Saturday, December 26, 2020

Job Interview Questions: Plus 500

I gave someone a quick job interview today. It was kind of miserable except the kid was enthusiastic and came with a lot of (what he thought were) good ideas.

Chief amongst his good ideas was to short XRP - the crypto-currency associated with Ripple.

His case was primarily "have you read the SEC complaint?"

Anyway my concern wasn't that. It was how do I actually execute this trade? What broker would I leave my collateral with to do this and why should I trust this broker.

The problem is acute. I am most likely to win in this trade in the event of a collapse in crypto-currencies generally - and that is the time the broker is most likely to default and wind up not paying me.

I can imagine it being a really bad trade whatever the market outcome. If I am wrong and crypto just keeps going up I will lose money. If I crypto collapses I can't collect my winnings - indeed I just lose my collateral.

Okay - his thought - do it at a broker which is not crypto-dominated. He thought Plus 500 which he told me was ASIC regulated. (ASIC is the Australian securities regulator.)

The ASIC regulated status I was amused by. They have never been particularly good at hunting debacles before they happened. And beside Plus 500 is an Israel/Cyprus operation listed in London - and is rather hard for ASIC to regulate properly. I could just imagine the ASIC officer trying get a holiday in Cyprus on the public purse because he wanted to do a site visit...

Whatever - he was convinced.

And so I left him a task. Could he analyse Plus 500. It is a listed company. Could he tell me whether I should own the stock or whether I should trust it with my precious collateral.

The accounts are public after all.

Does anyone think this is a reasonable task for a job applicant?

Asking for a friend.





John

28 comments:

Unknown said...

Very reasonable task. Did he specify why Ripple was worse than other crypto?

Anonymous said...

Plenty of good write ups on FinTwit. Sounds reasonable. Will probably at a guess fail on qualitative grounds

Anonymous said...

No, this is not an acceptable "interview question."

Someone has brought you an interesting idea as a demonstration of their bona fides and you've decided that idea has enough merit to warrant further investigation. Rather than do the work yourself you've asked a hungry person to do it for free for the mere promise of potential /future/ consideration on /other work/. If you are genuinely interested by the idea you should commission this person for the assigned /JOB/ and regardless of whether you hire them, you should agree to pay them if they deliver acceptable work product. (This standard is different and lower than that of work product that you are able to capitalize on.) Anything less is exploitation, which you are of course free to pursue and likely will regardless of how you are advised here.

Ben Graham said...

We use practical tests as a way to screen developers, but only late in the interview process. It should only take them a few hours to do, and they generally have a good shot at the job at that point. Occasionally, we’ll offer it as a “Hail Mary” but make it clear to the applicant that their chances are low unless they do a great job.

It sounds to me like you’re asking this person to do a lot of work but are unlikely to hire them. That isn’t fair, and is a system that gives preference to people whose personal lives are more conducive to it (no family, single or no job, etc.), like unpaid internships.

I would only ask them to do this if you can commit to hiring them if they do a great job, and give you them serious consideration if they do a good job. Otherwise you’re just wasting the time they could dedicate to finding work with an employer that is a better fit.

Anonymous said...

It's never reasonable to ask a job applicant to perform work for free. Why do you feel entitled to sample the wares? Were you under the impression this "kid" had no other job prospects? Did you make any effort to show him why he should work for you instead of another employer? Next time, dare to be more than a stereotypical hedge fund asshole.

Brett said...

It is reasonable if you plan on hiring him if he does a good job. Every fund I've interviewed at gives a case study. If you've made your decision already, then it's unreasonable and unfair.

Anonymous said...

Having followed its history, I would suggest it is a most reasonable request. Irrespective of the fundamentals, or flaws in them, I could never understand why people didn't question the stock's ability to surge past a since abandoned director-recommended bid from Playtech.

Anonymous said...

Thats a bit hard given that its Cyprus.
I bought a Russian Bank from the ex Deputy Prime Minister in mid 2000's and .... lets just say Cyprus, like Russia, is really really hard.

Give him somewhere simple to start ( coz I would like some free work done on 1) ).

1)Ask him to explain the tax consequnces of holding one of the ARK Invest ETF's when TSLA finnaly drops and they have to sell their massively appreciated holdings. (To be clear I dont know if they have any, just wondering).

2) Pick a more sedate small company that has suspected 'fur' and see if he can figure out where the smell is coming from.

Interviewing well is the hardest but most valuable part of the job. Its how they think , not what they think that is important when they are young.

As we run an AI based fund, we set people the task of finding the pattern in the data we send them. Some datasets are pure noise, some have functions that look like noise but are 100% deterministic, some are simple. We ask them to show us the process they used to investigate the data and explain the steps/decisions.

Now if only I had enough AUM to hire all the bright young minds we discover.

SOG

ADL said...

The only thing that gives me pause is the "miserable." If you think he's a non-starter and are giving him a long shot chance to prove otherwise, it's less than ideal. But if you are open to giving him a position (or helping open some doors) based on his work/process, then it's an excellent assignment.

I assume you are, since why would you want to waste your own time?

And then, it's of value to both of you. The work product itself and the way he goes about getting it will both give both of you some insight. If in the first 10 minutes he comes across an idea killer which he spends a few hours confirming, that'll tell you--and him--one (good) thing, maybe (maybe!). If he comes back to you with 70 slides lightly lifted from their deck and supporting his original idea, that'll tell you another.

Unknown said...

I wish all interviewer's would ask this case study for would be analysts and publish the results! Remains a name with very divided opinions in the UK and US hedge funds. My 10 cents is that they are now main market listed and appear to be going to great lengths on transparency after some earlier poor communication (not being clear at IPO on past principal losses and not guiding the market going into the UK regulatory restrictions on client leverage) saw the share price down 60% in H1 2019. Income and cashflow seem real - 1) earnings very volatile, spiking when stocks or crypto's crash or get choppy (WFH has also helped as one would expect) 2) very high cash conversion and cash looks real - payout 60% as dividends and large buybacks in recent years, and not a cent borrowed. So the only way they could be faking the cash I can think of would be if they are paying divs/buybacks with customer deposits. So assuming its real, you get a company trading on single digit earnings multiples and 6-7% div yield which outperforms (at least the earnings do, price still goes down a bit) when listed / crypto markets tank. On the specific ask of using them as a XRP short, counter-party risk would be OK I think as Plus principal risk is in the other direction, ie they take principal trading losses when markets trend up (crypto or shares) for a long time like in 2019 and the clients win constantly and never get shaken out. When markets crash (ie bitcoin in 2018) they do very well both as principal and the usual bid-offer/overnight funding charges. They are pretty tight on client position sizing though (avoid any kind of whale clients) so query how big a short you could actually get on with them. The money manager who knows them better than most is Hanbury at Odey. NB this is not a job application and not financial advice :-).

Anonymous said...

I think this is a very reasonable question given his job would be to analyse companies. Though I think from the outset this could be problematic for him given the correlation between the short and Plus 500 stock. Bright-eyed and bushy-tailed it would seem...

Anonymous said...

Yes, quite reasonable. If you are looking for an investment analyst, then they should be able to show an example of their work or be put on the spot and do what they claim to do.

When employing technical people we give a simple exam which most people at around 2nd year university level should easily pass. Something like 80% of applicants can't get through the exam... sad.

You have set the equivalent of an exam. Why should that be unfair?

Anonymous said...

A lot of that is true.

However, women are a lot like kids. You have to be constantly concerned about what they are doing and who and what is managing to keep them entertained.

I don't mean cheating.

With kids, if you don't have activities for them at home, there's going to be trouble. That's why TV and games are great for parents. But, things aren't that easy with women and so you have to be concerned that she is at home doing something she likes or "out" going things in the community.

Many women I have know want to do things like "go to an arts and crafts show" and they don't even know why, but you had better take them!

Alternately, there's the girl who doesn't know what she wants to eat or wants to go, but she wants to. This is like the kid who is "fussy" and needs to go to sleep, but will get crazy if you suggest that. They are restless and irritable.

Generally, sex is easy when you have a gf UNLESS you get a crazy one who has been abused, into feminize, etc then they will be monitoring you constantly for being "a man" which they do not like. Women like this aren't lesbians, but they almost are. So, they are a handful.

The bottom line is having a woman is generally like having child who is in control of your life, not the reverse, and can do anything they want.

olsherman said...

FWIW I own shares in Plus500. I think it’s a great one to tease out various analytical frameworks from a job applicant. There’s just no way to accurately predict it’s earnings given they are selling a service for which demand fluctuates wildly; and earnings are complicated by ‘customer wins’, which seem totally unpredictable to me. But costs are reasonably analysable and competitors (listed in the U.K. at least) pretty clear. You could limit the analysis to 2 sides of A4 to prevent the applicant going into overdrive work-wise and explain the focus will be on the ways in which he would approach risk-evaluation and valuation in general, rather than asking for a model or specific figure based on the latest accounts. Case studies are a good way to ask someone to showcase their skills; but if the candidate isn’t already expected to be particularly strong, it’s a bit harsh setting a week’s work for someone very unlikely to be offered a role at the end of the process.

Unknown said...

Nuff said, dh

https://www.thetimes.co.uk/edition/business/plus500-may-have-misled-shareholders-over-losses-n8cmxsrqw

Anonymous said...

Hi John,

I had a carbon copy of this conversation with you a few days ago. Although, it was not in the context of an interview and my thought was Galaxy Digital could be a source of borrow.

Your ask of the candidate to substantiate their pitch is, of course, reasonable. After all, isn't that the job they are soliciting themselves as able to perform?

Best,
S.

P.S. My unsolicited opinion on XPR: I don't think XRP is a good short. The consensus view is XRP will go to zero. The left tail opportunity for a short position is lower than the right tail possibility that the burden for the SEC is too high and the lawsuit is beaten. It also ignores the SEC chairman who filed the suit has been replaced with Roisman, a crypto advocate. My personal view is the best approach for this particular fact pattern is to take no position, or wait for a small long entry to capture right tail optionality should the stars align.

Anonymous said...

Hi John,

I had a carbon copy of this conversation with you a few days ago. Although, it was not in the context of an interview and my thought was Galaxy Digital could be a source of borrow.

Your ask of the candidate to substantiate their pitch is, of course, reasonable. After all, isn't that the job they are soliciting themselves as able to perform?

Best,
S.

P.S. My unsolicited opinion on XPR: I don't think XRP is a good short. The consensus view is XRP will go to zero. The left tail opportunity for a short position is lower than the right tail possibility that the burden for the SEC is too high and the lawsuit is beaten. It also ignores the SEC chairman who filed the suit has been replaced with Roisman, a crypto advocate. My personal view is the best approach for this particular fact pattern is to take no position, or wait for a small long entry to capture right tail optionality should the stars align.

Gregory Vousvounis said...

Hi John,

I think this is reasonable on two conditions. If his analysis is not good enough and you don't hire him either offer him your honest feedback so that he can improve going forward and find a job somewhere else or give him some payment for his time. My rationale is that he should earn something for the effort he put in for you.

If you hire him of course these are not necessary.

Anyway, this is what I would do in your position.

I wish you Merry Christmas and a Happy New Year!

Cheers,
Gregory

Anonymous said...

P.P.S. You're an insolvency guy who hasn't quite mastered illiquidity. I say this objectively because I haven't [and could not have] worked out either, but am fortunate enough to have found market participants that have been willing to give up the game on both.

Best Regards (again),
S.

Anonymous said...

How did you get into this business, John, and what is your background?

Anonymous said...

Hi John - respectfully disagree with you there. In particular with the notion that for short XRP to be profitable we'd need to see an overall collapse in crypto-currencies. Dispersion in the ecosystem has grown a lot and while Bitcoin and Ether have rallied to new all-time/cycle-highs, XRP is more than 90% below its high from the late 2017 mania (and down ~70% over the last 12 days or so).

While I wouldn't know how to go short XRP (think this is the real fallacy of the pitch) it is not per se a bad idea. XRP was never a "true" cryptocurrency to begin with (by virtue of being centralised) and merely got lifted by a maniac tide in late 2017. That it never even got close to its highs tells me market participants understood this over time.

If there was something like a CDS (crypto default swap) on XRP, I'd have gladly lifted protection.

As an aside: there are also decentral crypto exchanges, being maintained by a protocol, rather than a company. These eliminate a lot of the counterparty risk still embedded in many parts of the ecosystem.

Cheers,
B

Umang said...

Shorting an instrument which has no measure of valuation is a big no - no.
it has no cash flow needs, no business cycle , no segment to operate it.
unlike other equity shorts, XRP doesnt burn cash or doesn't rely on any sort of business model.

its market cap is only 9.27 billion , so essentially even a small private equity asset fund with help and support of retail buying could squeeze your shorts out within months given the crypto market has been hot these days.

I would have told the kid, that he may be right but the risk -reward ratio isn't favorable given you could only make 9.27 billion if it went to zero, but you could lose a lot more if it went the other way.

LeTrader said...

Now I know why my broker (IB) won’t let me short BTC or any other cryptos. (looks like it’s a good thing ) . Thanks
and Happy New Year !!!

Anonymous said...

It's a perfectly reasonable task for a job applicant. But the bigger question is, why would you bother with this trade? Can most people really assess the value of a cryptocurrency? I know I can't and I doubt many others can. Besides, XRP has been in a reasonably steady trading range for over 2 years now. I put these types of trades in the "too hard" basket.

And anyway, why do you need to use Plus 500? Could you put the trade on (if you must) with a broker like IG Markets (over twice the size of Plus 500, not crypto dominated and domiciled in good old London town)?

Anonymous said...

I cant think of a better way to understand how someone thinks about investments than to ask them to explain their favorite investments. You can see how far from the reserve they have drifted.

Shorting crypto sounds like doing the opposite of what 'everyone' is doing. Being a contrarian and being an oppositian are two very different things. Would be interesting how the analysis of Plus 500 comes through.

fadewid said...

I think its a great task for a job applicant. From the tone of your writing I'm guessing you already suspect its a horrible investment but thats not the point. My question is why not use such exercises as a way to screen larger numbers of applicants before you spend the time interviewing them? In the US at least, jobs like the one your looking to fill are generally closed to anyone who did not attend a handful of elite universities.

MP said...

Hi John,

"... in the event of a collapse in crypto-currencies generally - and that is the time the broker is most likely to default and wind up not paying me."

I'd recommend you look at the various futures market operators: Bitmex, OKex, FTX, Binance. All of them list XRPUSD futures.

These platforms do exceptionally well when prices tank, because they have automatic liquidations on customer positions, and liquidation orders are prioritized in their matching engines. For example, the insurance fund for Bitmex (and do check out the others if interested): https://www.bitmex.com/app/insuranceFund

The autoliquidation logic on these platforms work well -- and are wickedly profitable: charging 50 bp haircuts certainly helps. Its highway robbery but are entirely avoidable if you don't use leverage.

The concern that you won't get your collateral back is misplaced. They're not fantastic counterparties (for other reasons, mostly regulatory, again Bitmex is a good erxample), but are far better risk managed businesses than, say, Interactive Brokers is (pointing to May 2020, IB's losses on CL).

Matthew

oldman said...

seems like a reasonable question to me. Did he do it?

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