Hedge Fund Job Interviews: Applicant #2

Applicant #2 approached me on June 8th, 2004.  His method is technical analysis.  He had a daily service for traders some years ago.  After pursuing another venture, he was getting back into this business.  He had improved his methods, he reported, by reviewing his record and only following signals that had a 75% success rate.  He showed me some of his current calls.

For this applicant, I am going to show what he showed me at the time.  Everyone is free to respond to this information, in two ways.  First, should I have hired him right away?  Second, what conclusion should I have made from his calls?

I am going to postpone the decisions I actually made and the rationale until after we all consider what he showed.  Please cover up the latter part of the chart and ask what decision you would have made at the time it was posed.

The first call was Broadcom (BRCM).  The instructions were to watch for the "trigger," a trade at 44, with a target of 50 and risk to 36.  Here is the chart, unadjusted for splits (click to enlarge):

Be sure to cover up the latter part of the chart.

The second call was Qualcom (QCOM).  The instructions were to trigger at 35 (split adjusted this time) with risk to 30.50.

How did I do, or would I have done, depending on whether I took this advice?  What would you have done?

There are a number of issues in hiring technical analysts.  In the next installment we shall look at further submissions from Applicant #2.

If some readers find this too easy, please be patient.  These are typical examples of what hedge fund managers see all of the time.  The key is to develop criteria that allow one to discover what works.  Each applicant raises new questions, and challenges the manager to figure out what works.  The examples will become more complex as we proceed.

If and when this goes into my book, it would probably be better to pose the question without the ability to see the answer!