Lately, I've been interviewing some candidates for a junior analyst role at my firm. As you would expect, we want smart individuals who can think outside the box. We want dedicated people who are willing to put in the hard work required to do in-depth analysis (i.e. grunt work). People who have a desire to learn. And most importantly, people who are passionate about investing. This is just my opinion and others may disagree, but telling me about your mock portfolio doesn't demonstrate passion for investing.
It's not the size of the portfolio that matters
I get it. You're young and you're not some trust fund baby, so you don't have millions of your own money to invest.
It's not the size of the portfolio that impresses me. The problem with a mock portfolio is you're not taking any risk. You don't have any skin in the game. Have you ever tried to play poker without real money? It's horrible. People call bluffs left and right. It's impossible to get people out of hands because there's no cost when they lose.
Working at a hedge fund, we deal with real money. Not mock money. So I need you to think and act like you have something to lose. In a mock portfolio, it's easy to say you're going to buy high volatility names. Everybody wants to own a stock that doubles. But would you invest your own money in that stock if you knew it was just as likely to go to zero?
Similarly, it's easy to say you'd double down when the stock is down 50%. It's a lot harder to do when you've lost 50% of your hard-earned dollars and you're worried you could lose even more.
Diversification is Important
You can't have three names in your portfolio. And they all can't be in the same sector. Again, I get that you may not have much money to invest. The problem with having so few names is I question your ability to understand risk. On the buy side, your #1 goal is to not lose money. If you can do that, making money will take care of itself. Having a diversified portfolio shows me that you take risk management seriously.
What's your thesis?
If a stock is in your portfolio, you need to tell me why you like it. I don't need a detailed model or write-up. I just want the elevator pitch on why you think it's a good long or short. Don't tell me your friend suggested it. If you do, I'll ask you if your friend is interested in this role.
What did you get wrong?
When we're talking about your diversified, non-mock portfolio, you're going to want to talk about your winners. I, on the other hand, am going to focus on your losers. Again, this goes back to rule #1 - don't lose money. What went wrong with the trade? Did you miss something or was it bad luck? What did you learn from the experience?
Again, you don't need a large portfolio to impress me. You don't even need to be that successful (but if you've managed to lose money in a nine-year bull market, maybe investing isn't your thing). What I want to see is somebody that eats, breathes, and sleeps investing. Somebody that is dedicated and willing to learn, so that they can become a great senior analyst some day.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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