“What gets measured gets managed.” – Peter Drucker
Those famous words of management guru Peter Drucker are often cited in the business world like a proverb. He means that an activity gets a different kind of attention once it’s measured and tracked. This applies directly to the buy side. This is also often the rallying cry of the quantified self movement, where so-called life hackers track everything about their bodies. They track their food, they track their steps, they track their body measurements, and so on. I bet there are people out there that even track their bowel movements. That sounds like an app from the show Silicon Valley … and, as usual, I digress.
Today, Drucker’s words are manifest in the business world in the form of “S.M.A.R.T.” goals. I can’t remember what the S, A, R, and T stand for, but I do know the M stands for “Measurable.” In the investment management business on the buy side, I can’t impress upon you enough how important this is. This goes for those trying to get into the business and those already on the buy side trying to work their way up.
So, do you need to start tracking your poop? No, of course not, but I will tell you what you should be tracking.
The Buy Side Candidate
If you are in university or early in your career and looking to join the buy side, then you need to start following some stocks. What you choose to follow doesn’t really matter, except that it doesn’t hurt to choose companies or industries that interest you personally.
From there, you will need to track (measure) two things:
- Company Financial Models – You need to have financial models for your companies. Let me repeat – you need financial models for your companies. This is the best way to learn the in’s and the out’s of the company and it shows your dedication. One of the best ways to do this is to take one of the courses at Breaking into Wall Street. In those courses, you will learn how to perform financial modeling, which is important. But after you have your models, then all you need to do is maintain the model by updating the quarterly numbers. Or you can copy the template and model companies you are more interested in. Either way, you end up with some high-quality financial models to show potential employers.
- Stock Recommendations – Once you have models on your companies, you need to start thinking about stock recommendations. Start making stock recommendations, even if they are just to yourself, and track the date of the trade and the subsequent performance. This will help you build some collateral to share with potential employers on the buy side, plus tracking your progress can help you learn how to be a better stock picker.
The Sell Side Analyst
When I use the term “analyst” here, I mean “associate” with the preferred nomenclature of the sell side. Basically, an associate is a junior who works for the sell side analyst covering the companies. However, we don’t usually make that distinction on the buy side and just call them all analysts …
So the junior analyst on the sell side is likely already responsible for modeling some companies, so maintaining financial models is easy. So from there, you’ll want to keep a paper portfolio of the companies you cover. This is just a more elaborate way to track your stocks picks as you will keep a mock portfolio of your stock recommendations.
The most important thing here, though, is not the results the portfolio generates, but to document all your changes in stock positioning to highlight your thought process and investment process. I’ve had candidates show me mock portfolio results before, but they didn’t include any reasons for their trades. Without this, I’m sorry, any investment results will look like pure luck. It’s about the thinking through the investment process that I want to see.
Summary
On the buy side, your results are tracked down to the basis point. Performance is important and performance matters because that’s what you are paid to deliver when managing money. So if you want to make it to the buy side, start tracking your companies and stock recommendations as a must. I’ll leave it to you if you want to start tracking your bowel movements …
