Model Like a Top HF Analyst (Variant View)
And pitch truly variant ideas.
Having the right granular model builds across all your stocks and the right process to track them is NOT easy. But it’s where a lot of alpha is created.
In this post, I will walk through an example (retail stock) to show exactly how the top analysts model revenue: their logic and thought process to get to the core drivers of the model. I will also touch on other powerful modeling approaches used by the top hedge funds across the sector, depending on the maturity stage of the retailer.
We want our revenue builds to be granular enough for us to be able to spot inflections and form variant views. But as we explained in our previous The #1 Source of Alpha in L/S Equities: Most Don’t Realize It, there’s a fine line between granularity, accuracy and “researchability”, and striking that balance is one of the hardest and most important parts of building a scalable and robust idea generation process.
Let’s get straight into it.