The Analyst #5 - Laggards
Each month, we’ll tell the story of an analyst’s journey to become one of the greats.
Slow and steady doesn’t always feel like it wins the race, but it gets you there. And maybe it’s not a race, maybe the path was just a little longer, and worth it.
At 43, he got a late start into this game. He had been riding through life in another lane. But after a kid and a solid view into his future on how to climb the corporate ladder, even his handful of internal wrestling matches about whether this really was ‘his calling’ weren’t the reasons he made the change. Instead, it was a 5-minute conversation with a high school friend. He bumped into her while he was part of Deloitte’s audit team at Morgan Stanley 6 years ago, in February 2019, and that was the push that caused him to change lanes.
“Gabe!”
The voice was familiar to him, and he looked around to see Vanessa, a fellow “senator” from his student council days at New Brunswick High School.
“Wow, Vanessa. Great to see you. It’s been a minute since 11th grade.” She had been a year ahead in school, had excellent grades, and went to Columbia, he seemed to remember after not having given it any thought at all in the last 15 years.
“Yeah, it has. I did banking after college and then worked as an analyst covering tech hardware. Now, I’m on the research management team, working with our DOR on associates for senior analysts.”
“That’s awesome, I went into accounting at Deloitte after graduating Rutgers. I’m here leading your department audit.” She was a little surprised by that response. Not about him being in charge, but because he had been at the top of his class in school, like her. She had always assumed he’d end up on Wall Street, in medicine, or law. There were probably financial reasons to consider, she thought to herself. Then, she thought about a joke they had shared about using their uber-sharp minds to solve critical problems, like lobbying for 10 extra minutes around lunch back in the day. She was self-aware enough to shift the dialogue into something in the present.
“So, what kind of insights are you uncovering about our department? Any area of focus?”
“Not really, no. We identified a few places to tighten up disclosures, but you guys are first rate. We should be wrapped up next week.”
“Great, any thoughts on our research in general?” Enough of the small talk. Would that intellectual light she remembered start to flicker?
“Seems like good process overall, but I’m not sure your guy has Garmin right.” There it was. He bit, unaware that one of her colleagues, a junior on the hardware team, now had primary coverage on consumer tech names. “I mean, growth in wearables is definitely a thing, and their technology is ahead of the curve. I get that it’s ‘Apple and everybody else’. But until you use one of these, the applications are less obvious.”
10 minutes later, Gabe was sitting at Starbucks with Vanessa and the covering analyst, walking him through every aspect of buying, using, and, surprisingly, the revenue build for his model. Two weeks after that, Gabe had a decision to make about leaving Deloitte for a role as a junior on the sell-side. He knew that he would have to pay dues all over again, but the upside on comp was higher, and baby always needs a new pair of shoes.
The final push had come from another source. “I don’t want you to stick with a solid job if you’re not happy or really challenging yourself.” Considering that his wife was saying this at 7 months pregnant with their second boy, it was all the inspiration he needed.
After three years of longer hours, lots of models, and a promotion, he took a buyside job with a PM covering TMT at a mid-sized long/short firm. It was another move up the career risk curve, but it was the right one. The firm grew, his responsibilities grew, and fast-forward to today, he’s the senior analyst on a team of five, where he’s at least five years older (often closer to ten) than everyone else, including his PM.
The classic hedge fund pedigree oozes from his team’s juniors: Ivies, nerds that code for fun, AI enthusiasts, and, of course, the usual suspect habits. Among them, drinking refined bourbon and big, bougie weddings. And if their contrast in both stage-of-life and lifestyle was not already apparent, then dropping his 5-year-old off at Karate and popping into the bar at the Chinese fusion restaurant next door to do his Sunday call brought it squarely into focus:
Earbuds in, the first thing he heard was, “Dude, I tasted Pappy van Winkle at Club 91 at the JW in Cancun last night. My fraternity brother had 160 of us for his wedding, and his dad was pouring for the groomsman,” Jake exhorted to the Zoom, with nobody asking and to none of the ‘dudes’ in particular, including the team’s two women.
Gabe chuckled. He was sipping Jack Daniels, a simple pleasure he had long enjoyed, waiting for his son to pass his green belt certification test, and could not resist. “Hey Jake, congratulations. Did you think it tasted 10 times better than Weller Blue?”
“Yo, grandpa. Why you gotta yuck my yum?” Everyone laughed.
The team banter was playful, but it was not playtime. His PM was in a bind. The book was leaning long after earnings. They had generated some nice PNL through the prints, but there was no good reason for beta exposure in his mind. “I need shorts. And I don’t like how much momentum factor exposure we have right now. One more Trump Bump like Friday/Monday from tariffs or policy, and we could easily squander what’s shaping up as a good year.”
It had been six years since his big call on GRMN, and the stock return annualized at a tidy 26%. It was wonderful in his PA, but had underperformed big tech names like Apple, which annualized at 42% in the same period. And the book needed shorts. The GRMN print was still a couple weeks away on the 19th, one of a few earnings laggards in tech yet to report.
He wanted to be short. The stock had gone parabolic after the Q3 print on October 30th. It was trading in the 220 range now, up from 180-ish in Q3. And since mid-December, it had trended up 15 bucks in a messy tech tape. Q3 had been better than estimates, and Q4’s whisper was also ahead of consensus.
In his six-year investor career, he often leaned hard on his accounting bona-fides to help understand numbers and value. But this was not going to be a company performance issue. It was about set-up. He also had a sense from his buyside network that the momentum guys would be selling. Anything less than great news and the street’s “I told you so” chorus, which had not been recommending on the way up, would be crowing.
“Let’s consider flipping GRMN. Consensus is messy. Mean is $2.00 but range is $1.85 -$2.40 and buyside is higher. I think we can play for a 5-7% move without even being there for the print. Then if they meet the guide, but don’t raise, I think we can get long again somewhere below $180.”
His PM let others weigh in, but the analyst’s willingness to flip on an idea was refreshing. The guy waited a long time to get to the street. He looked at stocks from every angle and had no religion at all when it came to making money. “Ok, let’s flip there, yes. Now let’s find another short or two and then some ideas on the long side to get bigger when the opportunity presents.”
The call ended. He finished his drink and went next door to pick up his son.
“Dad, I got my green belt!” The running hug was the good stuff.
“That’s awesome, champ. Congratulations.” He spun around and put him down.
“Thanks, but I’m still behind most of the kids. There were 3 kids in my class going for purple, and that’s two belts ahead.”
He knew some of those kids had taken extra lessons to move up faster, and he hated that his son felt like, well, a laggard. He offered some advice that seemed to make sense.
“You know what buddy? If you love this, and you stick with it, eventually you’ll get all the belts.”
The kid grinned. Maybe it was the kind words, or maybe stopping in front of the ice cream place had something to do with it, too.