“If you know you want to get into hedge funds, you have to specialize yourself,” he said. Nowadays, hedge funds will usually target MBA students that have already have work experience in a specific industry, and bring them on to analyze the sector they used to work in.
The diversity and breadth of the stories and advice from both Pierson and the interviewee combine to lift the usual veil of mystique that surrounds the process of entering the hedge fund industry.
“It’s all about having ideas, making them known and being able to substantiate your ideas at any moment,” Pierson said about interviewing for and working at a hedge fund. That’s the ability that will get someone hired and allow them to move forward in their career.
The article brings some interesting research to light:
One 2008 study by Duke University professor Alon Brav and other researchers found that an investor who constructed an equally weighted portfolio that bought activist targets a month after the initial filing, and held it for three months afterward, beat the market by more than one percentage point a month, on average, after adjusting for risk and other factors. But Prof. Brav notes that the outperformance disappears if all of the conditions aren’t met.
Research in 2007 by Harvard University professor Robin Greenwood and then-student Michael Schor found that companies that become the target of an activist are more than twice as likely to be acquired within a year than companies that aren’t targeted. The targets that were ultimately taken over had risk-adjusted returns 15% and 20% better than the overall market—but companies that missed the boat didn’t have any outperformance.
In spite of the research, the article concludes that replicating the portfolios of activist investors can pay off but it’s hard citing the volatility around changes in positions and the holding period.
Other hedge fund strategies (like most popular positions among multiple hedgies, best ideas, newest holdings) replicate much better.
From Barry Ritholtz’s recent conference (The Big Picture Conference), this deck came from Barry’s own presentation entitled “Behavioral Finance, Neuroeconomics and Cognitive Psychology, and Investor’s Decision-Making Process” (whew, LOOONG title.)
I wasn’t there — anyone attend? How was it? Let me know in the comments.
Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor. I believe it will help you … Continue Reading
Tradestreaming is all about using technology tools, social media, and strategies to become better -- more accurate -- investors. Zack Miller is the author of Tradestream your Way to Profits: Building a Killer Portfolio in the Age of Social Media (Wiley, 2010).