I am an analyst in a hedge fund. And I am my portfolio managers' bitch.
I am not the only one. I've worked in hedge funds for many years now (I used to work in a bank) and I've come to the realization that patience is not a virtue that most people in the industry possess. Everybody wants everything, immediately. Especially portfolio managers (PMs).
Ok, so some PMs are great to work for. The rest? Not so much. They all want everything right away, it's just some are more understanding than others. But the worst expect you to track down some mundane piece of information, even if it doesn't exist.
The standard task delegated to the subservient analyst is the mission to find out why XYZ stock is down. I'm not talking about when it's down 5% while the rest of the market is up. That's actually important and I don't need to be asked to search for that. No, I'm referring to when the PM is in a bad mood and wants to know why the stock is down 1.5%, while the rest of the market is down 1%.
If you've ever been on the buy side, you've probably experienced this and know how stupid of a question this is. There could be a million reason why a stock is slightly under-performing. But you can't tell your PM it's stupid. At least, not immediately. So instead, you need to waste time searching for an answer. Searching for one you know you won't find.
The first step is checking the news to see if there was any important information that could cause the stock to be down 50bps more than the rest of the market. If you can't find any news, then you need to see if there were any sell side reports published in the morning. The report couldn't have been that negative if the stock is only down 50bps relative to the market, so maybe it was mildly negative? If there's nothing there, the next check is with the trader and calling some sell-side analysts to see if they've heard anything. After that, you need to look at read-throughs from companies related to the one you're looking at.
Finally, after all that searching and wasting 30 minutes of your life that could have been spent doing something (literally anything) more productive, you can then tell your PM that it was a stupid question. And the best way to do that is by telling him/her that there are more sellers than buyers in the market.
From a factual standpoint, this statement is 100% correct. Due to the laws of supply and demand, a share price can't go down when there are more buyers than sellers. Hopefully, your PM will note the ridiculousness of the question by the ridiculousness of the response. If not, maybe it's time to find a new PM, or wait where you are until you get asked the same thing the next day.
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Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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