Description
Investment management is the professional asset management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors.
Preparing for Investment Management Interviews 101
How to get an internship in Investment Management:
Introduction: How much effort and time will this take? Why should you put up a lot of
extra effort? The time you need to spend preparing for interviews will depend on how much background you have in investment analysis and how successful you want to be. Your success in the recruiting process with be directly related to how well prepared you are. If you have a lot of background in the business you will probably need to spend only 5 or at most 10 hours per week over the 10 weeks before interviews start. If you are like most people who don’t have experience in the business, you should be spending 10-20+ hours per week over the next 10 weeks preparing for interviews. That sounds like a lot of extra time and effort but the reality is that it is not easy to get an internship in investment management but the rewards of the business are exceptionally good for those people who get in. To give you a sense of how much time you need to invest, and what you need to do, I will outline what the most successful people have done in the past.
Step one: Researching companies, informational interviewing and researching investment management as a business. (Do this is in November and December) (The most efficient way to do this is to get together with a group of people who are interested in the same group of firms and split up the research among you.)
a.) Your goal should be to: a. First learn about investment management as a business and decide what aspect of it sounds most attractive. In other words, do you want to work on the "buyside" or the "sellside"? Do you want equity research, fixed income research, or quantitative research; and finally do you want to research domestic companies or focus on international companies. You don't need to know exactly what you want but it is good to be relatively focused once interviews start. b. Second, develop a target list of firms that that you want to interview with. Most people try to interview with as many firms as they can but there will be more than 30 firms that will have investment research positions and you will do better if you know which ones are most important to you and concentrate your preparation work on them and you will know which ones you want to bid the most points for if you don't get on the closed list. c. Third, learn as much as you can about the firms on your target list through research. You can research the firms by: i. Using the Career Resource Center and Career Services web site which have many resources for researching companies ii. Looking up the firm in Nelson's Guide to Investment Managers (at the career resources library) and looking at the company's web site. iii. You can talk to GSB students who have worked their before iv. You can also talk to alumni who currently work at the firm. There is currently a list of 250 alums who are working in investment management who have volunteered to talk to students about
careers. You can get the list on the Facebook. Look for it as one of the categories when you search in the Facebook. It is called "Opt-in Mentoring". Make sure to be very respectful of their time. I would recommend that you send them an email asking when would be a good time to call before you call. b.) The best way to go about this is: a. Use the Career resource center and the career services web site to learn about the investment management business b. Use PBS to get a list of the companies coming to campus. c. Learn as much as you can about the companies.
Step two: Getting cover letters and resumes to all of the firms that are coming to campus before their deadlines (as well as any firms that are not coming
to campus that you might be interested in.) (Do this in Late December and Early
January)
a.) This step does not require a lot of explanation. You simply need to send cover letters and resumes to the contacts at the companies that are coming for campus before their deadlines. The companies and the names of the contact person are listed in the Placement Bidding System (PBS). To get a list of the companies that are coming to campus simply go into the PBS system and search for all companies in the investment management industry coming for internships. Just email your cover letter and resume to the company contact listed on the PBS system. b.) Career services has a spreadsheet with all the resume deadlines on their web site. Go to "Tools for interviews" then click on "Company Contacts/resume Deadline spread sheet." c.) Sample cover letters are available on the Career Services web site. Cover letter preparation sessions are sponsored by Career Services.
Step three: Going to presentations, meeting company representatives and networking with your contacts. (Do this in January and February)
a.) The point of these presentations is to help you learn about the companies which will be interviewing but more importantly to give you the chance to meet and talk to the people who work at the company. b.) These presentations are a great opportunity for you to figure out what a particular firm is like as well as learn about the investment business in general. c.) They are also an opportunity for you to get to know some of the people who work at the firm. It is worthwhile to meet the personnel representative as well as another member of the firm. If you had a good conversation with someone then you should get his or her card and send a thank you note to him or her.
Step four: Preparing for interviews (Do this in fall through the end of
January) (This is by far the most important and time consuming step. You should be
spending time on this throughout the process.) a.) Polishing your story. The bottom line here is to have very good answers for the questions "Why do you want investment management?", "Why do you want their firm in particular?" and "Why should your background make them want to hire you?" a. In almost every interview you will be asked to walk the interviewer through your resume. You should have a polished 2-3 minute story. This is a great opportunity for you to answer the three questions I listed above. As you talk about your resume, emphasize the skills you have gained that would be relevant to investment management, show them how your experience has
led you to pursue a career in investment management and why you want to work at their firm. b.) Researching stocks and developing very strong stock pitches for 3 or 4 stocks. (Most of the time you will only need 2 stocks but sometimes you will be asked for three. It is good to have three prepared just in case. Only rarely you will be asked for four stocks so only prepare a fourth if you have the time.) a. This is by far the most important step in the whole process. The interviews will be largely focused on your stock pitches and they will decide to hire you or not largely on how well you know and present your stocks. (See appendix A on researching stocks and appendix B on pitching stocks for more information) c.) Preparing for industry oriented questions. Interviewers will ask questions like, "If you were to analyze the auto industry, what would be the most important factors that you would think about?" or "Talk to me about the airline industry and whether you think it is a good industry to invest in." What they are looking for is if you understand the things like the cost structure of the industry, the key drivers of earnings growth and how those things affect the stock performance in the industry. To prepare for these type of questions: a. Read Porter's book Competitive Strategy: Techniques for Analyzing Industries and Competitors, which gives an excellent framework for industry analysis. (The first two chapters give you the basic outline of "Porter's five forces" so if you don't have time to read the whole book you can just read the first 50 pages but I strongly recommend that you read the whole book) b. Read about the specific issues of many different industries and make up an industry notebook, which has a 1/2 or 1 page summary of the key drivers of the different industries. That way you can review the industry information before you go into an interview. Some people have created summaries for all 50 major industry groups but there are a group of 15 industries that are asked about most often. They are: Autos, Airlines, Apparel & Footwear, Banking, Broadcasting & Cable, Computers: Hardware, Foods & Nonalcoholic Beverages, Healthcare: Pharmaceuticals, Household Durables, Investment Services, Lodging & Gaming, Publishing, Restaurants, Retailing: General Transportation: Commercial i. The best resource for learning about the particular issues for industries is Standard and Poor's Industry Surveys. This is a threevolume set of books that gives in depth analysis of the 50+ major industries in the stock market. Each review is quite long (50+ pages) but if you focus on the sections on "key drivers" and description of the industry itself you should be able to get the key information out of them. d.) Prepare for general stock market questions. a. The best way to do this will be to read the Wall Street Journal and watch CNBC regularly (although CNBC is of less importance than the Wall Street Journal.) b. Read books on the stock market in general (See recommended books) e.) Prepare insightful questions about the firms that you will be interviewing with. a. Interviewers will almost always ask you if you have questions for them at in the last five or ten minutes of an interview. They do this partially to be helpful to you but mostly to see how much you know about their firm. Have at least 3 good questions prepared for each company. b. The more knowledgeable your questions are, the more they will think of you as someone who is genuinely interested in their firm. The big firms assume that you are at least somewhat interested in them and focus most of
their interview time on evaluating whether or not you have the best skills and would be a good fit for their culture. The smaller and less well known firms tend to think that if you are at the GSB then you have the skills to do the job and are more interested in whether or not you really want to work for them. These are the interviews where they will spend a large portion of the interview having you asked questions so be prepared.
Step five: Practice interviewing in mock interview situations. (In January)
a.) It is one thing to prepare what you think you should say and another thing all together to say it well in an interview situation. The best way to get very polished at interviewing is to practice a lot with other people. b.) In January there will be an Interview Training Program (ITP) sponsored by career services, "Winterview" and the IMG will also sponsor mock interviews. c.) You will only get a chance to mock interview 3-5 times through the IMG and Career services sponsored sessions. Therefore, I strongly recommend that you form groups of first year students and practice interviewing each other in the three weeks after you come back from break. That way when interviews start in January each one of you will have gone through at least 10 mock interviews before you have your first real interview. Interviews for internships will begin in the last week of January or the first week in February depending on which firms you interview with.
Step six: Conducting the interviews (In February)
a.) The typical interview will be a half hour which will be structured something like this: a. The first 5 minutes will be a few simple ice breaker kind of questions which usually focus on the weather (especially in February), how you like Chicago or one of the items you have listed at the end of your resume. b. Then they will almost always spend 5-10 minutes having you walk them through your resume. You should have a very polished story that sells your analysis skills and shows how what you have done has led you to your interest in investment management and, if possible, their firm in particular. c. They will then spend the next 10 minutes having you pitch them stocks. They will usually ask for 2 stocks. They will ask you what stocks you like and you should give them a 2 minute pitch for the first one and then they will ask you questions about your stock ideas. Then they will ask you for your second stock idea. i. Beware of interviewers who ask you question like, "What stocks do you own now?" or "what was your best or worst performing stock in the last year?" Interviewers know that you work hard to prepare 3-4 stocks for interviews and they will try to get you to talk about stocks you have not prepared to see how deep your knowledge goes. If you know the details of your best performing stock this year very well then go ahead and talk about it but I would recommend that you stick to talking about the stocks that you prepared as much as you can. The best way to prepare is to have answers to those questions ready but when they ask questions like the ones I listed above and you are not prepared for them, I would recommend that you talk about one of the stocks that you prepared as if it was a stock you owned etc rather than talk about a stock that you may not know a lot about the details. d. They will usually spend at least 5 minutes asking you general questions about stocks or to analyze a particular industry. (See Preparing for Industry Questions part of "Preparing for Interviews")
Finally they will almost always spend the last few minutes of the interview as a time for you to ask them questions. (See Preparing questions section of "Preparing for interviews") b.) You should NOT have any notes or handouts (other than your resume) with you since you will be expected to have everything about your stocks memorized. c.) In the interview you should be focused on achieving three things: a. Subtly convincing them that you have the skills to analyze stocks very well. i. They will judge you on this through how good your stock pitches are, how good your answers to industry and other stock market questions are and how well you present how your past experience has prepared you for this job. b. Communicating your passion and enthusiasm for investment management in general and their firm in particular. c. Creating rapport with the interviewer. The fact is that a lot of the decision regarding whether or not they hire you will come down to how well they think you will fit in at the firm. I have heard that one of the questions that interviewers are asked about the people they interview is, would you want to work in the same office with this person 10 hours per day. So don’t get carried away with trying impress the interviewer with your knowledge and forget to create a good personal rapport with the person.
e.
Step seven: Following up after the interviews (Do this in February and March)
a.) Send a brief thank you note via email to the interviewers. In the note you should tell them something like this: you enjoyed the conversation you had with them, mention something specific about what you talked about in the interview that supports you, reiterate your interest in the job and finally thank them for taking the time to talk with you. b.) If you do not get called back to the next round of interviews, email or call the interviewer you spoke with in the first round and be very considerate of their time but ask for feedback as to why you were not chosen. The feedback can often be very informative about how you are being perceived which can help you be more successful in your other interviews. c.) If you do get invited to the next round, I would recommend a thank you note as well but in this case you should ask the person if they would be willing to give you feedback as well. Your first round interviewer clearly liked you and probably does not want you to do poorly since it would make him look bad so it is probably worth while to talk to the person and more insight into what the firm is all about and what to expect in the second rounds. As always, be very respectful of their time since being too demanding could seriously hurt your chances going forward.
Appendix A: How to research a stock.
a.) This is too complicated to fully address in this context but there are certain frameworks that are useful. a. The best single source that I have found that will teach you how research stocks is Security Analysis on Wall Street by Jeffery Hooke. This book walks you through every step of the process: i. Conducting industry analysis ii. Company specific analysis iii. Financial statement analysis iv. Developing financial projections v. Valuing the company through DCF, relative value and break up analysis vi. Dealing with special cases such as cash flow stocks, financial industry stocks as well as many other special issues. b. There is also a Fundamental Analysis Primer on the IMG web site. Go to IMG Links and click on the link with that title. b.) There are really three major ways to come up with stocks to research. i. The first is the "top-down" approach. 1. This means that you start by assessing the prospects for the economy and decide which industries will outperform in that environment. For example in the early stages of a recession more defensive companies (such as food companies) will do better since their revenues and profits are likely to be least impacted by bad times 2. Then analyze each promising industry for the stocks that are most likely to be successful in the economic environment that you are predicting. 3. Finally, analyze the companies that you have chosen to see which one has the most price appreciation potential for a given level of risk. ii. The second major way to come up with stock ideas to research is the "bottom-up" approach. 1. In this case you start by looking for individual companies with certain attractive characteristics. Most people who use this technique will "screen" (i.e. use computers to search the stock market) for certain fundamental characteristics that they want to see in a company. For example, some people will screen for companies with earnings growth over 15%, low debt to capital ratio, and a P/E ratio that is lower than the industry average. 2. Once the person has a list of stocks that fit whatever criteria they think is useful then they will research the stocks that seem most promising. iii. The last method is to choose a stock that you know well and like the business. The advantage of this approach for picking stocks to research is that in interviews past knowledge of a company may be very helpful when you are being asked detailed questions about a company. c.) There is not a single set of information you have to know about a company but the following is what Fidelity tells its analysts they should be focused on. a. Fidelity's steps to analyzing a company: i. Assess the condition of the industry. 1.) What are the trends in the industry? 2.) What are the drivers of profitability in the industry?
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3.) What is the competitive landscape like? 4.) (See Standard and Poor's Industry Surveys for this information) Analyze the company's operations 1.) How efficient is the company relative to its competitors? 2.) Is it a low cost producer? 3.) Assess how well the business is run Assess the quality of management 1.) What is their track record? 2.) How well do they understand their business? 3.) Where do they want to take the company and does that make sense? Financial statement analysis 1.) Look for trends in key ratios and margins 2.) Look for hidden problems 3.) Conduct full analysis of the relevant financial issues Competitors and Customers 1.) What is the competitive environment like? 2.) What is the condition and nature of their customer base? Capital Structure 1.) Debt issues? 2.) Liquidity issues? 3.) Will this company be able to survive a down turn in its business? Valuation 1.) Using the metrics appropriate to this company decide how attractive the valuation is relative to the company's peers, its history and its intrinsic value (i.e. DCF)?
Appendix B: How to pitch a stock
a.) There are two different contexts in which you will pitch a stock. The first is in front of the Investment Management Group and the second is in front of interviewers. There are slightly different rules (such as you should not bring a hand out to interviews) but essentially your pitch should be the same. b.) The structure of the 2-3 minute pitch should be: a. Introduction: Provide a brief description of the firm and key data b. Articulate your investment thesis around three bullet points i. Include is this section the answer to the question, why the price is going to change? (i.e. a description of the catalyst) and how and when can we exploit this? c. Conclusion: Give a price target for a given time horizon and describe very briefly how you came up with the price target. C.) What follows is an expanded version of the basic structure of a pitch: A.) Introduction:
Provide a brief description of the firm and the stock
The purpose of your introduction to the firm and the stock is to help your listener place them mentally within their knowledge and previous experiences, for instance to decide what valuation method to use, what ratios to look at or what industry to compare it with.
• Give a quick, one-line explanation of the firm and sector: e.g. family-dinner restaurant operator in the Mid Atlantic region, manufacturer of components for the automobile industry. • Provide basic info on the stock: current price and market cap (e.g. xyz is a 14 billion dollar company currently trading for 32 dollars per share.)
B.) Articulate your investment thesis around three bullet points
• Start by giving three bullet points on why to invest in the company in a very summarized way and then elaborate a bit longer into a full fledged sentence. Then, you can go on to discuss each point at length, especially if you are questioned.
• • •
As a rule of thumb, it is a good idea to have your three points address the following: company performance; financial performance (this is your opportunity to drop numbers in the conversation); valuation Guide the listener. Use the golden rule: First, tell them what you going to tell them, second, tell them what you have to say, then tell them what you just told them.
Example: how to articulate the pitch around three bullet points
Summarized point Strong demand for company’s product Full fledged sentence Tax stimulus package creates demand for new, updated tax preparation software Long argument The government has introduced a range of investment incentives and tax breaks in the latest budget. This requires complex calculations and a thorough update of the way in which tax returns are prepared. The issues are complex and require lots of technical assistance. Virtually every company affected by this change needs external help. This bides well for sales of tax preparation software (+25.7% forecast in 4Q FY01, +12.7% FY01) The company is launching both a new asset management module and introducing an extended payroll administration functionality. It is also discontinuing its basic calculator product, because a calculation application is provided free with Windows. The new products are considerable improvements over existing applications and save company accountants lots of time and money. The company faces little competition from other software vendors. Hence, it will be able to charge double the price of what it has been charging so far. We estimate gross margin to rise to 47.5% in 1Q 02from 42.0% in 3Q 01. Siebel and SAP have published disappointing results and have suffered as a result. Investors have marked down the entire software sector (27.2x forward PE 02 versus 52.5x TTM average). However, the factors that have adversely affected Siebel and SAP do not come into play for this stock, because the company does not operate in the multinational client segment.
Higher margins
Launch of new versions shifts the product mix towards higher margin products
Cheap valuation
Stock valuation has been dragged down unfairly
Summarized point
Full fledged sentence
Long argument Fears of revenue decline are unjustified, and the stock should continue to trade at a PE of 45x instead of 20x, giving a target price of $63 instead of $28.
Within your three bullet points address: Why is the price is going to change? How and when can we exploit this? 1.)New information Don’t just relay everything that has been published about the firm. If the markets are efficient, all the information has already been incorporated into the price and nothing you do or say is going to make it move. Therefore, you have to contribute some new piece of information. The typical objection a portfolio manager can raise to your story is: What do you know that the stock market doesn’t already know? • this can be something that you have genuinely discovered, • or at the very least provide a different interpretation of the known facts and the reason you are right and the rest of the Street are wrong • Examples: ? analysts fret about exposure to poorly performing auto industry . I have spoken with distributors and estimate that 80% of new contracts are with fastgrowing health care clients. This tells me that sales figures are going to be surprisingly positive, up by 12.1% sequentially on 3Q 01. Buy; ? unit sales are holding relatively well (75,000 Q4 versus 76.500 in Q3). I have a contact at the company’s major competitor that reveals their revenues (the competitor’s) are hurting (-8.5% YTD) because company A is offering big discounts. I see margins deteriorating rapidly, falling beneath 17% by next quarter. Sell; ? electric chainsaws are being touted as the next Father’s day hit. My research indicates that 50% of US households do not have extension chords long enough to put electric chainsaws to any good use. The company has manufacturing capacity for 127m chainsaws annually, or one chainsaw for each household in the country. It won’t be able to dispose of its inventory, so a big write-off is coming. Sell. 2.)Catalyst Not only must you add some piece of information, you also have to know when and how it will be incorporated into the stock price and will validate your thesis. You need a catalyst. E.g.: ? competitors are reporting next week. Once everybody sees that they are doing poorly because they lack an entry-level product, it will become clear that our company (the only producer of cheap entry-level products) will be assessed differently; ? the FDA is ruling on a new drug from XYZ Corp. this Thursday. If it is approved, this will be great news for our company, because its new blockbuster is based on the same compound, should be approved, and we are ready to start production in three months; ? Nokia is the major cornerstone of the demand for low-consumption memory chips. Nokia publishes a quarterly forecast for the number of mobile
phone handsets globally. If in its forthcoming estimates Nokia lowers its forecast, widens the range or makes any comments that it is becoming more difficult to predict what the demand will be, this highlights growing uncertainty for semiconductor manufacturers. Therefore, an upward adjustment to the discount rate for Infineon would be warranted, and lower stock price should follow.
C.) Conclusion: Give a price target for a given time horizon and tell the person very briefly how you came up with the price target.
At the end of the pitch when you talk about the attractive valuation of the company you should transition into your conclusion. Very quickly repeat your three bullet points and show how those bullet points will lead to earnings (and/or cash flow) projections and a future valuation that makes this stock a compelling buy right now. e.g. "Given the strong demand for the company's product, its expanding operating margins I think the stock will earn $2 per share in fiscal year 2002. The cheap valuation makes the stock a compelling buy because with the conservative assumption of no expansion of the current multiple of 20 times earnings and 15 times EBITDA the stock should increase 30% to $40 per share in 12 months." You should also talk about the Discounted Cash Flow (DCF) value for your stock and why under conservative assumptions this makes it a compelling buy. Once you have done this just sit back and wait for the interviewer to ask you questions about your stock.
Some final remarks on pitching stocks
Do not talk about the investment risks or downside of the stock (unless you are pitching a sell or the interviewer asks for them). (We know that the original instructions for how to pitch a stock said to list risks but that was wrong) It is the interviewer's job to be a skeptic and find objections to your recommendation. If the objective is to get them to buy the stock, don’t make their task easier. Having said this, think about the objections they can raise and try to counter them even before they are uttered. Think ahead. You should be ready to overcome obstacles, but I don’t believe that it is necessary to write down the investments risks to on your handout. Use numbers. Spinning a good story is good, but virtually everybody is able to spin a story. Hard facts and figures add credibility.
Appendix C: Resources for Preparing for Investment Management Interviews
a. For researching firms i. Institutional Investor Magazine's list of the top 300 investment managers. 1. Go to Web Site ii. Nelson's Guide to Investment Managers (for "buy-side" firms) 1. Go to career services library in Edelstone and they have the paper and CD rom version. iii. Career Services resources
b. For Researching Stocks i. Primary source documents for companies 1. Freeedgar.com for 10ks and 10qs 2. Web sites 3. Press releases
4. Conference calls ii. Investex plus for sell side research which you have access to through IMG links on the IMG website. Go to Business and Economic Center Guide link and click on Investex. iii. Bloomberg Terminal in Walker Computer lab iv. Industry analysis 1. S+P Industry Surveys (In Floor A of Regenstein Library) 2. Hoovers.com for industry analysis
Appendix D: Recommended Books.
If you only have time to read one book you should read Security Analysis on Wall Street by Jeffery C Hooke. This is books lays out the process for analyzing stocks that will be very useful for people who have not had extensive experience in security analysis. The three books I most highly recommend are: 1.) A book about security analysis: Hooke's book on security analysis (listed above) 2.) A book about valuation techniques: Valuation: Measuring and Managing the Value of Companies by Tom Copeland, Tim Koller and Jack Murrin (You will most likely use this book in your 430 (Financial Statement Analysis) class but it is very good to have read it before interviews because you will be expected to do this kind of valuation for the stocks that you pitch) 3.) A book about industry analysis: Competitive Strategy by Michael Porter. This will be useful since you will often be asked to analyze a particular industry and the book provides the tools to do that. You will learn these principles in 363 (Competitive Strategy) but it will be useful to be comfortable with them before interviews. c.) Other books that are useful and interesting (listed by topic) There are thousands of investment books that we could list here but these should prepare you well for interviews. 1.) Security Analysis a. Security Analysis by Graham and Dodd. This is the classic book on the subject. Its publication coined the term "security analysis" in 1925 and it is still widely read. (It is over 600 pages though so only attempt this one before interviews if you are very motivated) b. Intelligent Investor by Graham This is a shorter and lighter weight version of Security Analysis written by the same author 2.) Classic books on the stock market in general which are very good introductions to the investing. a. Stocks for the Long Run by Jeremy Siegel This book is a very good introduction to the stock market written by the most famous investments professor at Wharton. This is very good for people who are new to the business who want a relatively short and easy to read overview of what the stock market is about. b. Reminiscences of a Stock Operator by Edwin Lefevre This book is a classic that is a fictionalized biography of one the great investors of the early part of the 20th century. Its main value is that it gives you a good sense of what the investing is all about in an entertaining story.
Appendix E: Recommended GSB classes for those interested in a career in Investment Management
a.) The classes people have found most useful have been in the areas of Accounting, Finance and Strategy b.) You want to get as much accounting as you can but especially 310 (Basic Accounting) (if you need it) 316 (Intermediate Accounting) and 430 (Financial Statement Analysis). Other people have found 317 useful (Intermediate accounting with a focus on mergers and acquisitions). c.) Finance courses that others have found most useful are: 332 (Investments) and 333 (Corporate Finance). Financial Case classes such as 335, and to a lesser extent 338, will drill financial statement analysis techniques and valuation techniques into you but they assume you know how to do a DCF on your own, so these classes are best taken once you are comfortable with DCFs. d.) Other classes that people have found useful are 363 (Competitive Strategy) and 350 (Marketing), which is useful in terms of providing frameworks for analysis of companies and the way they create value.
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Investment management is the professional asset management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors.
Preparing for Investment Management Interviews 101
How to get an internship in Investment Management:
Introduction: How much effort and time will this take? Why should you put up a lot of
extra effort? The time you need to spend preparing for interviews will depend on how much background you have in investment analysis and how successful you want to be. Your success in the recruiting process with be directly related to how well prepared you are. If you have a lot of background in the business you will probably need to spend only 5 or at most 10 hours per week over the 10 weeks before interviews start. If you are like most people who don’t have experience in the business, you should be spending 10-20+ hours per week over the next 10 weeks preparing for interviews. That sounds like a lot of extra time and effort but the reality is that it is not easy to get an internship in investment management but the rewards of the business are exceptionally good for those people who get in. To give you a sense of how much time you need to invest, and what you need to do, I will outline what the most successful people have done in the past.
Step one: Researching companies, informational interviewing and researching investment management as a business. (Do this is in November and December) (The most efficient way to do this is to get together with a group of people who are interested in the same group of firms and split up the research among you.)
a.) Your goal should be to: a. First learn about investment management as a business and decide what aspect of it sounds most attractive. In other words, do you want to work on the "buyside" or the "sellside"? Do you want equity research, fixed income research, or quantitative research; and finally do you want to research domestic companies or focus on international companies. You don't need to know exactly what you want but it is good to be relatively focused once interviews start. b. Second, develop a target list of firms that that you want to interview with. Most people try to interview with as many firms as they can but there will be more than 30 firms that will have investment research positions and you will do better if you know which ones are most important to you and concentrate your preparation work on them and you will know which ones you want to bid the most points for if you don't get on the closed list. c. Third, learn as much as you can about the firms on your target list through research. You can research the firms by: i. Using the Career Resource Center and Career Services web site which have many resources for researching companies ii. Looking up the firm in Nelson's Guide to Investment Managers (at the career resources library) and looking at the company's web site. iii. You can talk to GSB students who have worked their before iv. You can also talk to alumni who currently work at the firm. There is currently a list of 250 alums who are working in investment management who have volunteered to talk to students about
careers. You can get the list on the Facebook. Look for it as one of the categories when you search in the Facebook. It is called "Opt-in Mentoring". Make sure to be very respectful of their time. I would recommend that you send them an email asking when would be a good time to call before you call. b.) The best way to go about this is: a. Use the Career resource center and the career services web site to learn about the investment management business b. Use PBS to get a list of the companies coming to campus. c. Learn as much as you can about the companies.
Step two: Getting cover letters and resumes to all of the firms that are coming to campus before their deadlines (as well as any firms that are not coming
to campus that you might be interested in.) (Do this in Late December and Early
January)
a.) This step does not require a lot of explanation. You simply need to send cover letters and resumes to the contacts at the companies that are coming for campus before their deadlines. The companies and the names of the contact person are listed in the Placement Bidding System (PBS). To get a list of the companies that are coming to campus simply go into the PBS system and search for all companies in the investment management industry coming for internships. Just email your cover letter and resume to the company contact listed on the PBS system. b.) Career services has a spreadsheet with all the resume deadlines on their web site. Go to "Tools for interviews" then click on "Company Contacts/resume Deadline spread sheet." c.) Sample cover letters are available on the Career Services web site. Cover letter preparation sessions are sponsored by Career Services.
Step three: Going to presentations, meeting company representatives and networking with your contacts. (Do this in January and February)
a.) The point of these presentations is to help you learn about the companies which will be interviewing but more importantly to give you the chance to meet and talk to the people who work at the company. b.) These presentations are a great opportunity for you to figure out what a particular firm is like as well as learn about the investment business in general. c.) They are also an opportunity for you to get to know some of the people who work at the firm. It is worthwhile to meet the personnel representative as well as another member of the firm. If you had a good conversation with someone then you should get his or her card and send a thank you note to him or her.
Step four: Preparing for interviews (Do this in fall through the end of
January) (This is by far the most important and time consuming step. You should be
spending time on this throughout the process.) a.) Polishing your story. The bottom line here is to have very good answers for the questions "Why do you want investment management?", "Why do you want their firm in particular?" and "Why should your background make them want to hire you?" a. In almost every interview you will be asked to walk the interviewer through your resume. You should have a polished 2-3 minute story. This is a great opportunity for you to answer the three questions I listed above. As you talk about your resume, emphasize the skills you have gained that would be relevant to investment management, show them how your experience has
led you to pursue a career in investment management and why you want to work at their firm. b.) Researching stocks and developing very strong stock pitches for 3 or 4 stocks. (Most of the time you will only need 2 stocks but sometimes you will be asked for three. It is good to have three prepared just in case. Only rarely you will be asked for four stocks so only prepare a fourth if you have the time.) a. This is by far the most important step in the whole process. The interviews will be largely focused on your stock pitches and they will decide to hire you or not largely on how well you know and present your stocks. (See appendix A on researching stocks and appendix B on pitching stocks for more information) c.) Preparing for industry oriented questions. Interviewers will ask questions like, "If you were to analyze the auto industry, what would be the most important factors that you would think about?" or "Talk to me about the airline industry and whether you think it is a good industry to invest in." What they are looking for is if you understand the things like the cost structure of the industry, the key drivers of earnings growth and how those things affect the stock performance in the industry. To prepare for these type of questions: a. Read Porter's book Competitive Strategy: Techniques for Analyzing Industries and Competitors, which gives an excellent framework for industry analysis. (The first two chapters give you the basic outline of "Porter's five forces" so if you don't have time to read the whole book you can just read the first 50 pages but I strongly recommend that you read the whole book) b. Read about the specific issues of many different industries and make up an industry notebook, which has a 1/2 or 1 page summary of the key drivers of the different industries. That way you can review the industry information before you go into an interview. Some people have created summaries for all 50 major industry groups but there are a group of 15 industries that are asked about most often. They are: Autos, Airlines, Apparel & Footwear, Banking, Broadcasting & Cable, Computers: Hardware, Foods & Nonalcoholic Beverages, Healthcare: Pharmaceuticals, Household Durables, Investment Services, Lodging & Gaming, Publishing, Restaurants, Retailing: General Transportation: Commercial i. The best resource for learning about the particular issues for industries is Standard and Poor's Industry Surveys. This is a threevolume set of books that gives in depth analysis of the 50+ major industries in the stock market. Each review is quite long (50+ pages) but if you focus on the sections on "key drivers" and description of the industry itself you should be able to get the key information out of them. d.) Prepare for general stock market questions. a. The best way to do this will be to read the Wall Street Journal and watch CNBC regularly (although CNBC is of less importance than the Wall Street Journal.) b. Read books on the stock market in general (See recommended books) e.) Prepare insightful questions about the firms that you will be interviewing with. a. Interviewers will almost always ask you if you have questions for them at in the last five or ten minutes of an interview. They do this partially to be helpful to you but mostly to see how much you know about their firm. Have at least 3 good questions prepared for each company. b. The more knowledgeable your questions are, the more they will think of you as someone who is genuinely interested in their firm. The big firms assume that you are at least somewhat interested in them and focus most of
their interview time on evaluating whether or not you have the best skills and would be a good fit for their culture. The smaller and less well known firms tend to think that if you are at the GSB then you have the skills to do the job and are more interested in whether or not you really want to work for them. These are the interviews where they will spend a large portion of the interview having you asked questions so be prepared.
Step five: Practice interviewing in mock interview situations. (In January)
a.) It is one thing to prepare what you think you should say and another thing all together to say it well in an interview situation. The best way to get very polished at interviewing is to practice a lot with other people. b.) In January there will be an Interview Training Program (ITP) sponsored by career services, "Winterview" and the IMG will also sponsor mock interviews. c.) You will only get a chance to mock interview 3-5 times through the IMG and Career services sponsored sessions. Therefore, I strongly recommend that you form groups of first year students and practice interviewing each other in the three weeks after you come back from break. That way when interviews start in January each one of you will have gone through at least 10 mock interviews before you have your first real interview. Interviews for internships will begin in the last week of January or the first week in February depending on which firms you interview with.
Step six: Conducting the interviews (In February)
a.) The typical interview will be a half hour which will be structured something like this: a. The first 5 minutes will be a few simple ice breaker kind of questions which usually focus on the weather (especially in February), how you like Chicago or one of the items you have listed at the end of your resume. b. Then they will almost always spend 5-10 minutes having you walk them through your resume. You should have a very polished story that sells your analysis skills and shows how what you have done has led you to your interest in investment management and, if possible, their firm in particular. c. They will then spend the next 10 minutes having you pitch them stocks. They will usually ask for 2 stocks. They will ask you what stocks you like and you should give them a 2 minute pitch for the first one and then they will ask you questions about your stock ideas. Then they will ask you for your second stock idea. i. Beware of interviewers who ask you question like, "What stocks do you own now?" or "what was your best or worst performing stock in the last year?" Interviewers know that you work hard to prepare 3-4 stocks for interviews and they will try to get you to talk about stocks you have not prepared to see how deep your knowledge goes. If you know the details of your best performing stock this year very well then go ahead and talk about it but I would recommend that you stick to talking about the stocks that you prepared as much as you can. The best way to prepare is to have answers to those questions ready but when they ask questions like the ones I listed above and you are not prepared for them, I would recommend that you talk about one of the stocks that you prepared as if it was a stock you owned etc rather than talk about a stock that you may not know a lot about the details. d. They will usually spend at least 5 minutes asking you general questions about stocks or to analyze a particular industry. (See Preparing for Industry Questions part of "Preparing for Interviews")
Finally they will almost always spend the last few minutes of the interview as a time for you to ask them questions. (See Preparing questions section of "Preparing for interviews") b.) You should NOT have any notes or handouts (other than your resume) with you since you will be expected to have everything about your stocks memorized. c.) In the interview you should be focused on achieving three things: a. Subtly convincing them that you have the skills to analyze stocks very well. i. They will judge you on this through how good your stock pitches are, how good your answers to industry and other stock market questions are and how well you present how your past experience has prepared you for this job. b. Communicating your passion and enthusiasm for investment management in general and their firm in particular. c. Creating rapport with the interviewer. The fact is that a lot of the decision regarding whether or not they hire you will come down to how well they think you will fit in at the firm. I have heard that one of the questions that interviewers are asked about the people they interview is, would you want to work in the same office with this person 10 hours per day. So don’t get carried away with trying impress the interviewer with your knowledge and forget to create a good personal rapport with the person.
e.
Step seven: Following up after the interviews (Do this in February and March)
a.) Send a brief thank you note via email to the interviewers. In the note you should tell them something like this: you enjoyed the conversation you had with them, mention something specific about what you talked about in the interview that supports you, reiterate your interest in the job and finally thank them for taking the time to talk with you. b.) If you do not get called back to the next round of interviews, email or call the interviewer you spoke with in the first round and be very considerate of their time but ask for feedback as to why you were not chosen. The feedback can often be very informative about how you are being perceived which can help you be more successful in your other interviews. c.) If you do get invited to the next round, I would recommend a thank you note as well but in this case you should ask the person if they would be willing to give you feedback as well. Your first round interviewer clearly liked you and probably does not want you to do poorly since it would make him look bad so it is probably worth while to talk to the person and more insight into what the firm is all about and what to expect in the second rounds. As always, be very respectful of their time since being too demanding could seriously hurt your chances going forward.
Appendix A: How to research a stock.
a.) This is too complicated to fully address in this context but there are certain frameworks that are useful. a. The best single source that I have found that will teach you how research stocks is Security Analysis on Wall Street by Jeffery Hooke. This book walks you through every step of the process: i. Conducting industry analysis ii. Company specific analysis iii. Financial statement analysis iv. Developing financial projections v. Valuing the company through DCF, relative value and break up analysis vi. Dealing with special cases such as cash flow stocks, financial industry stocks as well as many other special issues. b. There is also a Fundamental Analysis Primer on the IMG web site. Go to IMG Links and click on the link with that title. b.) There are really three major ways to come up with stocks to research. i. The first is the "top-down" approach. 1. This means that you start by assessing the prospects for the economy and decide which industries will outperform in that environment. For example in the early stages of a recession more defensive companies (such as food companies) will do better since their revenues and profits are likely to be least impacted by bad times 2. Then analyze each promising industry for the stocks that are most likely to be successful in the economic environment that you are predicting. 3. Finally, analyze the companies that you have chosen to see which one has the most price appreciation potential for a given level of risk. ii. The second major way to come up with stock ideas to research is the "bottom-up" approach. 1. In this case you start by looking for individual companies with certain attractive characteristics. Most people who use this technique will "screen" (i.e. use computers to search the stock market) for certain fundamental characteristics that they want to see in a company. For example, some people will screen for companies with earnings growth over 15%, low debt to capital ratio, and a P/E ratio that is lower than the industry average. 2. Once the person has a list of stocks that fit whatever criteria they think is useful then they will research the stocks that seem most promising. iii. The last method is to choose a stock that you know well and like the business. The advantage of this approach for picking stocks to research is that in interviews past knowledge of a company may be very helpful when you are being asked detailed questions about a company. c.) There is not a single set of information you have to know about a company but the following is what Fidelity tells its analysts they should be focused on. a. Fidelity's steps to analyzing a company: i. Assess the condition of the industry. 1.) What are the trends in the industry? 2.) What are the drivers of profitability in the industry?
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v. vi.
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3.) What is the competitive landscape like? 4.) (See Standard and Poor's Industry Surveys for this information) Analyze the company's operations 1.) How efficient is the company relative to its competitors? 2.) Is it a low cost producer? 3.) Assess how well the business is run Assess the quality of management 1.) What is their track record? 2.) How well do they understand their business? 3.) Where do they want to take the company and does that make sense? Financial statement analysis 1.) Look for trends in key ratios and margins 2.) Look for hidden problems 3.) Conduct full analysis of the relevant financial issues Competitors and Customers 1.) What is the competitive environment like? 2.) What is the condition and nature of their customer base? Capital Structure 1.) Debt issues? 2.) Liquidity issues? 3.) Will this company be able to survive a down turn in its business? Valuation 1.) Using the metrics appropriate to this company decide how attractive the valuation is relative to the company's peers, its history and its intrinsic value (i.e. DCF)?
Appendix B: How to pitch a stock
a.) There are two different contexts in which you will pitch a stock. The first is in front of the Investment Management Group and the second is in front of interviewers. There are slightly different rules (such as you should not bring a hand out to interviews) but essentially your pitch should be the same. b.) The structure of the 2-3 minute pitch should be: a. Introduction: Provide a brief description of the firm and key data b. Articulate your investment thesis around three bullet points i. Include is this section the answer to the question, why the price is going to change? (i.e. a description of the catalyst) and how and when can we exploit this? c. Conclusion: Give a price target for a given time horizon and describe very briefly how you came up with the price target. C.) What follows is an expanded version of the basic structure of a pitch: A.) Introduction:
Provide a brief description of the firm and the stock
The purpose of your introduction to the firm and the stock is to help your listener place them mentally within their knowledge and previous experiences, for instance to decide what valuation method to use, what ratios to look at or what industry to compare it with.
• Give a quick, one-line explanation of the firm and sector: e.g. family-dinner restaurant operator in the Mid Atlantic region, manufacturer of components for the automobile industry. • Provide basic info on the stock: current price and market cap (e.g. xyz is a 14 billion dollar company currently trading for 32 dollars per share.)
B.) Articulate your investment thesis around three bullet points
• Start by giving three bullet points on why to invest in the company in a very summarized way and then elaborate a bit longer into a full fledged sentence. Then, you can go on to discuss each point at length, especially if you are questioned.
• • •
As a rule of thumb, it is a good idea to have your three points address the following: company performance; financial performance (this is your opportunity to drop numbers in the conversation); valuation Guide the listener. Use the golden rule: First, tell them what you going to tell them, second, tell them what you have to say, then tell them what you just told them.
Example: how to articulate the pitch around three bullet points
Summarized point Strong demand for company’s product Full fledged sentence Tax stimulus package creates demand for new, updated tax preparation software Long argument The government has introduced a range of investment incentives and tax breaks in the latest budget. This requires complex calculations and a thorough update of the way in which tax returns are prepared. The issues are complex and require lots of technical assistance. Virtually every company affected by this change needs external help. This bides well for sales of tax preparation software (+25.7% forecast in 4Q FY01, +12.7% FY01) The company is launching both a new asset management module and introducing an extended payroll administration functionality. It is also discontinuing its basic calculator product, because a calculation application is provided free with Windows. The new products are considerable improvements over existing applications and save company accountants lots of time and money. The company faces little competition from other software vendors. Hence, it will be able to charge double the price of what it has been charging so far. We estimate gross margin to rise to 47.5% in 1Q 02from 42.0% in 3Q 01. Siebel and SAP have published disappointing results and have suffered as a result. Investors have marked down the entire software sector (27.2x forward PE 02 versus 52.5x TTM average). However, the factors that have adversely affected Siebel and SAP do not come into play for this stock, because the company does not operate in the multinational client segment.
Higher margins
Launch of new versions shifts the product mix towards higher margin products
Cheap valuation
Stock valuation has been dragged down unfairly
Summarized point
Full fledged sentence
Long argument Fears of revenue decline are unjustified, and the stock should continue to trade at a PE of 45x instead of 20x, giving a target price of $63 instead of $28.
Within your three bullet points address: Why is the price is going to change? How and when can we exploit this? 1.)New information Don’t just relay everything that has been published about the firm. If the markets are efficient, all the information has already been incorporated into the price and nothing you do or say is going to make it move. Therefore, you have to contribute some new piece of information. The typical objection a portfolio manager can raise to your story is: What do you know that the stock market doesn’t already know? • this can be something that you have genuinely discovered, • or at the very least provide a different interpretation of the known facts and the reason you are right and the rest of the Street are wrong • Examples: ? analysts fret about exposure to poorly performing auto industry . I have spoken with distributors and estimate that 80% of new contracts are with fastgrowing health care clients. This tells me that sales figures are going to be surprisingly positive, up by 12.1% sequentially on 3Q 01. Buy; ? unit sales are holding relatively well (75,000 Q4 versus 76.500 in Q3). I have a contact at the company’s major competitor that reveals their revenues (the competitor’s) are hurting (-8.5% YTD) because company A is offering big discounts. I see margins deteriorating rapidly, falling beneath 17% by next quarter. Sell; ? electric chainsaws are being touted as the next Father’s day hit. My research indicates that 50% of US households do not have extension chords long enough to put electric chainsaws to any good use. The company has manufacturing capacity for 127m chainsaws annually, or one chainsaw for each household in the country. It won’t be able to dispose of its inventory, so a big write-off is coming. Sell. 2.)Catalyst Not only must you add some piece of information, you also have to know when and how it will be incorporated into the stock price and will validate your thesis. You need a catalyst. E.g.: ? competitors are reporting next week. Once everybody sees that they are doing poorly because they lack an entry-level product, it will become clear that our company (the only producer of cheap entry-level products) will be assessed differently; ? the FDA is ruling on a new drug from XYZ Corp. this Thursday. If it is approved, this will be great news for our company, because its new blockbuster is based on the same compound, should be approved, and we are ready to start production in three months; ? Nokia is the major cornerstone of the demand for low-consumption memory chips. Nokia publishes a quarterly forecast for the number of mobile
phone handsets globally. If in its forthcoming estimates Nokia lowers its forecast, widens the range or makes any comments that it is becoming more difficult to predict what the demand will be, this highlights growing uncertainty for semiconductor manufacturers. Therefore, an upward adjustment to the discount rate for Infineon would be warranted, and lower stock price should follow.
C.) Conclusion: Give a price target for a given time horizon and tell the person very briefly how you came up with the price target.
At the end of the pitch when you talk about the attractive valuation of the company you should transition into your conclusion. Very quickly repeat your three bullet points and show how those bullet points will lead to earnings (and/or cash flow) projections and a future valuation that makes this stock a compelling buy right now. e.g. "Given the strong demand for the company's product, its expanding operating margins I think the stock will earn $2 per share in fiscal year 2002. The cheap valuation makes the stock a compelling buy because with the conservative assumption of no expansion of the current multiple of 20 times earnings and 15 times EBITDA the stock should increase 30% to $40 per share in 12 months." You should also talk about the Discounted Cash Flow (DCF) value for your stock and why under conservative assumptions this makes it a compelling buy. Once you have done this just sit back and wait for the interviewer to ask you questions about your stock.
Some final remarks on pitching stocks
Do not talk about the investment risks or downside of the stock (unless you are pitching a sell or the interviewer asks for them). (We know that the original instructions for how to pitch a stock said to list risks but that was wrong) It is the interviewer's job to be a skeptic and find objections to your recommendation. If the objective is to get them to buy the stock, don’t make their task easier. Having said this, think about the objections they can raise and try to counter them even before they are uttered. Think ahead. You should be ready to overcome obstacles, but I don’t believe that it is necessary to write down the investments risks to on your handout. Use numbers. Spinning a good story is good, but virtually everybody is able to spin a story. Hard facts and figures add credibility.
Appendix C: Resources for Preparing for Investment Management Interviews
a. For researching firms i. Institutional Investor Magazine's list of the top 300 investment managers. 1. Go to Web Site ii. Nelson's Guide to Investment Managers (for "buy-side" firms) 1. Go to career services library in Edelstone and they have the paper and CD rom version. iii. Career Services resources
b. For Researching Stocks i. Primary source documents for companies 1. Freeedgar.com for 10ks and 10qs 2. Web sites 3. Press releases
4. Conference calls ii. Investex plus for sell side research which you have access to through IMG links on the IMG website. Go to Business and Economic Center Guide link and click on Investex. iii. Bloomberg Terminal in Walker Computer lab iv. Industry analysis 1. S+P Industry Surveys (In Floor A of Regenstein Library) 2. Hoovers.com for industry analysis
Appendix D: Recommended Books.
If you only have time to read one book you should read Security Analysis on Wall Street by Jeffery C Hooke. This is books lays out the process for analyzing stocks that will be very useful for people who have not had extensive experience in security analysis. The three books I most highly recommend are: 1.) A book about security analysis: Hooke's book on security analysis (listed above) 2.) A book about valuation techniques: Valuation: Measuring and Managing the Value of Companies by Tom Copeland, Tim Koller and Jack Murrin (You will most likely use this book in your 430 (Financial Statement Analysis) class but it is very good to have read it before interviews because you will be expected to do this kind of valuation for the stocks that you pitch) 3.) A book about industry analysis: Competitive Strategy by Michael Porter. This will be useful since you will often be asked to analyze a particular industry and the book provides the tools to do that. You will learn these principles in 363 (Competitive Strategy) but it will be useful to be comfortable with them before interviews. c.) Other books that are useful and interesting (listed by topic) There are thousands of investment books that we could list here but these should prepare you well for interviews. 1.) Security Analysis a. Security Analysis by Graham and Dodd. This is the classic book on the subject. Its publication coined the term "security analysis" in 1925 and it is still widely read. (It is over 600 pages though so only attempt this one before interviews if you are very motivated) b. Intelligent Investor by Graham This is a shorter and lighter weight version of Security Analysis written by the same author 2.) Classic books on the stock market in general which are very good introductions to the investing. a. Stocks for the Long Run by Jeremy Siegel This book is a very good introduction to the stock market written by the most famous investments professor at Wharton. This is very good for people who are new to the business who want a relatively short and easy to read overview of what the stock market is about. b. Reminiscences of a Stock Operator by Edwin Lefevre This book is a classic that is a fictionalized biography of one the great investors of the early part of the 20th century. Its main value is that it gives you a good sense of what the investing is all about in an entertaining story.
Appendix E: Recommended GSB classes for those interested in a career in Investment Management
a.) The classes people have found most useful have been in the areas of Accounting, Finance and Strategy b.) You want to get as much accounting as you can but especially 310 (Basic Accounting) (if you need it) 316 (Intermediate Accounting) and 430 (Financial Statement Analysis). Other people have found 317 useful (Intermediate accounting with a focus on mergers and acquisitions). c.) Finance courses that others have found most useful are: 332 (Investments) and 333 (Corporate Finance). Financial Case classes such as 335, and to a lesser extent 338, will drill financial statement analysis techniques and valuation techniques into you but they assume you know how to do a DCF on your own, so these classes are best taken once you are comfortable with DCFs. d.) Other classes that people have found useful are 363 (Competitive Strategy) and 350 (Marketing), which is useful in terms of providing frameworks for analysis of companies and the way they create value.
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