15 buy-side interview questions you need to know

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Jumping to the buy-side is no easy task. Most hedge funds, private equity firms and alternative asset managers interview a tiny percentage of candidates who apply and only hire a select few who actually make it through the door. While the interview process is different at every company, buy-side firms are known to ask some off-the-wall brainteasers to go along with more traditional interview questions.

We’ve compiled a selection of each style below. They are actual questions that were asked by buy-side firms of junior and mid-level candidates, who then shared them with us. How would you do?

  1. If you are McDonalds, which is better: A 5% increase in the price of all existing products (assuming price inelasticity) or a 5% increase in total volume as a result of a new product?
  2. If I ask you to research a company, what is the first thing you’ll look at: cash flow, income statement or a balance sheet? Why?
  3. What will you do if the stock falls 20% after one month of your buy recommendation?
  4. So you play poker. What are the odds of flopping a flush if you have two cards of the same suit? What if there is $200 in the pot and the guy ahead of you bets 40. Do you call? How many people must call before you to have good, "pot odds"?
  5. What ratios would you analyze to understand the liquidity, the efficiency and the profitability of a company?
  6. What kind of financial modeling have you done in the past?
  7. Let’s say I have two envelopes. And I tell you that one has twice as much as the other one. You open the first one and it has $100. You may open the second one but you forfeit the $100. What do you do?
  8. You work on the sell-side. Why do you want to join the buy-side?
  9. There are two companies in the same industry. One increases price and the other invests to increase production capacity. Which one would you rather invest in?
  10. Tell me about a piece of feedback that surprised you?
  11. What are the main reasons that the market is up this year?
  12. News breaks that a public company that you cover is about to acquire a private company. Your phones start to ring. On one line is your trader, on the other is your top institutional investor. Which phone do you answer and why?
  13. What are some of the weaknesses of a PE (price-to-earnings) valuation?
  14. Given the cost of production is $10 for one company and $40 for another, both with revenues at $50, given P/E at 1x. If one more cycle of cost-revenue goes by, which company should you invest in?
  15. Tell me about your worst investment decision.

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