The question

During an interview for equity sales position at a global investment bank in Australia, a candidate was asked the following question: Imagine you are a second-hand car salesman. Pitch me a stock as if it’s a used car.

The candidate’s reply

I had already prepared my stock pitch before the interview, but the used car analogy threw me. I stayed with my safe but boring choice (BHP) and gave the usual rant about the commodity boom, Chinese growth, M&A potential, infrastructure under capacity, potential expansion in future exports, project pipelines, diversified portfolio of assets etc.

I thought I was doing ok until I remembered about the second-hand car, so I ended by qualifying my comments with “when you are choosing a car, you have to consider a whole range of similar criteria such as valuation, size, age and a few other things”. The interviewer just stared blankly for a few seconds before asking the next question. I didn’t get the job.

How he would have responded in hindsight

I would try to match the reasons why a stock is attractive to an investor with reasons why you would or wouldn’t buy a certain used car. For example, a stock trading below its intrinsic value could be compared with a used car that is cheap because it has been discounted to be more attractive to a potential buyer, so the salesman is more likely to get a sale and hit his targets.

A car’s potential for increased efficiencies and tight cost control could be its reliability and hence low running costs. The socially responsible investor/buyer may be more attracted to a small-engine car, and will hence pay less car tax and produce fewer emissions. M&A opportunities may be the potential to “pimp out” the vehicle and increase its value.

Potential future earnings could be benefits such as convenience, time savings and goods transportation; while diversified revenue streams could be the advantages different cars have over each other, e.g. sports cars for looking cool, utes for tradesman, 4x4s for sportspeople etc.

Asset allocation could be changing your investment in other modes of transport – for trains, buses, ferries, and taxis read FX, commodities, bonds and private equity – and investing in a used car (equities) instead.

If you want to finish on a joke and suck up to the potential buyer/interviewer you could say good management is their obvious excellent driving ability. I don’t think the choice of car/stock really matters. The point of the question is to show your knowledge of the potential reasons why a stock is attractive, and to be creative in matching these criteria with the rational for buying a used car.

How would YOU have answered?

Use the comments box below to suggest a better response to the interview question above.