The Story of a future George Soros....
I came across a post today on the Daily Beast that talked about how entry options into careers in finance have narrowed over the years and its implications. From a time when banks and hedge funds hired candidates from diverse non-finance fields to now, when being either a finance major or atleast a minor, having relevant internships and coming from a ‘target’ school have all become important points to check off from the must-haves list for new hires in the industry.
This is obvious from following the posts on WSO as well. The question that I would like to pose here is this and I hope you would share your ideas without bias on this one.
Do you think that following the route of Finance/Business Major in College(B.S./MBA) followed by Internships and then a traditional career in Finance/Management Consulting, has led to an erosion of talent that can exhibit broad-based thinking in the industry? How does the current system of education and hiring in financial services affect the future of the industry?
Read the the following exchange brought forth in this article. This is an excerpt from ‘Diary of a very Bad Year’(which features interviews with an anonymous Hedge Fund Manager) :
HFM: I’m sure today I would never get hired.
n+1: Really?
HFM: Yeah, it would be impossible because I had no background, or I had a very exiguous background in finance. The guy who hired me always talked about hiring good intellectual athletes, people who were sort of mentally agile in an all-around way, and that the specifics of finance you could learn, which I think is true. But at the time, I mean, no hedge fund was really flooded with applicants, and that allowed him to let his mind range a little bit and consider different kinds of candidates. Today we have a recruiting group, and what do they do? They throw résumés at you, and it’s, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that probably they’re less likely to make good investors than people with sort of more interesting backgrounds.
n+1: Why?
HFM: Because I think that in the end the way that you make a ton of money is calling paradigm shifts, and people who are real finance types, maybe they can work really well within the paradigm of a particular kind of market or a particular set of rules of the game—and you can make money doing that—but the people who make huge money, the George Soroses and Julian Robertsons of the world, they’re the people who can step back and see when the paradigm is going to shift, and I think that comes from having a broader experience, a little bit of a different approach to how you think about things.
I do not agree with the above two statements completely. However, there are two points to address here.
1. The assumption that all finance/business majors are formed out of the same mold and hence do not bring any new way of thinking to the table which in turn would not make them ‘as good investors as someone with a different or more interesting background would’.
I do not think the current system of education is so regimented that it churns out graduates year after year without inspiring them. Sure, there is a structured system of learning and taking exams and there is a great deal of emphasis on GPAs/the pedigree of acquiring a degree from a ’target’ school in the industry. But the pool of candidates vying for any position in finance/consulting has become so high and has made the hiring process so competitive that these accomplishments would not mean anything without a greater alignment of purpose and relevant experience through internships to go with it.
Does this system result in a narrow, risk averse frame of mind, therefore restricting one’s thinking to a set paradigm? Again, I do not believe going through a systematized way of education to enter into the financial services industry is in any way debilitating the ability to think out-of-the-box. In contrast, the opportunity to go through the system helps a good thinker hone his abilities through exposure to existing and new ideas, provides a platform to grow into who he/she can be. Is this not true in any field, whether Engineering, Science or Art? Learning what came before, always preceded the ability to think about what will be. However the advances in the industry from one day to the next(by this I mean the complex financial products and positions that even the banks that built them have trouble reconciling) are so great today and the pool of candidates competing for any position so high that even the present-day/future Soroses and Icahns of the world would benefit from going to school with ‘the kids that grew up watching Jim Cramer and dreaming of working in a hedge fund’.
2. On the other hand, I concur that broader experiences would shape a person’s ideas to think in more practical ways and with the author’s lament that present day graduates shun work at not-so-glamorous manufacturing jobs for high paying Strategy/Consulting/ Banking roles.
Do you remember the last time you talked to someone with an MBA going into a traditional management rotation program? May-be as a sub-tertiary option! But management programs have certainly become elitist with an elitist view about which roles are appropriate and which are not for an MBA graduate.
But I believe that this is a self-correcting system and the glut in the fields of finance and consulting will push future graduates to seek out other industries. The next generation of graduates will certainly learn from their debt-carrying predecessors and decide to get into more vocational/engineering areas. This phenomenon will only grow in the future, leaving only the talented and the most persistent to follow their dreams in finance. We already see the results through lower enrollment rates in Law schools and the glut of PhDs resulting in many struggling to find relevant jobs post graduation. It is only a matter of time before the phenomenon translates to the financial services industry as well and we are already on way to the beginning of this end.
And then I think the anonymous Hedge Fund Manager's idea of a future George Soros coming from an 'interesting' background may be realized.
What do you think? Do you agree that the present day education and hiring policies do not produce great Investors/thinkers? How do you see the future of the industry shifting in this respect?
Comments
While experienced recruiting
While experienced recruiting may be a different story, I believe that undergraduate recruiting (at least for ultracompetitive positions) has remained relatively open to people from a variety of backgrounds. Just as an example, if you look at D.E. Shaw - they want extraordinary talent, and just because you have 3 BB IBD internships doesn't mean you're going to be hired. In addition, the interviews at those funds are absolutely ridiculous (I've seen some of those math problems, and despite having come from a competitive math background I have no idea what on Earth they're talking about). Jane Street, Citadel, AQR, etc. all have similar hiring practices. In fact, speaking with recruiters, it appears that they want to see only people who are literally good at everything - and they do exist. Being well-rounded demonstrates intellectual, problem solving, and intuitive aptitude - things that make a good investor.
As for experienced recruiting, if we take a look from the headhunter's perspective, it is extraordinarily uneconomical to run around trying to recruit from a 'variety of backgrounds.' Imagine screening resumes from a music program for placement into a hedge fund. Not that it doesn't happen - but it is a waste of resources. People who are going to be great investors are passionate about markets and about companies, and will most likely end up finance.
This is spot on to me. Sure
This is spot on to me. Sure it is safe to take a bunch of target applicants with high gpa's who can put their faces down and work but I think it's quite easy to argue that this type of personality is clearly a trend follower.
The simple fact that you take a bunch of candidates from similar backgrounds itself creates a predictable atmosphere. When this happens, because of a lack of human ability to look intrinsically at behavior patterns, the outsider has an edge.
After graduation George Soros
After graduation George Soros sold purses in the streets of London and Bruce Kovner worked as a cab driver. There is no 'path' in this industry.
"I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine."
We actually need stupider
We actually need stupider people on Wall Street. The geniuses from Harvard and Wharton ("the smartest guys in the room") collapsed the world financial market, and they destroy the market every quarter century or so. By looking at history, how in the world could anyone argue that we need more "diverse pinheads" on Wall Street? We need people of above average intelligence with passion for logic, numbers and business who are hard workers. We don't need anymore pinheads on Wall Street. I'd bet dollars to donuts that this hedge fund manager played an integral role in destroying someone else's wealth 6-8 years ago while he still walked away with something good.
DCDepository: We actually
We actually need stupider people on Wall Street. The geniuses from Harvard and Wharton ("the smartest guys in the room") collapsed the world financial market, and they destroy the market every quarter century or so. By looking at history, how in the world could anyone argue that we need more "diverse pinheads" on Wall Street? We need people of above average intelligence with passion for logic, numbers and business who are hard workers. We don't need anymore pinheads on Wall Street. I'd bet dollars to donuts that this hedge fund manager played an integral role in destroying someone else's wealth 6-8 years ago while he still walked away with something good.
It wasn't intelligence that put the financial system at risk, it was the incentives at play across a multitude of levels.
"I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine."
Macro
We actually need stupider people on Wall Street. The geniuses from Harvard and Wharton ("the smartest guys in the room") collapsed the world financial market, and they destroy the market every quarter century or so. By looking at history, how in the world could anyone argue that we need more "diverse pinheads" on Wall Street? We need people of above average intelligence with passion for logic, numbers and business who are hard workers. We don't need anymore pinheads on Wall Street. I'd bet dollars to donuts that this hedge fund manager played an integral role in destroying someone else's wealth 6-8 years ago while he still walked away with something good.
It wasn't intelligence that put the financial system at risk, it was the incentives at play across a multitude of levels.
I'd argue we need smarter people. But markets crash, and always will.
I help people with the tough situation of not knowing how to respond to emails.
kyleyboy: Macro
We actually need stupider people on Wall Street. The geniuses from Harvard and Wharton ("the smartest guys in the room") collapsed the world financial market, and they destroy the market every quarter century or so. By looking at history, how in the world could anyone argue that we need more "diverse pinheads" on Wall Street? We need people of above average intelligence with passion for logic, numbers and business who are hard workers. We don't need anymore pinheads on Wall Street. I'd bet dollars to donuts that this hedge fund manager played an integral role in destroying someone else's wealth 6-8 years ago while he still walked away with something good.
It wasn't intelligence that put the financial system at risk, it was the incentives at play across a multitude of levels.
I'd argue we need smarter people. But markets crash, and always will.
It goes without saying that the dude who conceived the Gaussian Copula model was absolutely brilliant. It had very little to do with intelligence.
"I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine."
I preface this all by saying
I preface this all by saying I'm a college student - ergo I know nothing.
I think one of the hardest questions to ask oneself is "Why?" and "How do I know what I know is true?". Soros speaks highly of Karl Popper, who bases a lot of his philosophy on the fact that we can't know anything!
For better or worse, ibanking and consulting produces a lot of confident professionals and know their stuff. But by the nature of their job, it's in their best interests to never have doubts - either agree with the CEO/management team or justify some sort of absurd valuation in the name of an acquisition.
One of the hardest things in the world I think to teach is that "I don't care what the crowd thinks - I'm okay with being wrong." And I think most Ivy-league WASP-like individuals have always been on the sweet-side of the crowd rather than alone fighting for their views. Huge sweeping statement, so feel free to call me out on that one.
Some of the best investors these days are from odd backgrounds that don't mind being out in the cold and odd. Burry was considered weird. Lu Li was a protestor in Tian An Men when shit hit the fan. Hendry (although his performance is meh) comes off to me as constantly being a alone in his own mental walls. Hell, even though he's so coiffed and proper, everyone thought Ackman was an idiot when he finished HBS and started Gotham with Berkowitz. Dalio was fired from his job and is clearly an individual who could care less about what others think if it's illogical.
Macro Arbitrage: After
After graduation George Soros sold purses in the streets of London and Bruce Kovner worked as a cab driver. There is no 'path' in this industry.
I think times have changed since then
Macro
We actually need stupider people on Wall Street. The geniuses from Harvard and Wharton ("the smartest guys in the room") collapsed the world financial market, and they destroy the market every quarter century or so. By looking at history, how in the world could anyone argue that we need more "diverse pinheads" on Wall Street? We need people of above average intelligence with passion for logic, numbers and business who are hard workers. We don't need anymore pinheads on Wall Street. I'd bet dollars to donuts that this hedge fund manager played an integral role in destroying someone else's wealth 6-8 years ago while he still walked away with something good.
It wasn't intelligence that put the financial system at risk, it was the incentives at play across a multitude of levels.
I'm not arguing it was "intelligence" that put the financial system at risk. It was braniacs whose level of confidence in their own theories and the confidence that their resumes instilled in their clients that put the system at risk. Every single day of the year (I work virtually every day) I deal with the consequences of 20 years of bad public policy from Ivy League lawyers (Congressmen) and 20 years of arrogance of math and finance PhDs from elite institutions ("financial engineers").
The problem with "Wall Street" (in this context, a generic term for all of finance) is that there is a toxic combination of crony capitalism, greed, power lust, and hyper intelligence that always, always, always has led to catastrophic failure. The system will always have greedy and power hungry people; therefore, what we need is stupider people behind the wheel. The last thing we need is another Harvard prick who thinks he's God's gift to humanity running another financial institution. But alas, we are awash in brilliant politicians, bureaucrats, and Wall Street warriors who weren't content enough to collapse the world financial system--they've now moved on to completely f*cking up the entire American economy, the federal budget, state budgets, pension funds, and entitlement programs. We have a bunch of crony capitalists (not free market capitalists--crony capitalists) who are utterly brilliant and are experts at making themselves money at the expense of everyone else. There is basically no distinction between Wall Street and Washingon, D.C. Well, ya know what? the chickens are about to come home to roost thanks to our leaders who have envious intellectual horsepower. I just find it laughable that some hedge fund manager who is probably guilty of countless frauds thinks that what we need is more intellctual diversity (and what he means is more people like him--Yale poli sci grads).
To give you some context--every single justice of the Supreme Court is an Ivy League graduate. The President is an Ivy League graduate. The Chairman of the Federal Reserve and the Treasury Secretary are Ivy League grads. And what a wonderful f*cking job they've all done. So glad we have smart people running the show.
Edit: full disclosure--I went to an "elite" institution. I know what a useless bunch of jerks our kinds of institutions produce. Frankly, it's an embarrassment.
DCDepository: To give you
To give you some context--every single justice of the Supreme Court is an Ivy League graduate. The President is an Ivy League graduate. The Chairman of the Federal Reserve and the Treasury Secretary are Ivy League grads. And what a wonderful f*cking job they've all done. So glad we have smart people running the show.
.
Would you prefer our government's top positions be staffed by University of Alabama graduates?
It's easy to point out problems. What's your solution?
"It's not that I'm so smart, it's just that I stay with problems longer." - Albert Einstein
aicccia: DCDepository: To
To give you some context--every single justice of the Supreme Court is an Ivy League graduate. The President is an Ivy League graduate. The Chairman of the Federal Reserve and the Treasury Secretary are Ivy League grads. And what a wonderful f*cking job they've all done. So glad we have smart people running the show.
.
Would you prefer our government's top positions be staffed by University of Alabama graduates?
Why not? In all fairness, I don't agree with DCDepository either. Ivy, non ivy, what does it matter. Where someone went to school doesn't solely dictate intelligence, work ethic or innovation.
rabbit: Why not? In all
Why not? In all fairness, I don't agree with DCDepository either. Ivy, non ivy, what does it matter. Where someone went to school doesn't solely dictate intelligence, work ethic or innovation.
Haha, you've never met a bama graduate.
"It's not that I'm so smart, it's just that I stay with problems longer." - Albert Einstein
aicccia: rabbit: Why not?
Why not? In all fairness, I don't agree with DCDepository either. Ivy, non ivy, what does it matter. Where someone went to school doesn't solely dictate intelligence, work ethic or innovation.
Haha, you've never met a bama graduate. Any school where the main draw is the football, you can't take those people seriously.
"It's not that I'm so smart, it's just that I stay with problems longer." - Albert Einstein
[quote=aicccia][quote=aicccia
[quote=aicccia][quote=aicccia]
Why not? In all fairness, I don't agree with DCDepository either. Ivy, non ivy, what does it matter. Where someone went to school doesn't solely dictate intelligence, work ethic or innovation.
Haha, you've never met a bama graduate. Any school where the main draw is the football, you can't take those people seriously.
Example: I have a female friend, who wanted to go to bama. I ask why. She says "because they have a good football team."
People who go to Ivy's, may not be a genius, but at least you can bet that they value a good education.
"It's not that I'm so smart, it's just that I stay with problems longer." - Albert Einstein
[quote=aicccia][quote=aicccia
"It's not that I'm so smart, it's just that I stay with problems longer." - Albert Einstein
[quote=aicccia][quote=aicccia
rabbit: A bit of a
7xEBITDA: rabbit: A bit of
dolph: Macro
Financial Modeling Training
Guide to Finance Interviews
Interview had to be with
I hate victims who respect their executioners
Follow BH & Co. on Twitter: @DumbLuckCapital
twitter.com/DumbLuckCapital
jktecon: a bunch of target
I just had my first UFO experience.
I called my wife fat while we were making dinner.
Flying saucers everywhere XD
I think the problem here is
Macro
Only those who will risk going too far can possibly find out how far one can go - T.S. Eliot
See my WSO Blog
The hiring follows the need.
EURCHF parity: The reason
I just had my first UFO experience.
I called my wife fat while we were making dinner.
Flying saucers everywhere XD
EURCHF parity: The hiring
I hate victims who respect their executioners
Follow BH & Co. on Twitter: @DumbLuckCapital
twitter.com/DumbLuckCapital
Tupac: On the flip side, I
EURCHF parity: The hiring
Thurnis Haley: EURCHF
I just had my first UFO experience.
I called my wife fat while we were making dinner.
Flying saucers everywhere XD
Thurnis Haley: Who's to say