Hedge Fund Stock Analyst: A Day in the Life

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Steven L. Marotta, research analyst, Wyper Capital Management, New York: "I think that if there is a common denominator for stock analysts, it would be that you must be able to stand up under fire and have the conviction that your recommendation is the right one for what your firm wants to accomplish."

Steven L. Marotta, is a research analyst for Wyper Capital Management in New York, which manages over $1 billion in assets using long-only and long-short equity strategies. He holds a Bachelor of Arts degree in Economics from SUNY Stony Brook, a Master's degree in Economics from SUNY Albany, and a CFA designation.

How did you get started on Wall Street?

I started at an investment newsletter called the Johnson Redbook Service, which covered the retail, apparel, footwear and textile businesses. The founder, Ed Johnson, was a well-established sell-side analyst with a decades-long reputation.

One of the products we offered was a weekly estimate of retail sales. Someone on Wall Street generated a regression analysis and discovered a tight correlation between our weekly estimates and the monthly reports issued by the Commerce Department. As a result, we became very popular with bond investors. The market would instantly rise or fall based on our published Johnson Red Book estimates.

It was interesting, but the research we did was relatively broad and not very deep, and I wanted to pick stocks. After bouncing around a bit I joined a small investment bank called Auerbach, Pollack & Richardson, where I picked some good stocks. From there, I went to Wasserstein Perella. I was there, in 2000, when I was named the Number 1 textile and apparel industry analyst for stock picking by The Wall Street Journal in its annual analysts survey. I was runner up in 2001, but I was a bit of a square peg in a round hole on the sell side, because I was much more concerned with my ratings and less with trading.

That's interesting. Is that why you wanted to join a hedge fund?

I definitely wanted to get to the buy side. After about three years of searching I moved to a small micro-cap fund. I joined Wyper Capital in early 2006.

It's interesting: When you're a sell-side analyst and a publication like Institutional Investor does a survey, the most important attribute for ranking is not stock-picking ability. Institutional clients are more interested in management access, information flow, that sort of thing. I love picking stocks, getting under the hood of a company and really figuring out what makes it tick. But on the sell side I got tired of explaining in phone calls with multiple clients why some company missed earnings by a penny, for example.

What's it like working for a hedge fund?

It's hard to generalize because every firm is different. Hedge funds are largely dictated by the personalities that control them. Here there is one decision maker. At other funds, the decision-making process could be more collaborative. The ease at which stocks are moved in and out of the portfolio is determined by how much confidence the decision maker has in the person making the recommendation. If I pick a bunch of right things, have a hot hand, that tends to build confidence - and, at times, vice-versa.

What skills are important to succeed in this business?

Depending on the environment, skill sets that may be good at one firm may not be right at others. That being said, I think it's important to have a high degree of familiarity with the names you are responsible for, to have a depth of knowledge of specific firms. Solid modeling skills are important to discovering the levers in a company's operating model. However, at the end of the day, it can be garbage in, garbage out if your assumptions aren't accurate.

Interpersonal skills also are very valuable. You must have the ability to communicate your ideas, to get along with the people you work with, and to rise to challenges when necessary. When you're pitching a name, you'll be challenged on it. So you have to be prepared, and you can't be a shrinking violet.

That's something I underestimated coming to this side of the business. You must have the information at hand to back up your recommendations. While I can't speak for what happens at other funds, I think that if there is a common denominator for stock analysts, it would be that you must be able to stand up under fire and have the conviction that your recommendation is the right one for what your firm wants to accomplish.

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