Time is an analyst’s and PM’s most valuable resource. Focusing your pitch around the amount of time you have to give it shows your PM that you understand the value of both brevity and detail.
Building the financial model, developing a thesis, and understanding differentiation and timing are all core features that make for a strong pitch. However, mastery of the art of stock pitching is apparent in an analyst’s ability to develop and present different flavors of a single pitch depending on the amount of time you are given by your PM. Time is the most valuable resource in investing. Oftentimes, PMs have only a few minutes to hear a new pitch, especially during heavy earnings seasons or at funds with a large number of analysts. Developing and presenting the 20-Second, the 3-Minute, and 20-Minute stock pitch are key skills in making the leap from an average analyst who has trouble getting stocks in the book to a stellar analyst that your PM can trust..
The 20-Second Hedge Fund Stock Pitch
The shortest pitch is often the most difficult to present because it forces brevity on an industry obsessed with detail and complex analysis. As hedge fund analysts, we tend to over-explain and try to provide as much evidence as possible to support our views. However, sometimes your PM only has 20 seconds in passing in the elevator, on the way to lunch, or between meetings to talk about a new pitch. These conversations often lead to larger work products and the biggest and most profitable trades in your fund due to their organic growth.
The 20-Second Stock Pitch is centered on highlighting the most important issue. This issue is a differentiated view you possess about a specific part of a business that leads to a differentiated view about the overall direction of one or more numbers in one of the three financial statements. For example, a pitch centered on increasing competitive pressures (the differentiated view on the business) could lead to decelerating revenue growth (the differentiated view on revenue on the income statement).
There are a couple of nuances to this 20-Second Pitch to remember. The pitch does not require you to be contrarian about the direction of the consensus, but more a matter of degree of difference, second derivative, or an extreme polar opposite view. It is more than likely the most important issue is a new way to be more positive or negative on a stock than consensus. Finally, remember to not provide all of the evidence and backup to your qualitative work and financial model. Just state your view with the most important issue highlighted. Then you can dig into the evidence in a more fulsome pitch.
20-Second Stock Pitch Example: TMUS.
“T-Mobile is a long. Numbers are too low. TMUS can continue to take share despite their being almost no volume growth and no pricing power in the industry. It’s a classic share shift story and the two share leaders are powerless to fight back or risk re-pricing their entir book. In an industry with no growth, it is cheaper and smarter to slowly lose share than to completely disrupt yourself. Synergies from the Sprint deal are almost 2x as big as guided, TMUS can reinvest some of the synergies to take share and still beat numbers by 10-15% consistently over the next 2-3 years as the stock doubles. Can we find time to discuss?”
The 20-Minute Hedge Fund Stock Pitch
On the opposite end of the spectrum, the 20-Minute Stock Pitch should be a comprehensive explanation and review of the Most Important Issues and any supplementary issues. This is where you can show the supporting work and evidence you have done to go into the pitch. However, while you have 20 minutes to present and field questions, remember to be comprehensive but not overwordy or drawn out. Important! The goal of the pitch should be to be a commercial transaction, not an academic exercise!
Whether it be communicated over email or in person, the 20-Minute Stock Pitch should incorporate a few days of total work into a 3 statement model and a document of 10-12 slides or pages with a clearly defined thesis upfront. Following the thesis, you should then include the supporting facts and evidence of your pitch with charts, comparable companies, precedent transactions, DCFs, and any other relevant knowledge and information about the company and management. Also, make sure to spend some time on the catalyst path and how you get paid. If you are going to spend a week on an idea and 20 minutes of your PM’s time, make sure your idea is marketable and monetizable in a relatively near-term time frame. All pitches should end with a long/short recommendation and clearly outlined path to getting paid.
Does and Don’ts of the 20-Minute Pitch
DO zero in on the most important issue
DON’T vomit everything you learned
DO mix math and narrative
DON’T only know one valuation metric
DO be specific when possible
DON’T save the conclusion for the end
DO concede the weaknesses of your thesis before having them pointed out to you
DON’T be dismissive of any questions
DO say “I don’t know, but will figure it out” when you don’t know something
DON’T rely on a “good business” long or “bad business” short
The 3-Minute Hedge Fund Stock Pitch
The 3-Minute Stock Pitch is a healthy mix of the 20-Second and 20-Minute pitches. Your PM may want to go with quick 3-Minute pitches for a number of reasons.
Your PM may already be familiar with the company and the story and just needs a refresher.
Your PM may be very busy, especially during earnings season.
Your PM may want to quickly give the greenlight for a 20-minute pitch or further diligence before investing too much time.
The thesis may just be really simple and doesn’t need a 20-minute explanation. There are plenty of times when a 20-Minute Stock Pitch should have just been 3 minutes.
With the 3-Minute Stock Pitch, you want to be comprehensive, but brief. Prepare a strong financial model and one-page write up on the most important issues, but also prepare all of the materials you would have for the 20-Minute Stock Pitch. You never know if the meeting if the 3-Minute pitch will turn into 20 minutes. Remember to save some time for catalyst path, recommendation, and timing.
Mastering the art of stock pitching really comes down to understanding and reading your PM for what they are looking for. If your PM is busy, try a 20-Second Stock Pitch in passing in the elevator or on the way to lunch. Or try to grab a few minutes for a quick 3-Minute Stock Pitch. If you have weekly sit downs as a team, be prepared to give a 20-Minute Stock Pitch. Any pitch can lead to a large and profitable position.
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