I found this to be a very interesting read. the findings confirm that the strength (or weakness) of the economy is a huge, uncontrollable factor in determining the future earnings of an MBA graduate. Also, IB (and HF, PE, VC etc) is very 'sticky' as a career path for MBAs. Once you become a banker, you tend to stay in that career, making it one of the more difficult career paths to 'career switch' into after you've started doing something else after graduating with your MBA.
In addition to what is mentioned in the article, I noticed one more high-level trend as a recent b-school grad. Business school is in some ways like sitting down at a card game. There's always some people who are dealt a bad hand, and in this economy there are way more people who fall into that category. The effect discussed in this article is not limited to IB recruiting; it affects all recruiting categories - and the end result is that more students are graduating without jobs and high, unbreakable debt burden.
A final trend I noticed is that banks are consilidating the number of schools where they recruit. Very similar to real estate, where fringe schools are falling faster than the top schools in terms of IB recruiting.
The article below is written by a Stanford GSB Economics Professor Paul Oyer. I was wondering what you guys think about this?
http://www.gsb.stanford.edu/news/research/econ_oy…
Are Wall Street Careers Just the Luck of the Draw?
July 2010
STANFORD GRADUATE SCHOOL OF BUSINESS—Paul Oyer backs away from using the word "luck." But nevertheless his research shows that many young MBAs who go into investment banking might just follow that career due to happenstance as much as because of a die-hard allegiance to Wall Street. And those who graduate during a bear market may never get the chance later to start a Wall Street career—a fact that dramatically cuts down on their lifetime earnings.
"It always struck me that being in the right place at the right time was important in career paths," said Oyer, a professor of economics at the Stanford Graduate School of Business who studied the long-term career choices and salaries of more than 35 years' worth of the School's graduates. Oyer, who also researched career choices of PhD students, said he’s not surprised by recent research that finds the same career pattern for undergrads’ career tracks.
Oyer conducted surveys in 1996 and 1998 and concluded that random factors play a large role in determining the kinds of jobs that MBAs take upon graduation. Specifically, the proportion of graduating MBAs who manage to get hired into lucrative investment banking positions shrinks or expands depending on how well the stock market is performing in a given year.
For example, more than a quarter (26 percent) of Stanford MBAs who graduated two years before the stock market crash of 1987 became investment bankers. But just 17 percent of the MBA graduates two years after the crash took that career path. And the difference in payoff was huge. Based on the salaries provided by thousands of MBAs in this self-reported survey, Oyer calculated the present value of lifetime income of an MBA who went into investment banking to be $2 million to $6 million higher than an MBA who went into a non-banking career. "Thus the classes of 1988 and 1989 could expect significantly lower lifetime income due to the timing of their graduation than the classes of 1985 and 1986," said Oyer.
Oyer also discovered that MBAs who go into investment banking—a category in which he includes money managers and venture capitalists—tend to stay there for the long term. For example, in the first few years after receiving their MBA degree, 5 to 10 percent of the people in investment banking leave, but attrition slows significantly after the fifth year and the percentage of a typical graduating class that works in investment banking does not change significantly after that point.
Thus although it might seem intuitive to believe that there are a limited number of MBAs who have a natural aptitude for investment banking, there's no evidence to support that. Instead, the significantly greater numbers of MBAs who go into investment banking during bull markets are just as dedicated to banking in terms of how long they stay there and how much money they make. "This tells me that there is a deep pool of potential investment bankers in any Stanford MBA class," said Oyer.
Another of the surprising things Oyer found during his research is that MBAs are not hopping in and out of investment banking in search of the perfect job. "The idea has long been that MBAs change jobs all the time. But what this study shows is that they are not jumping in and out of investment banking. It's pretty sticky. Once you're there you tend to stay; once you've started down another path, you're not likely to move to a Wall Street firm."
The research also suggests that bull markets might discourage entrepreneurs. "One question you would naturally ask, if in bull markets more people go into investment banking, what they are not doing?" asked Oyer. "And because there are a fairly limited set of things that MBAs do, there's some evidence that when bull markets move people onto Wall Street, it takes away from consulting and entrepreneurial careers."
On thing that the study does bear out is that graduating MBAs are correct in perceiving that general economic factors in the year they graduate will have profound long-term implications on their careers. "Every year our students get very anxious about the state of the job market. I always thought we—because I was the same way when I was finishing school—were being silly," said Oyer. "But as it turns out, we had pretty good reasons to be worried about the state of the job market, as it would affect a lot of us for a long time to come."
I think the whole recruitment process involves a lot more luck since you have a few rounds of interviews and a very small window to make a good impression
Once you get into the first round interview, everything only depends on your performance during the interview: if you happen to get a brainteaser you know, if you happen to click with the interviewer, if you and the interviewer happen to have something in common
This can also work the other way and a stroke of bad luck can ruin you during the interview, if you happen to be a little under the weather that day you may come off as lacking confidence or if you clicked with the junior interviewers but didn't with the senior interviewers
Luck is when preparation meets opportunity.
GutShot hit this one on the head. You create your own luck. By working harder, changing things up, and analyzing your personal patterns, you can change your future.
Yes, I know that was really gay.
well life is largely luck ,its the great human delusion that achievement is due to ones own hard work and innate ability. Those play a role, but luck at the end of the day is still the key.
Gladwell in outliers sums it up well, its not a very serious book naturally but his examples still illustrate a broader point well.
Then what about all Gladwell's talk about innate talent being overrated and fairly trivial, the 10k hour rule, deliberate practice, etc.?
I didnt argue that talent was key or that hard work didnt have any returns. In all his 10k hour rule examples however vastly successful people not only had 10k hours but also right spot right time.
Good point.
Yep, getting a wall street job is as much luck as anything in life.
Just like when applying to college, you can increase your odds with strong test scores, volunteering, good grades, but you are still rolling the dice when you apply to Harvard.
Even in the interview process, did you play the same sport as the interviewer? Are you a member of the same frat?
In something as competitive as Wall street recruiting, luck is often the differentiating factor.
This can be said about anything, in my opinion. There's a random component to everything. However, I tend to think that someone with a work ethic and skill is going to get ahead, regardless. Sure, they'll miss out on some good opportunities due to the luck of the draw. But, they'll take advantage of the cases where the luck of the draw works in their favor. If someone gets lucky and lands an analyst gig at a BB, they're not necessarily going to go on and have tremendous success in life. Likewise, when someone with skill gets turned down from a bunch of jobs, my guess is they'll still make it happen over the long haul.
the thing is tough, a wall street career in the first few years massively depends on getting momentum early.
Think of two HYP guys, one lazy and mediocre, one smart and harworking. Lazy through chance sits next to an investment banker on an airplane is his first year in college and gets interested in the industry.
He gets an internship at unknown boutique in his sophomore year, gets interviews at all top BBs and lands at GS in his junior year, he doesn't get a return offer due to laziness, but due to his amazing CV at this point easily goes to MS.
The other student never meets that banker on that flight, he meets another banker on a flight in his junior year and only then becomes interested and applies. hes got weak relevant work experience and only manages to score an interview at some local boutiques. He works hard and is able to leverage it into an ok boutique(blair or smthg like that).
2 years later, the blair guy goes to a mm pe fund, then onto a 2nd tier b-school and then onto a small hf.
2 years later, the .lazy ms guy still lands at Silver Lake partners, barely scraps into HBS, and then goes to a strong hf.
just getting ahead early has massive leverage in this industry, and it seems to take ages until your actual on the job ability rather than foresight starts to matter. Does it ever start to matter is the question....
So maybe he can't do IB. But, what I'm claiming, is that if he can potentially make up for it down the road. Sure, maybe he'll never make it into IB, but maybe he'll be significantly wealthier than his buddy by owning some small businesses, investing in real estate, or a whole host of other hustles. I'm not saying getting in early doesn't matter, but what I believe is that skill and work ethic tend to trump a lot of other things (including prestige, getting an early start, etc.).
at what point can you start making up for it tough? When does actual performance and not just cv whoring begin to matter?
I think one can start making up for it right away (although the rewards might not be realized until 5-10 years down the road). For example, if a recent college graduate notices his roommate got $100K as an IB analyst in his first year, it might be too late for the recent grad to make it into IB. So, instead, maybe he gets a job and puts in another 40+ hours a week starting small businesses or something. Maybe for the first 5-10 years after graduation, the roommate will make more money, but maybe that'll switch later on as they each develop different skills. My overall point, is there's millions of hustles, finance is only one. There are plenty of extremely successful people out there that were mediocre students and couldn't of done IB after undergrad if they wanted. And now, they make much more than most MDs. From professional poker players, to entrepreneurs, there are plenty of people who've demonstrated there's more than one way to make a buck.
Another point I'm trying to make, is that if someone really wants, they can often go back to school and try again. Didn't make it into IB at 22, or didn't even know about IB until you were 25? Maybe you can use an MBA to come in as an associate. (If that's not an opportunity, maybe you can network, get a low-level job and work up, etc. There's several ways to reach a goal.)
Ab rerum corporis minus nemo. Eius esse quae tenetur occaecati nihil molestiae. Dolores officiis animi sint atque vitae repellendus in ipsa. Illum et quia possimus saepe et dolores.
Ut rem provident laboriosam velit incidunt incidunt. Quas inventore sunt enim deleniti aliquam et consequatur dolorem. Veniam id qui commodi aut consectetur molestias ea. Magni tempore quasi explicabo qui et ut. Qui quia voluptatem voluptatem commodi quo earum.
Iure necessitatibus temporibus nam odit harum sequi qui. Facere sunt asperiores quis sit. Nulla tenetur nam eos cupiditate natus maiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...