I learned a rather amusing game this last weekend, so I thought I'd try spreading it:
Take a regular deck of cards and just pull out the A-10 of a given suit, the jack and the king. Allow the A-10 to be worth 1-10 respectively, the jack to be worth -6 points and the king to be worth +12 points. Have at least three players, if not more (you may need to add more cards for more players, but I think three is pretty optimal). Each person gets dealt one card and three cards are dealt face-down in the center. The players should keep their card hidden.
There are four rounds of "trading." The first round of trading each player can only see his or her own card. In the second round of trading the first center card is flipped over. In the third round, the second center card is flipped over. In the last round of trading all three center cards are exposed. The "asset" being traded is the sum of the six (or more if you have more than three people) cards that are dealt out.
A round of trading consists of each player making a market. If someone asks you for a market, you must make them a market (both a bid and an ask) with a two point spread. So, for example, you might say "29-31." Given the bid-ask spread, the others have the option of buying at the ask price and selling at the bid (lifting the offer or hitting the bid). If one player decides to trade with the market-maker, then they write down their respective positions (for example, let's say player A asked player B for a market and player B said "29-31." Player A opts to buy at 31. He writes down his buy at 31 and player B writes that he sold at 31.). All players can be asked to make a market and all players can take others' prices.
Once trading has ceased in a given round, the next card is flipped. Once all three center cards are face-up and trading has ceased, the players reveal their cards. The sum of all the cards becomes the asset value for calculating the profit and loss of each player's open positions (it is perfectly possible that some players have profit and loss but do not have open positions at the end of the game).
As you can see the prices would move according to the others hitting or lifting the market, and you gain information about the others' cards through their actions. Furthermore you can speculate on the final value given your partial information and the expected value of the remaining cards that are face down. It's quite an interesting game.
Clearly you can edit the rules to add more cards, change the values, allow different spreads, etc. I think the game is quite fun.
Tuesday, July 17, 2007
Monday, July 16, 2007
Location, Location, Location
There was a comment I had not responded to for a while. I figured I should give it a proper post because I think the question lingers on many people's minds. The question was: "I am interested in your insight of New York versus London versus Asia. If given the opportunity to join a desk in any of those markets, which would you choose (and what desk)?"
There isn't really a clear distinction between NY, London and Asia markets. I assure you if you start in any of the above, you will eventually get the opportunity to go to the others if you are good. In fact, most top guys I know have traded in at least two of the three markets. While the London and Asia markets may seem particularly hot right now, these things are cyclical. In the long run it all evens out.
The desk also does not matter too much. Trading is trading, sales is sales, banking is banking. No matter what the underlying product is, the skill set learned is what is important. Be it risk management skill, sales and patience, cash flow modeling/forecasting or the art of the deal; it is that skill set that will be portable from job to job. I assure you none of the products are really all that complicated despite what people may try to tell you (and I've traded and modeled a lot of products).
There isn't really a clear distinction between NY, London and Asia markets. I assure you if you start in any of the above, you will eventually get the opportunity to go to the others if you are good. In fact, most top guys I know have traded in at least two of the three markets. While the London and Asia markets may seem particularly hot right now, these things are cyclical. In the long run it all evens out.
The desk also does not matter too much. Trading is trading, sales is sales, banking is banking. No matter what the underlying product is, the skill set learned is what is important. Be it risk management skill, sales and patience, cash flow modeling/forecasting or the art of the deal; it is that skill set that will be portable from job to job. I assure you none of the products are really all that complicated despite what people may try to tell you (and I've traded and modeled a lot of products).
Saturday, July 14, 2007
Complacency
Everyone knows complacency kills, but too many people say it without really understanding what it means to have to combat complacency. Many people at the top of their game start to "play defense." Being the top dog suddenly means to them that they need to protect their methods from everyone else. Basically, they make sure others don't catch up to him. I think the modern world has shown this to be the wrong approach.
Here is the question. Let's say you sell a product that it might take the competition four years to be able to compete with. What do you do? Most companies sit on their great product for four years and make continuous upgrades to it. Sooner or later the next guy comes in with the next great thing making them obsolete. People in finance do the same thing. Some guy has a great valuation or pricing tool. They make the best prices for the street constantly. Then someone else comes up with the next great thing and they're left in the dust.
You might be reading this and saying "duh, that's how business works, through competition." I say to you, bullshit. That's not how business has to work. You can continue to innovate through your leadership. If your product is going to be the top dog for four years, make that product obsolete yourself in less than four years. One thing Steve Jobs is famous for is taking his i-pod mini and making it obsolete with his i-pod nano in 18 months. No one else would have the chops to make a product and then make it obsolete himself, but that's how you stay on top of the game.
Finance is largely the same. Do you have any clue how entrenched and complacent financial companies often are? Step in and innovate. Business leaders are innovators, and the first financial company to make a breakthrough in ways to raise capital will make a killing. Notice Goldman made their TrUE exchange? Everyone considers them to be on top of the capital raising game, but they are going to make the usual avenues of capital obsolete by producing the next new thing.
Don't sit around learning the ways of the old guard. Think about what the alternatives are. Do fixed income people really believe that spreadsheets are always going to be the way to go for pricing? Do equity guys really believe that there is no new innovation to be made in their markets? Do bankers really think that the old-school handshake and phone call will forever be the way the deal is struck? Things will change. Be the one who changes them, not the one who gets blindsided by the change.
Here is the question. Let's say you sell a product that it might take the competition four years to be able to compete with. What do you do? Most companies sit on their great product for four years and make continuous upgrades to it. Sooner or later the next guy comes in with the next great thing making them obsolete. People in finance do the same thing. Some guy has a great valuation or pricing tool. They make the best prices for the street constantly. Then someone else comes up with the next great thing and they're left in the dust.
You might be reading this and saying "duh, that's how business works, through competition." I say to you, bullshit. That's not how business has to work. You can continue to innovate through your leadership. If your product is going to be the top dog for four years, make that product obsolete yourself in less than four years. One thing Steve Jobs is famous for is taking his i-pod mini and making it obsolete with his i-pod nano in 18 months. No one else would have the chops to make a product and then make it obsolete himself, but that's how you stay on top of the game.
Finance is largely the same. Do you have any clue how entrenched and complacent financial companies often are? Step in and innovate. Business leaders are innovators, and the first financial company to make a breakthrough in ways to raise capital will make a killing. Notice Goldman made their TrUE exchange? Everyone considers them to be on top of the capital raising game, but they are going to make the usual avenues of capital obsolete by producing the next new thing.
Don't sit around learning the ways of the old guard. Think about what the alternatives are. Do fixed income people really believe that spreadsheets are always going to be the way to go for pricing? Do equity guys really believe that there is no new innovation to be made in their markets? Do bankers really think that the old-school handshake and phone call will forever be the way the deal is struck? Things will change. Be the one who changes them, not the one who gets blindsided by the change.
Friday, July 13, 2007
Learn the Lingo (FX - spot)
I always found the foreign exchange market to be one of the simpler markets for guys "getting started." That being said, I've also found it to be one of the hardest to trade profitably. I'm guessing this primer will be relatively short because of the relatively straight-forward nature of foreign exchange spot trading. FX trading is a 24hour market and has both OTC and electronic markets. I'm going to go over the spot trading stuff here. I'll do FX derivatives another day.
First we should go over how these things are quoted. Let's say you're trading "dollar-yen." That means you're trading USDJPY. The quote is 123.12 or "one twenty-three spot one-two." Most people will just quote the decimal and say it's trading at "twelve." If I buy USDJPY that means I'm buying dollars and selling yen. The way I was taught to remember this is that YOU'RE ALWAYS BUYING THE LEAD CURRENCY. So buying USDCLP means you buy USD and sell CLP (Chilean Peso, if you're interested).
It is also worth noting that USDJPY is the same as USD/JPY and it means the yen per dollar (because some idiot in FX space apparently never took math or physics and never got the whole units/units thing down making it confusing for the rest of us). If you can quote the currencies properly and you understand how moves in currencies effect your net position, then you're set for the FX markets, really.
Pips - the small two marks on the fx quote. For USDJPY it's the part after the decimal, but for things like NZDUSD it is just the last two digits of the decimal (NZD is quoted at 0.7832).
Big figure - the third digit is often considered a "big figure." A big figure in yen is actually one yen. A big figure in NZD (New Zealand Dollar) is the third decimal point.
G7 - the set of most liquid developed country currencies: USD, JPY, EUR, GBP, CHF, CAD, AUD.
EM - emerging markets. Prime example is ZAR (Sourth African Rand). EM currencies tend to have higher interest rates than non-EM currencies, but they are also more volatile.
Cable - A catchy name for GBPUSD. Named for the cable that connects the US to Great Britain under the Atlantic.
Kiwi - A catchy name for NZD (yes, New Zealanders are often called Kiwis).
cross - a cross currency is a pair of currencies that is not so commonly quoted. Most things in the US market are quoted against USD. Thus something like AUDNZD ("Aussie-Kiwi") would be considered a cross or a cross-currency rate.
basket - a basket of currencies just refers to a set of currencies that people might look at together.
Vol - volatility. How much stuff moves around, measured in standard deviations. Vol is either looked at via historical standard deviation or implied from foreign exchange option.
Central Bank - Central banks are one of the main reasons currencies move. If a central bank intervenes in how a currency is trading, it can mean serious repercussions for the price. Central banks are the governing powers over rates and fx in a country.
Appreciation - a currency appreciates when it is worth more. Note that yen appreciates when USDJPY goes down. So if USDJPY goes from 123 to 122, the yen has appreciated. For NZDUSD, however, the NZD appreciates when the number goes from .7833 to .7892, an upward move.
Depreciation - the opposite of appreciation. If yen is appreciating when USDJPY goes from 123 to 122, then the dollar is depreciating. It's worth noting here that the dollar could be appreciating against a "basket" of currencies, but still depreciating with respect to a particular currency. For example, dollar could appreciate against everything except yen if yen just appreciates even more.
Carry - the concept of carry in all trading is the same: you make money when nothing happens. In currencies, carry trading refers to trading long a high interest rate currency and short a low interest rate currency. The popular carry trade as of this writing is JPYNZD. Japan has 0% interest rate and New Zealand has 8%. Thus, by selling JPYNZD, one is long New Zealand dollars and short Japanese yen. One borrows at approximately 0% and receives 8% interest (you receive and pay interest in all currency trades and in every currency trade you are effectively borrowing in one currency and investing in another). This makes money as long as there isn't volatility in the currency in the wrong direction.
Peg - some currencies are pegged. Being pegged means the central bank buys and sells its currency to keep the exchange rate the same. Most pegs are against the dollar, but very few currencies are still pegged. It is mostly used to minimize volatility of the currency and to ensure the currency does not appreciate, which promotes exporter businesses.
Managed - managed currencies are like pegged currencies, but the central bank only intervenes when certain things happen. Some are managed to stay within a band, some are managed to not move more than a certain percentage in a day, etc.
Guess that's all I have off the top of my head. As always, feel free to comment, ask questions, add something, etc.
First we should go over how these things are quoted. Let's say you're trading "dollar-yen." That means you're trading USDJPY. The quote is 123.12 or "one twenty-three spot one-two." Most people will just quote the decimal and say it's trading at "twelve." If I buy USDJPY that means I'm buying dollars and selling yen. The way I was taught to remember this is that YOU'RE ALWAYS BUYING THE LEAD CURRENCY. So buying USDCLP means you buy USD and sell CLP (Chilean Peso, if you're interested).
It is also worth noting that USDJPY is the same as USD/JPY and it means the yen per dollar (because some idiot in FX space apparently never took math or physics and never got the whole units/units thing down making it confusing for the rest of us). If you can quote the currencies properly and you understand how moves in currencies effect your net position, then you're set for the FX markets, really.
Pips - the small two marks on the fx quote. For USDJPY it's the part after the decimal, but for things like NZDUSD it is just the last two digits of the decimal (NZD is quoted at 0.7832).
Big figure - the third digit is often considered a "big figure." A big figure in yen is actually one yen. A big figure in NZD (New Zealand Dollar) is the third decimal point.
G7 - the set of most liquid developed country currencies: USD, JPY, EUR, GBP, CHF, CAD, AUD.
EM - emerging markets. Prime example is ZAR (Sourth African Rand). EM currencies tend to have higher interest rates than non-EM currencies, but they are also more volatile.
Cable - A catchy name for GBPUSD. Named for the cable that connects the US to Great Britain under the Atlantic.
Kiwi - A catchy name for NZD (yes, New Zealanders are often called Kiwis).
cross - a cross currency is a pair of currencies that is not so commonly quoted. Most things in the US market are quoted against USD. Thus something like AUDNZD ("Aussie-Kiwi") would be considered a cross or a cross-currency rate.
basket - a basket of currencies just refers to a set of currencies that people might look at together.
Vol - volatility. How much stuff moves around, measured in standard deviations. Vol is either looked at via historical standard deviation or implied from foreign exchange option.
Central Bank - Central banks are one of the main reasons currencies move. If a central bank intervenes in how a currency is trading, it can mean serious repercussions for the price. Central banks are the governing powers over rates and fx in a country.
Appreciation - a currency appreciates when it is worth more. Note that yen appreciates when USDJPY goes down. So if USDJPY goes from 123 to 122, the yen has appreciated. For NZDUSD, however, the NZD appreciates when the number goes from .7833 to .7892, an upward move.
Depreciation - the opposite of appreciation. If yen is appreciating when USDJPY goes from 123 to 122, then the dollar is depreciating. It's worth noting here that the dollar could be appreciating against a "basket" of currencies, but still depreciating with respect to a particular currency. For example, dollar could appreciate against everything except yen if yen just appreciates even more.
Carry - the concept of carry in all trading is the same: you make money when nothing happens. In currencies, carry trading refers to trading long a high interest rate currency and short a low interest rate currency. The popular carry trade as of this writing is JPYNZD. Japan has 0% interest rate and New Zealand has 8%. Thus, by selling JPYNZD, one is long New Zealand dollars and short Japanese yen. One borrows at approximately 0% and receives 8% interest (you receive and pay interest in all currency trades and in every currency trade you are effectively borrowing in one currency and investing in another). This makes money as long as there isn't volatility in the currency in the wrong direction.
Peg - some currencies are pegged. Being pegged means the central bank buys and sells its currency to keep the exchange rate the same. Most pegs are against the dollar, but very few currencies are still pegged. It is mostly used to minimize volatility of the currency and to ensure the currency does not appreciate, which promotes exporter businesses.
Managed - managed currencies are like pegged currencies, but the central bank only intervenes when certain things happen. Some are managed to stay within a band, some are managed to not move more than a certain percentage in a day, etc.
Guess that's all I have off the top of my head. As always, feel free to comment, ask questions, add something, etc.
Thursday, July 12, 2007
Make It Look Easy
Some people complain about being in the office all the time as a way to boast how much they work. You see bankers doing this all the time "I worked 100 hours last week!" You see new traders doing this "my boss goes home at 5pm, but I stay till 8pm clearing the books." Middle office "I was in till midnight cleaning up the trades for that idiot trader." And Tech "I had to pull an all-nighter to get that new build in for the desk." Some of the idiots will think you're a hard worker and will reward you for the hours, but I assure you this is not the best path. Plus only an idiot brags about all the free labor he's giving away.
People often call me lucky (or a genius, depending on who you ask) because they perceive me as not working all that much but reaping the benefits of "lucky moves," connections, etc. I assure you I probably work as hard as anyone I know. I just don't let anyone know. When people say "you make everything look easy" the key is making it "look" easy. There's hours of research, reading and work that go into every "lucky" thing that happens. Things don't just line up for those who look lucky, chances are they've set themselves up for it when you weren't looking.
Go and count the number of people you know who get up at 4:30am every morning. Now go count the number of people you know who got up at 6am every day in college. How many do you know? I bet I could bet zero for most of you. I go home at night at the same time or before everyone I know. I get in at the same time. People perceive me as knowing more and getting more done than can be imaginable. Now you know why. Guess what, they don't.
Clearly I'm biased, but I think this is really the way to go for a shot at the top. Perception is everything, and the guy who makes his job look easy trounces the guy who seems overburdened by the job he already has.
Now the bankers are going to be whining at me about the requisite "face time." By now you probably know my opinion on the "old boy's club" of banking where you need to put in face time. Well, the industry's starting to wake up. It's the rainmakers who get their comp. You can put in face time, but it will only get you so far. If you're content with being the mediocre but well comped guy, then that's fine. If you want to be the next rock-star private equity guru, well, you can't just do what everyone else is doing. Do the Blackstone guys and KKR's Kravis make it look easy? You bet they do.
Success comes in many forms, but in the end you have to get things right more often than your competition or be perceived to get more things right than your competition. You can't do it forever on luck alone. Maybe you've been blessed with true genius, but then you wouldn't need my blog. Most people have to work for it. As long as you have to work for it though, you might as well make it look easy.
People often call me lucky (or a genius, depending on who you ask) because they perceive me as not working all that much but reaping the benefits of "lucky moves," connections, etc. I assure you I probably work as hard as anyone I know. I just don't let anyone know. When people say "you make everything look easy" the key is making it "look" easy. There's hours of research, reading and work that go into every "lucky" thing that happens. Things don't just line up for those who look lucky, chances are they've set themselves up for it when you weren't looking.
Go and count the number of people you know who get up at 4:30am every morning. Now go count the number of people you know who got up at 6am every day in college. How many do you know? I bet I could bet zero for most of you. I go home at night at the same time or before everyone I know. I get in at the same time. People perceive me as knowing more and getting more done than can be imaginable. Now you know why. Guess what, they don't.
Clearly I'm biased, but I think this is really the way to go for a shot at the top. Perception is everything, and the guy who makes his job look easy trounces the guy who seems overburdened by the job he already has.
Now the bankers are going to be whining at me about the requisite "face time." By now you probably know my opinion on the "old boy's club" of banking where you need to put in face time. Well, the industry's starting to wake up. It's the rainmakers who get their comp. You can put in face time, but it will only get you so far. If you're content with being the mediocre but well comped guy, then that's fine. If you want to be the next rock-star private equity guru, well, you can't just do what everyone else is doing. Do the Blackstone guys and KKR's Kravis make it look easy? You bet they do.
Success comes in many forms, but in the end you have to get things right more often than your competition or be perceived to get more things right than your competition. You can't do it forever on luck alone. Maybe you've been blessed with true genius, but then you wouldn't need my blog. Most people have to work for it. As long as you have to work for it though, you might as well make it look easy.
Wednesday, July 11, 2007
Connect the Dots
I think a lot of people would find it surprising how much people you barely know would be willing to help you. A lot of people you work with or know vaguely are probably great contacts for finding you a new job. Anyone you have a vaguely good impression upon probably would be willing to forward your resume to their friends. I know this might seem intrusive, but I've found a lot of people are willing to vouch for near strangers. It makes people feel good about themselves to help others in this way. Take advantage of this part of human nature to land that job.
People also will find it surprising how much that one phone call can help. People get interviews for the smallest of reasons (if you're an idiot in the interview, you still won't get the job, but getting the interview is the hard part). Usually one reference or one phone call is more than enough to get that foot in the door. From there, it's up to you.
Don't be afraid to seem a bit intrusive. You never know what will land you that next big gig.
People also will find it surprising how much that one phone call can help. People get interviews for the smallest of reasons (if you're an idiot in the interview, you still won't get the job, but getting the interview is the hard part). Usually one reference or one phone call is more than enough to get that foot in the door. From there, it's up to you.
Don't be afraid to seem a bit intrusive. You never know what will land you that next big gig.
Tuesday, July 10, 2007
Ask Questions!!!!
I was reading one of my favorite blogs today, and he mentioned something that seemed so very relevant to my own blog that I figured I would link to it here:
http://www.informationarbitrage.com/2007/07/another-of-the-.html
I kinda glossed over this with the "be proactive" part of my "how-to-stand-out" post, but it's definitely worth revisiting. Mr Ehrenberg not only writes better than I, but he also has far more wisdom. In effect, we all have the same message "Ask all the questions you need to! You're better off and better respected for doing so!" I would add the following two observations.
First, if the young people tell you they knew everything when they came in (which one of our interns recently informed me happened), they're full of shit. I don't know what it is about young people in the bank, but a whole lot of them seem to think a lot more of themselves than they deserve. In truth no one knows shit until they actually work for a while. You pick things up on the job. That's just how things go in finance. There are too many details for schools to be able to teach you everything relevant to your job (they'd have to go through far too much stuff that wouldn't be relevant to your particular job). Ask questions, anyone with half a brain will assure you that it's better that way.
Second, it is a dominant strategy to ask questions. All of you who studied game theory will appreciate this. If you don't ask questions, you will find that you won't be too effective at your job and chances are you won't get an offer or promotion or what have you. If you do ask questions you'll be more effective at your job. Let's assume that asking questions makes you look dumb and prevents you from advancing. Well now whether you ask the questions or not, you won't advance. In this case you're better off asking all the questions and learning more. Then you've got a better shot at landing a job outside. Your choices basically drill down to just know everything (which is something you can't help) or ask questions for the future job prospects. It's shouldn't really even be a decision.
http://www.informationarbitrage.com/2007/07/another-of-the-.html
I kinda glossed over this with the "be proactive" part of my "how-to-stand-out" post, but it's definitely worth revisiting. Mr Ehrenberg not only writes better than I, but he also has far more wisdom. In effect, we all have the same message "Ask all the questions you need to! You're better off and better respected for doing so!" I would add the following two observations.
First, if the young people tell you they knew everything when they came in (which one of our interns recently informed me happened), they're full of shit. I don't know what it is about young people in the bank, but a whole lot of them seem to think a lot more of themselves than they deserve. In truth no one knows shit until they actually work for a while. You pick things up on the job. That's just how things go in finance. There are too many details for schools to be able to teach you everything relevant to your job (they'd have to go through far too much stuff that wouldn't be relevant to your particular job). Ask questions, anyone with half a brain will assure you that it's better that way.
Second, it is a dominant strategy to ask questions. All of you who studied game theory will appreciate this. If you don't ask questions, you will find that you won't be too effective at your job and chances are you won't get an offer or promotion or what have you. If you do ask questions you'll be more effective at your job. Let's assume that asking questions makes you look dumb and prevents you from advancing. Well now whether you ask the questions or not, you won't advance. In this case you're better off asking all the questions and learning more. Then you've got a better shot at landing a job outside. Your choices basically drill down to just know everything (which is something you can't help) or ask questions for the future job prospects. It's shouldn't really even be a decision.
Monday, July 9, 2007
A Sad Moment
Sorry for the sparse postings last week. I took a bit of a vacation and couldn't peel myself away long enough to blog.
Anyway, it's worth your time to get an update of the news in the morning. This sort of thing used to be almost required of every intern and new associate out there. Nowadays, it seems, the ubiquity of easy media (i.e. the internet) seems to be making people lazy. The tone of the morning news sets the tone of the markets for the day. It's a good way to not only get the opinion of the masses, but every once in a while it keys you into something that you might have otherwise missed. You should find some way to get your news. RSS feeds, podcasts, newspapers, anything will do, but do be sure to get your morning dose of news. It really does help.
This morning I had a sad moment on my way to work. I listen to the WSJ and NYT podcasts on the way to work in the morning. I find it to be a great way to catch up with a lot of the news that I may miss during the day or overnight (I walk to work, so I can't really read the paper on the way in). The NYT Tech Talk podcast had a special on the iPhone. They claimed that the iPhone release was our generation's lunar landing. That somehow the ubiquity of the release paralleled the ubiquity of people watching the lunar landing. . . that's just sad. I disagree completely that those are even vaguely comparable. The lunar landing was a huge step in human discovery and exploration. The iPhone is a toy. It's like saying beanie babies were a huge turning point in American history. How depressing.
Anyway, it's worth your time to get an update of the news in the morning. This sort of thing used to be almost required of every intern and new associate out there. Nowadays, it seems, the ubiquity of easy media (i.e. the internet) seems to be making people lazy. The tone of the morning news sets the tone of the markets for the day. It's a good way to not only get the opinion of the masses, but every once in a while it keys you into something that you might have otherwise missed. You should find some way to get your news. RSS feeds, podcasts, newspapers, anything will do, but do be sure to get your morning dose of news. It really does help.
This morning I had a sad moment on my way to work. I listen to the WSJ and NYT podcasts on the way to work in the morning. I find it to be a great way to catch up with a lot of the news that I may miss during the day or overnight (I walk to work, so I can't really read the paper on the way in). The NYT Tech Talk podcast had a special on the iPhone. They claimed that the iPhone release was our generation's lunar landing. That somehow the ubiquity of the release paralleled the ubiquity of people watching the lunar landing. . . that's just sad. I disagree completely that those are even vaguely comparable. The lunar landing was a huge step in human discovery and exploration. The iPhone is a toy. It's like saying beanie babies were a huge turning point in American history. How depressing.
Sunday, July 8, 2007
Merits of "corpfin" and M&A
I feel like I've not taken enough time to elaborate on the merits of corporate finance and M&A (i-banking proper). Most of my posts have been about sales and trading (clearly because of my love of trading). There are significant reasons to enter corporate finance, though. I considered it for a while and decided I wasn't ready to make the necessary sacrifices, but there is a good reason to give it a shot.
Corporate finance and M&A are the best way to understand the workings of corporate america. Nowhere else will you learn more about how companies are structured, financed and operated. Once you've seen how a company keeps its books and understand what every line means, you can go operate your own company with a good bit of confidence that you know what you're doing. You may not know a thing about the daily operations, but you will know what makes a company tick. You will know how profits are built up, and you will know how to fund the company.
Why is all this that cool? Well, corporate finance folks can pretty much jump to any company and be useful (not true at all for traders, and moderately true for sales people). With the corporate finance background and a little bit of experience "on the ground" running a company, you make the perfect private equity person (you know a good bit of finance and a good bit of how to run the company. I, personally, think being in private equity would be a blast (hell, where else can you be the chairman of multiple companies?). Of course, you'd have to be one of the top guys in a private equity firm. I think being one of the analysts in a PE firm would be about as interesting as being in i-banking.
For all those of you who have decided i-banking is for you and you are willing to put in the hours, congratulations. You're in for a rough ride, but if you come out the other end still loving it I'm sure I'll see you at the top of the food chain.
Corporate finance and M&A are the best way to understand the workings of corporate america. Nowhere else will you learn more about how companies are structured, financed and operated. Once you've seen how a company keeps its books and understand what every line means, you can go operate your own company with a good bit of confidence that you know what you're doing. You may not know a thing about the daily operations, but you will know what makes a company tick. You will know how profits are built up, and you will know how to fund the company.
Why is all this that cool? Well, corporate finance folks can pretty much jump to any company and be useful (not true at all for traders, and moderately true for sales people). With the corporate finance background and a little bit of experience "on the ground" running a company, you make the perfect private equity person (you know a good bit of finance and a good bit of how to run the company. I, personally, think being in private equity would be a blast (hell, where else can you be the chairman of multiple companies?). Of course, you'd have to be one of the top guys in a private equity firm. I think being one of the analysts in a PE firm would be about as interesting as being in i-banking.
For all those of you who have decided i-banking is for you and you are willing to put in the hours, congratulations. You're in for a rough ride, but if you come out the other end still loving it I'm sure I'll see you at the top of the food chain.
Thursday, July 5, 2007
Getting a Foot in the Door
One of the most common e-mail questions I get is of the following type:
"Hi my name is XXXXX. I go to a no name college, so I find it difficult to make my way into a bulge bracket firm. How would you suggest I approach my job search to maximize my chances of landing a job at a bulge bracket?"
I figured I'd address this question because it is, indeed, a difficult one. Bulge brackets recruit heavily at top schools. The banking and s&t analyst/associate programs are like a who's who in the Ivies. So how do others make it on the street? A lot of big shots on the street are from (forgive my wording) "lesser" schools.
Unfortunately I can't help on the i-banking side too much. One good thought is going to a boutique firm first. A lot of boutique firms pay more than bulge brackets anyway (Jeffries comes to mind). In addition, a lot of boutique guys end up in bulge brackets (that move is what we call a buy-out). There is a good reason as to why i-banking is much harder to get into for people who did not go to an Ivy league school. A big part of i-banking is relationships, and it's just fact that people at Ivy league schools are better connected. Better connected people eventually bring in the bigger deals (if you go to Harvard, how many CEOs do you think you'll know in 25 years as opposed to the guy who went to podunk university?).
On the s&t side it's more about your risk taking skill and intelligence. Granted it's still heavily Ivy league weighted, but there's more of an "equal-opportunity" ground here. As a few of my bosses have said, "the market is the great equalizer. You can think whatever you want, but your PnL tells all. The markets are very humbling."
A whole lot of people who are top sales/trading folks are not from Ivies. I think it's because they are often hungrier. They've got something to prove. The hungriest, I've found, are those who come from humble beginning and fought their way into an Ivy and onto the Street. Those guys are fierce. But anyway, I diverge. How do these guys get onto the desk? A whole lot of them started in middle office or risk, actually. That's where you learn how the guys take risk or make sales. It's where you learn the ropes, get a "street" education and figure out how to work the system.
Don't be afraid to take a middle office or risk position for a few years if you're interested in sales and trading. It's a great breeding ground, and the best always make it onto a desk. You just need to want it that much, have the patience necessary of a good front office guy and be aggressive in your climb to the top.
"Hi my name is XXXXX. I go to a no name college, so I find it difficult to make my way into a bulge bracket firm. How would you suggest I approach my job search to maximize my chances of landing a job at a bulge bracket?"
I figured I'd address this question because it is, indeed, a difficult one. Bulge brackets recruit heavily at top schools. The banking and s&t analyst/associate programs are like a who's who in the Ivies. So how do others make it on the street? A lot of big shots on the street are from (forgive my wording) "lesser" schools.
Unfortunately I can't help on the i-banking side too much. One good thought is going to a boutique firm first. A lot of boutique firms pay more than bulge brackets anyway (Jeffries comes to mind). In addition, a lot of boutique guys end up in bulge brackets (that move is what we call a buy-out). There is a good reason as to why i-banking is much harder to get into for people who did not go to an Ivy league school. A big part of i-banking is relationships, and it's just fact that people at Ivy league schools are better connected. Better connected people eventually bring in the bigger deals (if you go to Harvard, how many CEOs do you think you'll know in 25 years as opposed to the guy who went to podunk university?).
On the s&t side it's more about your risk taking skill and intelligence. Granted it's still heavily Ivy league weighted, but there's more of an "equal-opportunity" ground here. As a few of my bosses have said, "the market is the great equalizer. You can think whatever you want, but your PnL tells all. The markets are very humbling."
A whole lot of people who are top sales/trading folks are not from Ivies. I think it's because they are often hungrier. They've got something to prove. The hungriest, I've found, are those who come from humble beginning and fought their way into an Ivy and onto the Street. Those guys are fierce. But anyway, I diverge. How do these guys get onto the desk? A whole lot of them started in middle office or risk, actually. That's where you learn how the guys take risk or make sales. It's where you learn the ropes, get a "street" education and figure out how to work the system.
Don't be afraid to take a middle office or risk position for a few years if you're interested in sales and trading. It's a great breeding ground, and the best always make it onto a desk. You just need to want it that much, have the patience necessary of a good front office guy and be aggressive in your climb to the top.
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