hiring a student (see above) tend to fade. Yet, you aren’t old enough that you’re “branded” so to speak, perceived as being a worker of one type or another (I’ll get that that next). For someone who wants to get into investment management, the first few years out of school are probably the most critical.
Let’s look at how the timing of an equity research analyst’s career path works. Let’s say right after college you got some job with skills that are transferable to the role of an investment analyst. Maybe you worked at an investment firm answering the phone or formatting the reports, or maybe worked for a trading firm and reconciled the trading blotter every day. Whatever. Let’s just assume you had some low level investment, trading, or financial job and now you want to get a job as an investment research analyst.
The job to look for is an equity research analyst job, doing maintenance modeling or basic research for a portfolio manager. You’ll probably start at about $60-80k a year salary with modest bonus. These jobs don’t grow on trees but if you have solid experience with a good search you can probably find something. Again, there’s tons of content on this on my YouTube channel.
After being a credit or equity research analyst, you’d be promoted to an associate. This is also typically called a junior trader or junior portfolio manager. After many years, possibly a decade, you may be given portfolio manager title by your firm and if you aren’t then it wouldn’t be inconceivable to seek this position elsewhere.
If you can follow this path, follow it. It is the path of least resistance. This is the path that minimizes risk in the eye of the hiring manager. But some risks do prevail when they are looking to hire someone a few years after college and they are:
- Does this person’s experience directly correlate with the type of work I am requiring of them?
- Will they be truly a fit for my firm in the long term or are they more suitable for a smaller firm (bigger firm, less conservative firm, more conservative firm, etc.)
- Do I see this person being a leader and eventually handling more responsibility, managing people, and representing the brand of my firm?
The first few years out of college are the absolute best time to get on this path. Sacrifice all you can to get in at this time. Know that with each year that passes with advancing in skill and stature, it is only going to get harder and you will appear less and less attractive next to the college grad.
The Mid Stage Career Professional/Career Switcher
If you have worked for 10 years or more and want to make a shift into the field of investment management, the analogy I will make is this. Let’s say you are a happy dappy mountain climber who once a year takes a trip and climbs Mt. Everest. Challenging, but many people have done it. But one day you decide you don’t want to do this anymore; either you are bored or you maybe just decided you don’t like climbing Everest. You decide you want to do something with a bit more pizazz, so you opt to try Mt. Annapurna, an 8,000 meter high death trap and you may just not make it back down.
The point I’m making here is that being the big shot portfolio manager has allure, but is this really the best option? Do you really have to make such a dramatic change? If you want more excitement, why not just get a higher risk job within your same profession, at a cool startup company or something? At least that way you will still be on the same path and it won’t be as hard to explain if it doesn’t work out.
Starting from the bottom at this point in your career is a very serious thing. Look at what is really going to be required of you as an entry level analyst. They are not looking for someone who wants to get in there and throw their weight around. You are basically expected to kowtow to whatever the portfolio manager says. Are you sure that after working for 20 years you will be really be happy being bossed around like that?
Equity research analyst and later career
The portfolio manager will come back from a meeting and drop an assignment on your desk, and you are there at night until it’s done. The fact that it’s your wife/husband’s surprise birthday party, your kids are sick and the sitter leaves at 5 PM, your back hurts and you have a doctor’s appointment, is not relevant to them.
What goes through the mind of a hiring manager when looking at a mid career professional:
- What is their real motivation for wanting the job? Is this person doing this because they are really unfulfilled doing anything else, or do they just a higher paying job?
- Why are they throwing caution to the wind at this point in their career and abandoning all they have worked for over the last 20 years?
My advice to those who want to switch careers and get into investment management is very sharp. Understand that if you do this, you will be starting from less than zero. You may have some credible experience on your resume, but you will have to 1) start from scratch and 2) overcome the picture the hiring manager already has in their mind based upon your past experiences. For this reason, I strongly recommend that all career switchers trace their paths back and do a full examination of their best performances on the job. What are your strongest skills? Are they really a direct match here? If not I would let the story of your history of highest success point you to what your next role should be – and most of the time it is not going to be in portfolio management.
Forgive me as this article got a bit longer than expected. In future articles I will cover the specific things that people in each category should be doing to get ahead in their equity research analyst job searches. In the meantime I encourage you to check out my YouTube channel, and specifically the Equity Research and Portfolio Management playlists.