Brett Caughran @FundamentEdge:
BUILDING A BUY-SIDE NETWORK
I had a question from a junior analyst this week. "Brett, my PM asked me to start building my investor network...how do I do that?"
So I've been thinking a bit about a framework for building a network. Thought this was a great topic to share broadly
Brett Caughran @FundamentEdge:
and an important part of the meta-game of the buy-side.
FIRST, WHY BUILD A NETWORK?
1) BROADER INFORMATION CAPTURE. As a a buy-side analyst, we might be covering 50-70+ stocks. Every day is a flood of information with numerous 8Ks, sell-side notes, expert network transcripts,
Brett Caughran @FundamentEdge:
and corporate access. Keeping on top of that information can be a lot! If you have a group of fellow analysts covering the same stock, who you trust, you can multiply your information coverage. Friend went to HUM HQ visit and you didn't? Check in with the friend, possibly get
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the raw notes from your friend (check with compliance). Saves you a trip! Is a company coming through town talking down the quarter? Having friends to share that information can multiply your information reach.
2) UNDERSTANDING THE SET-UP. I spoke on this thread about
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challenges of divining the buy-side whisper. But having a crew of fellow investors to speak with can be really helpful in understanding expectations & set-up. Much harder to do if you are just head down building models all day.
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Brett Caughran @FundamentEdge:
THE ELUSIVE "BUY-SIDE WHISPER"
I was speaking with a junior analyst today about earnings set ups. He mentioned that he was using credit card data to forecast prints, and while that approach was very helpful in calling the numbers, it wasn't helpful in calling what ultimately
Brett Caughran @FundamentEdge:
3) BUILD A GENUINE SENSE OF COMMUNITY. Being a buy-side analyst can be a stressful job! A network can and should grow into a group of genuine friendships grounded in shared experiences. This job can be a lonely existence in the trenches, and having a crew (outside of
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firm) to provide mutual support & connection makes this gig a hell of a lot less lonely. Trust me. And when you become older like me all the old heads constantly marvel how the buy-side is a SMALL PLACE. The hedge fund industry is six degrees of Kevin Bacon FOR SURE.
Brett Caughran @FundamentEdge:
It's cheesy, but "be the change you want to see in the world" (Gandhi) and truly, genuinely go out of your well to help & support your crew, and you will find it boomerang back to you. I promise you. I can't tell you how often I have the conversation of "oh hey I worked with
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so and so who you worked with in 2008". IT'S A SMALL WORLD. ACT ACCORDINGLY.
DARK SIDE OF VISITING THE HEDGE FUND HOTEL. Some might disagree with me that building a buy-side network is important, and that's ok. I can see that argument. Getting in with a crew of other hedge
Brett Caughran @FundamentEdge:
fund analysts can tilt your more towards consensus set-ups, which can be dangerous. "XYZ fund owns this stock so it must be good" is a dangerous mindset. Always do your own work. And if you go back to the 2010-2015 insider trading era, MNPI circulated heavily in crews of analysts
Brett Caughran @FundamentEdge:
Make sure you associate with high quality people and remember - compliance/GC is your friend. Also remember that comparison can be the thief of joy. Your crew had a great year and getting paid 7-figures and you only took home $500k? That can feel awful, even though it obviously
Brett Caughran @FundamentEdge:
shouldn't. Don't forget to live by the internal scorecard.
The set-up out of the way, let's discuss 8 PRACTICAL TIPS FOR BUILDING YOUR BUY-SIDE NETWORK.
1) BE INTENTIONAL. The first tip is just decide it's important to have a crew of like-minded investors to interface with.
Brett Caughran @FundamentEdge:
When you are at a conference or sharing a meeting with someone who seems like a good analyst, just introduce yourself. "Hi I'm Brett, nice to meet you" is all it takes. And do your best to remember their name. If you are on a sector team, try to start meeting your PMs & senior
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analyst's friends. Don't be awkward, let it happen organically. They are likely to like you by association, and you can pick up a dialogue with them as you run into them. So step away from the model, and be intentional about building a network.
2) THINK LONG TERM. What's the
Brett Caughran @FundamentEdge:
cheesy line about planting a tree to receive shade in 15 years? That's your network. Headhunters & cold networking will play a key role in entering the buy-side, but as you become more senior it is all about relationships. So may senior jobs are placed via network.
Brett Caughran @FundamentEdge:
If I'm starting a healthcare hedge fund with a $2bn launch and building out a team of 10, you know who the first 4 hires are? People I've known for 5-10 years, and know have a good process because I've known them for so long, shared meetings, etc.
If you ever do have the
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unfortunate situation of losing your job (which happens in this industry) your network is going to be there to help you get on your feet. (as you should do when someone in your network gets blown out).
3) GET ON THE ROAD. So many of my buy-side friendships have sprouted & grown
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through trips. Dinner in South Beach post Barclays HC. Drinks on Broadway post a Nashville HC bus trip (x20). Craps tables post BAML Vegas. Four Seasons bar post JPM. It just feels a lot more organic hanging at these events, and alcohol is a social lubricant. So put yourself out
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there, attend these events if it makes sense for you, and be intentional about making connections.
4) SELL-SIDE AS SOCIAL CHAIR. Equity sales & spec sales roles exist to be helpful, and generally the personality of an equity sales person is much more extroverted than the
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typical analytical introverted analyst. So ask for the equity sales for help! When I was a young Tiger cub analyst, my equity sales person offered to set up a lunch with 5 other Tiger cub analysts and introduce me. It was awesome! (and smart / good biz on his part). So ask your
Brett Caughran @FundamentEdge:
equity sales or specialist sales for help in building your network. They are VERY good at it! And if you are a larger client, this can include a nice dinner, maybe a Knicks game. Or a memorable one for me, tables at LIV at ICR in 2010 (I may or may not have not slept that night.)
Brett Caughran @FundamentEdge:
5) FIND THE NEXUS. I'm not the most social person. I enjoy socialization, but my battery can run out. I love having my nose buried in models. What I did over the years was find that social butterfly, the analyst who spent 1/3 of his/her time speaking with other investors,
Brett Caughran @FundamentEdge:
sell-side, etc. I didn't want to carve out that much time in my day doing that. But I could be helpful to that person, and that person would give me feedback on what other large funds were saying/doing (he had a knack of eliciting information that I didn't have). Find the nexus.
Brett Caughran @FundamentEdge:
6) BE HELPFUL, NOT COMMERCIAL. Which brings me to my next point. Do your best to create a symbiotic relationship with your network. First, be helpful. With compliance approval, share highlights from your due diligence. First give help before you ask for help. If you meet an
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analyst at large fund and just start peppering that person with questions, the walls might go up.
7) DIVERSIFY. Avoid the tendency to fall into a buy-side clique (you will all see these at any sell-side conference).
CONT'D
Brett Caughran @FundamentEdge:
You will see the "pod crew" the "long only crew" the "Tiger crew" at these conferences. Make connections amongst all. If you work at a large long only, the pods want to talk to you? Build that relationship, and in kind you can get a really helpful window into the pod earnings
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process that can help you a LOT on entry & exit points.
8) BE THOUGHTFUL IN MEETINGS. At conferences, always be prepared & respectful in meetings and ask thoughtful questions grounded in the key drivers of the business and what will move the stock. If you do that, you will get
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the attention of more senior investors. "Who's that kid". MANY lateral opportunities come from exposure this way. And when I was a PM and saw a really sharp, hungry, thoughtful analyst, I would go out of my way to get to know that person and create a connection. It matters.
Brett Caughran @FundamentEdge:
TIP FOR LARGER FUNDS: If you are a big fund, your positions will show up on 13Fs. People will want to talk to you when you file. If you PM/Compliance approves, takes those meetings. When you see that fund file on another idea, request the same. The "lets share notes" discussion
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I've generally found to be a high ROI time.
TIP FOR SMALLER FUNDS: if you are at a smaller fund, you won't be in the conference 4x1 or have equity sales bending over backwards to help you. You have to get a bit more creative. Perhaps create an anon account and post thoughtful
Brett Caughran @FundamentEdge:
research on twitter (and watch your DMs explode with really smart peers!). Post your ideas on SumZero @SumZero to get more exposure. Find creative ways to get your name out there, to make connections with other investors.
WHAT HAVE YOU DONE TO BUILD YOUR NETWORK?