Career Advice from a Hedge Fund Pro


Note: This is part of my hedge fund series. Click for the Introduction. and Part 1, “What I Learned Working At A Hedge Fund”

There is nothing I like more than learning from the best. In any field, you want to find out how the best did it, what they do and how they got to the best.  In the hedge fund world, this can be a challenge—the business has a reputation for being secretive. Getting even the most basic information can be an enormous challenge. When you find a hedge fund star speaking or writing in his own words, it’s definitely worth your while—learning from the greats always is.

With that in mind, I wanted to highlight a two-part interview with Philippe Laffont of Coatue Management, a technology-focused hedge fund and a so-called Tiger Cub, because it is one of the many that spun out of Julian Robertson’s Tiger Management.

Part 1:

Part 2:


There are many lessons in this short interview, but I’ll highlight the ones that apply to the markets and a couple that are most relevant for people starting out

You have to have an investment philosophy.

Absolutely! In order to be a successful investor, you need a structured way of thinking about investing. Otherwise, you are just shooting in the dark. While its only a brief part of the second interview, Philippe goes into the basics of his outlook. First of all, he thinks long-term, as that suits his research-driven, technology-informed background. While he doesn’t have a PhD and tons of patents to his name, he certainly knows enough about technology to make educated guesses about where things will end up in 3-5 years. Furthermore, he uses those guesses to find things that are mispriced and then looks for both longs and shorts.

He understands that this is his edge and why it works—he thinks that people are too impatient and take short-term views and positions that don’t reflect long-term fundamentals, which gives him the opportunity to get in to longer-term investments at the right price. Moreover, he sticks to it and makes money!

His discussion of shorting was about taking prudent risk, not swinging for the fences.

A long/short fund like this one bets actively on stocks both rising and falling. Usually, a fund will try to have its longs go up and its shorts go down. Overall, it will have low to no net exposure, i.e. not make an outright bet on the direction of the market. Thus, it is just making profits from its ability to pick stocks rather than betting on the market direction.

With that in mind, his discussion of shorting was fascinating to me. The goal seemed to be to capitalize on his existing research in two main ways. The first was an extension of his existing research, finding a stock or sector theme like Apple taking market share, and then figuring out who the losers were. The other was just as a consequence of looking through the industry for 3-5 years trends and finding situations that were weak on their own, independent of any long position.

No matter the brand of short, there are a few noteworthy things here. The first is that his positions, be they longs or shorts, are a natural outgrowth of one universal investment process, in which he is trying to spot trends and mispricings. The second is how he thinks about risk. If he has a good idea or research theme, then he is trying to find both longs and shorts around the theme. Whereas he could just make a big concentrated bet on one stock, he is instead diversifying his bets and reducing his overall market exposure. This is prudent risk management and is the secret behind some great hedge funds’ returns. By hedging their bets, they are forgoing the chance at 100% upside; but also protecting against catastrophic downside. This is the best way to produce excellent risk-adjusted returns.


His career advice was good, but his example was even better

At first, it all seems like good luck—he met Julian Robertson and that led to him being hired into Tiger to look at tech stocks and then on to setting up his own fund. But his advice was spot on: when someone opens the door, be very direct and don’t waste their time. Otherwise, that door may close and you’ll have missed the opportunity entirely. When Philippe first met Julian Robertson, he had in mind his goal of working for a hedge fund and trading tech stocks. He stated that clearly, Julian saw his determination and purpose, and that put him on the right path to be hired.

There’s another big ingredient to his success: preparation. He had a lot of the ingredients necessary to be a successful investor. He had worked for three years at McKinsey and gotten a host of excellent business training. He had spent a year of just learning about technology stocks. He had invested in tech stocks for a couple of years and made good money. Moreover, he had shown his willingness to learn more about the business and to get some training by joining an asset management firm and working – for free.  This all added up to an impressive amount of preparation, which made his intention much more realistic and achievable.

In this case, don’t just do as he says, do as he did. If you have the goal of being a portfolio manager at a hedge fund, then undertake all of the necessary preparation– learn about the markets about you want to trade, about how the hedge fund business works, and put on some positions with your own money. In addition, learn about yourself. He knew very early on what his strengths and weaknesses were, which is why he applied to MIT and why he didn’t become an engineer—and ultimately, how he became a successful fund manager.

When the right moment appears, all of your preparation will shine through and you will be able to make the most of the moment. And then maybe you can set up your own Coatue.

If you are just starting out and want to work at a hedge fund, follow his advice

Philippe’s advice about starting out is spot on. If you are in college and thinking about being in the financial world, go to a large, prestigious firm where you can soak up as much as possible.  You’ll learn all kinds of useful skills that will serve you throughout your career; meet contacts, both within your company and clients; and you will understand all of the various nooks and crannies of the financial world and where you would fit best. Put the emphasis on learning, gaining skills and working hard.

When you come out, you’ll be that much more employable. This is the time to go to a hedge fund—while you may not be managing money, you are qualified to work as an analyst First of all, you’ll have some skills, whereas when you graduated college, you didn’t really have any. Secondly, good work experience sets you apart from the crowd, giving you a leg up on other applicants. Thirdly, and most importantly, it gives you the proper preparation to really perform. When the big bucks and opportunities are on the line, you will want to have the necessary preparation to succeed, so that you stand the best possible chance of winning. This is where you’ll be very grateful for your previous work experience, as it will start to pay off disproportionately.

In a previous post, I told my own story of working at Citibank. I got an amazing opportunity as a prop trader straight out of college. Prop trading is similar to a hedge fund, except that you are trading only with the bank’s capital. They give you a certain amount of capital and you take positions. If you make money, then you get paid a percentage of the profits. Unfortunately, I didn’t yet have the necessary preparation and lost money. Ultimately, I left the bank and found another job. Imagine if I had worked somewhere else and gotten two years of solid preparation in the right environment and then gone onto working in the same role. Life would have been very different and I would be much wealthier!

His advice to do something completely different is spot on

Ultimately, you need to have a passion in life.  Something that makes you excited to wake up in the morning. Something that makes you eyes get really big and bright when you are telling your friends about it.

Philippe is spot on—when you are starting out in the working world, do something that makes you passionate and is a bit different. In his case, he lived in Spain for a year. Find an experience or travel or hobby that really speaks to you and go for it, even if you have no idea if it can help your career. Whatever it is, your life will be better for it.


By Bruce Bower | E-mail: Bruce [at]

Blog: | Twitter: @HowOfTrading

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