I was told and had heard of this firm's selectivity when interviewing candidates, and it seemed like the thorough process was meant to make sure that no matter what, the candidate would be a good cultural fit. Part of the cultural fit was the ability to handle oneself smoothly in an impossible situation.
I suggest something like, "The business has sales of $30 in a $3000 industry representing a 3% market share despite being recognized as the product leader and having an exceptional management team.
I cannot overstate the importance of your answer to this question. The interviewer, ideally, should not have a doubt that you want to be in investment management for the long haul. You should come across as mature, steadfast in your decision and appear as though you have thoroughly researched all your options and come to the decision that IM is for you.
The answer to this question is very personal and if you can't come up with a sufficient answer pretty easily than, honestly, this job is probably not for you. I will say, however, that this is a great opportunity to let your interviewer know that your personality lends itself favorably to being successful in the capital markets. Humble people who are competitive, inquisitive/perpetually seeking to learn, and intellectually honest often do well in this business.
What they don't want to hear is why a huge commonly followed stock is your choice (unless you're going against the consensus)," says Anthony Keizner, managing director at headhunters Glocap. "They want to hear good business logic and why the stock is over or under-valued, what the market is missing and what the catalyst is for the stock to hit your price target.
This is more aimed at junior recruits and suggests that it's another opportunity to show what a great trader or portfolio manager you could become. In reality, it's more of a 'cultural fit' question, a chance to prove that a career in a hedge fund is for you and that you're in investing for the long-haul.
"You need to be succinct and demonstrate a passion for investing. You might have started trading on your personal account, or gained work experience from an early age," says Barry Seath, managing director of hedge fund focused recruiters Mirage Recruitment.
I suggest saying something like, "If my assumptions [discuss them here] about the effect of [insert catalyst] prove true than the market will realize ABC's intrinsic value of [insert valuation]." You can then speak about contingency valuations, etc.
The days of brain-teasers, designed to test candidates' mathematical reasoning skills, are slowly coming to an end in hedge funds. "It's been a while since clients have asked candidates how many glasses of water it takes to fill the Atlantic ocean," says Seath. "What they want to see is logical and punchy answers, often with a mathematical reasoning, throughout."
Essentially what this means is that if you linger too long on a point, or go off on a tangent that is likely to present a complex argument, the interviewer will pick up on this. Expect to be interrupted, have your thought processes questioned and argument torn apart. This, you've probably guessed, is less about the answer and more how you handle a stressful situation. The secret is to remain cool.
Here's an example of a sector trade: Fred is a long/short equity hedge fund manager whose primary trading strategy focuses on sector trades. Fred noticed that in the tech sector, Microsoft (MSFT) was a relatively cheap stock when compared with Oracle (ORCL). Fred purchases 100 shares of MSFT because MSFT is undervalued relative to the theoretical price (fair value) and the market is expected to correct the price. Simultaneously, Fred sells short 100 shares of ORCL because ORCL is overvalued relative to its theoretical price.
I suggest using a quantitative metric to show you did your homework here, such as, "ABC Industry has the ability to grow xyz% in the next 3-5 years. This is also a good place to highlight changing competitive dynamics, etc.
Yes, this is an obvious question generic to any job interview, but it's also a chance to sell yourself to the hedge fund. They want you to prove, by going through your skills and experience, that you can evaluate businesses, easily navigate your way through financial statements and analyst reports and, most importantly, have enough ability to be trusted with a large amount of money to put behind your trading ideas.