The Analyst #1 - The Secret Sauce

Each month, we’ll tell the story of an analyst’s journey to become one of the greats.

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She already had her hitting shoes on.  Finally, it was time to step into the batter’s box for the interview.  “Good morning, thanks again for coming in,” the young analyst greeting her said in a way that both welcomed and said game time.  Oddly, the four years of college softball she played well (.321, .921 OPS, 2^nd team All-MAC Left Fielder), were not the kind of priors that were going to help her with today’s conversation.  She thought briefly about her stock pitch, still nervous to talk about a Walmart short, but really liked the idea of making it clear to the PM that she “got hedge funds”.   

“Good morning, looking forward to meeting everyone,” she said, and they shook hands. With that, the eggs, oatmeal and coffee she breakfasted on an hour ago, which should have been more than good at this point, rumbled a with a low sound. Ok, nerves, butterflies, whatever.  She relaxed a bit. Last time she felt this good, she drilled a line drive home run in her first at bat.  LFG.  

She followed him into the large glass conference room, a dietary staple at any hedge fund.  Her agenda included meeting two PMs and the Director of Research.  Batter up.

Jim, the first PM of the day’s interviews, walked in. Another handshake. “Good morning, it’s nice to meet in person.  Were travel accommodations solid?” Since their Zoom for her first interview last week, she had done her research and learned that Jim had enjoyed a lot of success at the firm and was a homegrown talent.  Following that first call, her feedback to the recruiter was positive, but there was something about him… 

“Everything was great. I really appreciate the opportunity to get to know you and the firm better.”    

“Ok, let’s get right to it.  Your write-up on Walmart was interesting.  Today, let’s maybe get a little deeper in the weeds?”  

She nodded affirmatively and then poof! An Excel model appeared on the big screen.   Jim used a laser to point at gross margins for the business last year.  She immediately noticed the number did not foot out to the most recent 10q (what else was there to do on the plane last night?).  It was off over 100 basis points, which in big box retail mattered a whole lot.  He had them at 5.7% in the July quarter.  He noted, “The street is too bearish because they can’t do the math.  People are worried about missing the print, but I re-worked a few items above the line and the margins are dramatically under-stated. “