How to Find Your Investment Style

If you are preparing for hedge fund interviews, I know the level of exhaustion and stress that you are going through. There are many technical questions to prepare for. Developing and presenting an investment pitch is time-consuming. On top of that, there’s a constant self-doubt of whether you are on the right track with your pitch. But first things first. Before you start your investment pitch, here’s a critical question for you to answer: what’s your investment style?

Know Thyself

Not knowing who you are as an investor is the number one common mistake in your buy side job search. It might sound a bit fluffy, but defining your investment style leads to very practical results.

Knowing how you prefer to invest is the first step to acing your buy side interviews and developing a convincing investment pitch.

It’s hard to develop a good pitch without knowing how you’d like to invest. Worse yet, if you work for a fund that doesn’t fit with your own investment style, you’d have a miserable time. You’d go against the grain and be forced to make investment recommendations contrary to your personal investment belief.

The first step to developing a great investment pitch is to hone in on your investment style.

Let’s find your investment self. We’ll go through the steps to shape your investment style and help you search for investment ideas to pitch.

What’s an Investment “Style”?

What’s an investment “style”, and how is it different from an investment “process”?

An investment style is your method of buying and selling securities that you believe is the right way.

Your investment style determines what type of investments you prefer, such as equities, credit, real estate, commodities, etc. It specifies your investment time horizon. It asks whether you like to invest in global conglomerates or small niche businesses. It tests your risk-aversion.

For example, are you a red-blooded trader who loves to make short-term bets on small biotech stocks, or are you a patient value investor who loves to scoop up undervalued distressed credit?

On the other hand, your investment process is the method of researching your ideas and making investment decisions.

After you’ve set your investment style, you would develop a repeatable process to find and buy securities. That’d be your investment process.

6 Factors to Define Your Investment Style

There are 6 essential factors that define your investment style:

Asset Class: Equity vs. Credit

Do you want to be an equity or credit analyst? Are you more excited to be a shareholder of the business, or are you more concerned with protecting the downside risks to getting your loans paid back?

Region: U.S. vs. International

Do you want to cover just U.S. securities or become a globetrotting investor?

Market Cap: Small vs. Large

Do you love to find under-covered small cap companies that few other people have discovered, or do you like to follow large-cap conglomerates and predict macro trends?

Focus: Value vs. Growth

Are you a Warren Buffett disciple or an Elon Musk fan? Do you want to invest in undervalued, boring “cigarette butts” or be an owner of sexy, high-flying ventures?

Strategy: Long-Only vs. Long-Short

Do you want to be a mutual fund analyst or a hedge fund cowboy?

Investment Horizon: 3 Months vs. 3 Years

Do you like to build out detailed quarterly financial models and make bets on earning assumptions, or do you want to invest in long-term secular trends?

Write Your Investment Objective

Funds that invest for institutional clients have written investment objectives. Formal investment objectives are no different from your own personal investment style.

Think about your preference for each of the 6 factors above. Write them down. This is your personal investment objective.

Why is it important to develop a written investment objective?

There are a lot of different ways to make money. There is no one categorically right way to invest for everybody. But there’s absolutely a right way for you personally. Sticking to your own way is the prerequisite to being a disciplined investor. Having discipline is a career quality hedge fund interviewers look for.

Target Your Job Search

Defining your investment style is important to narrow down the type of funds you’d like to join.

Don’t try to be all things to all people. Think deeply about your own investment style, and only target the funds that fit you. You’d be happier with your career in the long-run.

Pitch Investments That Fit Your Style

After you’ve defined your investment style, think about the type of investment ideas that you’d like to pitch that fit this style.

Examples of your investment objective are:

“I want to pitch a stock to a hedge fund as a potential long or short. I’m a long-term value-oriented investor with a bent towards mid-to-small cap international equities.”

“I have a strong interest in technology stocks that benefit from long-term secular growth trends. I want to participate in a stock pitch competition hosted by a long-only mutual fund.”

“I’d like to be a long / short credit analyst at a distressed / special situations hedge fund focused on analyzing credit events with a 12 to 18 months time horizon.”

“I’d like to short stocks by researching small-cap companies that have aggressive accounting practices or would likely miss upcoming earning releases.”

See how stating your investment objective naturally leads to targeted investment pitches? You’d gain focus in your search for investment ideas. You wouldn’t spend time on ideas that don’t fit you. This leads to higher efficiency and more convincing pitches.

Food for Thought

So I challenge you to go through each of the 6 factors above and think about your preference. Write down your investment objective in a sentence or two. It’ll sharpen your hedge fund interview prep and lead to great pitches.

Good luck, and post any questions below!

Author Kelvin Jiang, CFA

Kelvin Jiang has a decade of investment experience in public equities, private equity, distressed debt, and leveraged finance. His journey spans across Calamos Investments, Thornburg Investment Management, CHS Capital, and J.P. Morgan. Throughout his career, Kelvin has screened and interviewed candidates extensively for the buy side. Kelvin earned an M.B.A. from the Kellogg School of Management and graduated magna cum laude from Columbia University. He is a CFA Charterholder. In his spare time, Kelvin is an avid commentator on NBA trade rumors and Oscar-worthy performances.

More posts by Kelvin Jiang, CFA

Join the discussion 2 Comments

  • Cuylar Conly says:

    Thank Kelvin. This helped me define what I am looking for. Without a defined approach it is impossible to filter the amount of information and options in the world. While I was taking myself through this exercise I thought of some more A/B questions. Concentrated vs Diversified; Number Cruncher vs Story Teller; Sector vs Secular. Do you think these are more style, or process? Should they be at the core definition or secondary?

    • Great suggestions Cuylar, sounds like you’ve thought a lot about your own investment style.

      Concentrated vs. Diversified is definitely another factor to think about when determining your investment style. This factor is a bit different from the 6 I mentioned in the article. The 6 factors describe a single investment, while concentrated vs. diversified is more about portfolio management. It determines how many investments you’d like to hold in your portfolio.

      Cyclical vs. Secular and Data Driven vs. Story Driven are related to Value vs. Growth. You tend to find value stocks in cyclical industries where companies are experiencing trough demand, which creates attractive value. Think auto component suppliers, energy producers, etc. The investment is driven by data that supports attractive valuation, such as high cash flow yield, low P/E, etc.

      On the other hand, growth stocks are exposed to secular trends with expanding addressable market. They might not generate attractive cash flows or even earnings yet, but they have strong stories that tell an optimistic growth outlook. Think the FANGs – Facebook, Amazon, Netflix, Google.

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