Forensic Alpha
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Forensic Alpha

From Gladwell to Dalio, via the SAS

Why we start with talent first and look at a CV last in our hiring process.

Announcing our next analyst hire…

Malcolm Gladwell, Outliers: The Story of Success

If you have read Outliers the chances are that you will take a profoundly less rose-tinted view to your own, and others, successes. That is the main message that Gladwell conveys throughout his excellent book; that success is as much about your, and your family’s, circumstance as it is about innate talent. It is a humbling, but powerful lesson that is worth remembering throughout your ups and downs.

Armed with the knowledge that talent can be hidden, and is not necessarily linked to one’s journey thus far, StockViews’ approach to hiring new analysts, as we build out our team, has led to a more unconventional approach than might be found at other research firms. In essence we are most interested in trying to find those with the raw attributes for success rather than those with the most impressive CVs, from there we hope to give them the ‘powerful set of circumstances and opportunities’, to lift from Gladwell, that should ensure success.

Talents over 2:1s

  1. innate curiosity
  2. an incisive mind
  3. logical thinking
  4. a rebellious streak
  5. humility

Arguably these are the core attributes that will make a great analyst. Someone who is never satisfied with the first answer given and is always willing to dig deeper in trying to get to the truth. You will have noticed that the following didn’t feature:

  1. CFA
  2. ACA
  3. 2.1 or higher degree from top university
  4. previous analyst experience

Of course we are not rubbishing industry qualifications and good degrees, which carry their own hallmarks of success and achievement, but the point here is that if you believe that the aforementioned traits are more important: then why narrow your filter as a starting point for recruitment. As mentioned in prior posts one of the things that we believe gives us an edge is the why, where and how we choose to do equity research.

WHY: we are solely seeking to uncover potential mispricings in the equity markets with the aim of helping asset managers deliver elusive alpha. That’s our only goal.

WHERE: we have a universe of c1000 stocks between €750m to €20bln mkt cap and analysts can choose to cover anything as long as it appears to be mispriced. Given industry developments, mid and small cap stocks are increasingly under researched which should mean a greater chance of finding a mispricing.

HOW: our analysts are unencumbered by the usual constraints of analyst coverage models, so can go deep, spending up to 2 months intensively researching a company. This focus allows for genuine ‘deep work’ which should be to the benefit of our clients.

This year we have received over 200 incoming applications for an analyst role at StockViews. All a candidate has to do is answer a series of questions. There are no word limits set and the questions range from what is your investment philosophy to why you want to work with our firm.

Before even going near a CV the answers to these questions tell you a lot about each candidate; their use of language, their clarity, their motivations and their approach to finding a new job. Mentions of Warren Buffett or being keen to work for a ‘startup fintech’ firm are ten-a-plenty, so help separate some chaff. Sometimes long answers hit the spot by having a clear narrative and structure, equally a one line answer can be just as powerful in showing a succinctness and courage (or laziness — depending on your view!) that most lack.

A trial run

Ray Dalio, Principles

From there, several 1–1 interviews follow to determine who to put through to our final stage. This takes the form of a stock pitch in a strict 10 minute window. The analyst can choose the stock and has 2 weeks to prepare a 10 slide pitch.

In many ways this is (sort of) similar to the rather more rigorous trial routines employed by the Navy Seals, SAS or elite sports teams and somewhat akin to the process put in place by Automattic, the company behind Wordpress, who give each new employee a trial run before making a commitment.

Citadel have taken a similar approach to try and distil down who has the relevant attributes by holding “datathons” with the winners taking home $25k prize pools and eventually competing for a $100k prize (even before earning a job at Citadel!). The little excerpt below, written by their Chief People Offices in a linked HBR article, hammers home the point:

A calculated decision (literally)

With the pitch over it would then be easy to cluster in our views so to explicitly avoid group think we all then fill out a scoresheet for the candidate, categorised into four main areas:

  • A Shared Purpose
  • Drive and Attitude
  • Analytical Ability
  • Technical Skills
Do you think they got the job?

This culminates in a quick hire/no hire vote, followed by a discussion as each person gets the chance to make their case for a candidate or raise concerns. A final vote is then cast…

Really knowing who you are working with

The last step in our process involves a psychometric test. This splits your personality into 4 buckets: Will, Control, Affection and Energy with a final layer called Emotionality, which is effectively a volume control on the others (see below). This isn't to say we are looking for a very specific type of profile but it certainly helps when interacting with others to know each others’ personality types. Knowing each others’ personalities is especially important when it comes to receiving feedback. For us that means critiquing a piece of research that an analyst might have been working on for 6 straight weeks.

A psychometric profile of a wilful self.

Borrowing from Ray Dalio, who is a big proponent of psychometric assessment and believability-weighted decision making, he highlights how specific feedback is incredibly useful in making us better at our roles but the subconscious parts of us cant help but view feedback as an attack on our very being, so suppressing the instinct to ‘fight’ is critical in enabling the process to be a benefit.

Ray Dalio, Principles

Putting all the above together is how we hope to recruit the best team and then give them the tools with which to produce market-leading, and hopefully alpha generating, evidence-based research ideas. The joyful thing about equity markets, an effective meeting of multiple conscious and sub-conscious minds, plus a smattering of computer driven decision making, is that there are constantly new lessons to be learnt and ways to adapt…we will be constantly striving.

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