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Wall Street Oasis » Forums » Hedge Funhouse
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Ben Graham totally discredits value investing at the end of his career?
 

Terriers12's picture
Terriers12
     
 
(Monkey, 45
 
Points)
 on 5/5/12 at 3:29am
Ben Graham.jpg

I'm a pretty serious student of Ben Graham, and just saw this the other day. Pretty disappointed.

"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent, I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

So does he totally discredit value investing? I haven't read this in its entire context, so it may not be over. I would love to find out what he actually meant, and how someone like Buffett would respond.

  • bejamin graham warren buffett columbia business school margin of safety value investing seth klarman
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mb666's picture

Warren Buffet initially came

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/4/12 at 11:59pm

Warren Buffet initially came to be who he came to be by investing in growth companies.... especially insurance companies. Not sure if he would admit it though.

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In reply to mb666
Nabooru's picture

mb666: Warren Buffet

Nabooru
      HF
 
(Gorilla, 689
 
Points)
 on 5/5/12 at 12:22am
mb666:

Warren Buffet initially came to be who he came to be by investing in growth companies.... especially insurance companies. Not sure if he would admit it though.

he's pretty clear in his letters that a lot of the money he invested with was the float from the insurance companies

Who are you going to believe, me or your lying eyes?

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Markov's picture

Ben Graham has always wavered

Markov
      HF
 
(Baboon, 152
 
Points)
 on 5/5/12 at 12:23am

Ben Graham has always wavered back and forth on the idea that one really could get superior results. In The Intelligent Investor, he outlines something very much like the Efficient Market Hypothesis, pointing out the difficulty for the average investor of discovering a market inefficiency that all of the research analysts and money managers on Wall Street have missed.

I have read in several other places that late in life he moved further away from the belief that value investing could provide superior returns. Your quotation from Graham does not seem like a big break with his past views, but instead a moderate change in belief brought about by new circumstances.

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Terriers12's picture

So the father of value

Terriers12
     
 
(Monkey, 45
 
Points)
 on 5/5/12 at 12:33am

So the father of value investing now believes that value investing doesn't work? That's pretty disappointing to hear. Why isn't this topic blown up more? Everyone talks about how great value investing is, but no one mentions how Graham thinks it is not relevant anymore. I'm assuming it's alive today because of Buffett.

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09grad's picture

can you share where this

09grad
      PE
 
 
(Orangutan, 341
 
Points)
 on 5/5/12 at 12:38am

can you share where this quote was from? nice find

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Terriers12's picture

I first saw it from an

Terriers12
     
 
(Monkey, 45
 
Points)
 on 5/5/12 at 12:45am

I first saw it from an article on seeking alpha. I'm a adamant value investor, and this is just disheartening to see.

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eriginal's picture

I hate EMH and dislike the

eriginal
      AM
 
(Senior Gorilla, 907
 
Points)
 on 5/5/12 at 1:32am

I hate EMH and dislike the idea that Ben Graham would discredit the best idea in finance - especially since he came up with the fuckin' thing. Wow, I really hope everyone starts abiding by the EMH principles so I can make some money - it's easy to win a race if no one else even tries.

Some quotes from Warren Buffet that Mr. Graham should read:
- "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing."
-"If a business does well, the stock eventually follows."
- "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
- "Price is what you pay. Value is what you get."
- "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

"One man with courage makes a majority." — Andrew Jackson

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SlikRick's picture

BP fell as low as $30 a share

SlikRick
      CO
 
(Senior Orangutan, 461
 
Points)
 on 5/5/12 at 4:23am

BP fell as low as $30 a share after the Oil Spill. Its decline in price was 100% based on market emotion, with no financial analysis justifying the fall in share price. Needless to say, any value investor could have picked up on this. Made a 33% return in about a month.

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In reply to SlikRick
Chazz Reinhold's picture

SlikRick: BP fell as low as

Chazz Reinhold
      EN
 
(Orangutan, 262
 
Points)
 on 5/5/12 at 5:20am
SlikRick:

BP fell as low as $30 a share after the Oil Spill. Its decline in price was 100% based on market emotion, with no financial analysis justifying the fall in share price. Needless to say, any value investor could have picked up on this. Made a 33% return in about a month.

This. Some of the share prices hit by the financial crisis didn't deserve to be, and there's definitely money to be made in the long-run if you spot them.

Damn you Rodger!

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Gate_Crasher's picture

It would be nice to have a

Gate_Crasher
      IB
 
(Senior Baboon, 187
 
Points)
 on 5/5/12 at 5:29am

It would be nice to have a link to the original quote.
And yes value investing is very tough in developed economies, but the pie lies in the developing (third world) economies.

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In reply to eriginal
drexelalum11's picture

eriginal: I hate EMH and

drexelalum11
      O
 
(Neanderthal, 3,635
 
Points)
 on 5/5/12 at 6:13am
eriginal:

I hate EMH and dislike the idea that Ben Graham would discredit the best idea in finance - especially since he came up with the fuckin' thing. Wow, I really hope everyone starts abiding by the EMH principles so I can make some money - it's easy to win a race if no one else even tries.

Some quotes from Warren Buffet that Mr. Graham should read:
- "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing."
-"If a business does well, the stock eventually follows."
- "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
- "Price is what you pay. Value is what you get."
- "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

It would actually be almost impossible to win such a race. You can identify the best company in the world, but if no one else knows/cares how good it is, the price is going to say "mehhhh"

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In reply to SynergyWeek
lekman's picture

SynergyWeek: SlikRick: BP

lekman
      IB
 
(Senior Chimp, 28
 
Points)
 on 5/5/12 at 7:06am
SynergyWeek:
SlikRick:

BP fell as low as $30 a share after the Oil Spill. Its decline in price was 100% based on market emotion, with no financial analysis justifying the fall in share price. Needless to say, any value investor could have picked up on this. Made a 33% return in about a month.

This. Some of the share prices hit by the financial crisis didn't deserve to be, and there's definitely money to be made in the long-run if you spot them.

I wouldn't say it was purely on emotion, there were real concerns that BP could face huge fines and regulatory uncertainty for a long time following the oil spill. No one really knew how long it was going to last and no one really knew what the political reaction would be. Its really easy to look back and think the guys who sold BP were idiots, but history is full of firsts, and there was a possibility it could severely damaged the firm's long term profitability.

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Tandem's picture

Why should Graham's view

Tandem
     
 
(Senior Chimp, 26
 
Points)
 on 5/5/12 at 7:07am

Why should Graham's view influence yours? If you find yourself profitable following his/your principles, then keep doing it.

The investing/trading game is all about getting in earlier than someone else. What a value investor does is buy when no one has the balls to do it, and sell when everyone believes the stock is God's gift to humanity. That is the key to his superior returns. He makes the decisions the market cannot, before the market decides it's the right thing to do.

In any case, all Graham is really saying is that there is no mechanical solution to the market puzzle. Understand the game, and you'll do fine.

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JeffSkilling's picture

There is no value to be found

JeffSkilling
     
 
(King Kong, 1,911
 
Points)
 on 5/5/12 at 7:40am

There is no value to be found today, it's all HFT bots trading amongst themselves in a sea of liquidity from the Fed. We don't have markets anymore, we have theatre.

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In reply to JeffSkilling
Walkerr's picture

JeffSkilling: There is no

Walkerr
      IB
 
(Gorilla, 573
 
Points)
 on 5/5/12 at 8:00am
JeffSkilling:

There is no value to be found today, it's all HFT bots trading amongst themselves in a sea of liquidity from the Fed. We don't have markets anymore, we have theatre.

What does this mean for value and LT investors and students wanting to become one of them? If there's no market anymore, than it would follow that there will be a reduction in jobs. Is this, too, a dying industry?

I can hardly imagine, I think there will always be markets to invest in and I don't believe that HFT will increase long term due to future regulations.

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drexelalum11's picture

If the market misprices

drexelalum11
      O
 
(Neanderthal, 3,635
 
Points)
 on 5/5/12 at 9:25am
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BeastMode's picture

I think Graham was talking

BeastMode
      AM
 
(Baboon, 163
 
Points)
 on 5/5/12 at 10:30am
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Futures Trader Man's picture

Interesting... i have read

Futures Trader Man
      RE
 
(Orangutan, 318
 
Points)
 on 5/5/12 at 12:02pm

"Well, you know, I was a human being before I became a businessman." -- George Soros

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arant's picture

Buffett always talks about

arant
     
 
(Monkey, 61
 
Points)
 on 5/5/12 at 1:12pm

Simplicity is the highest form of sophistication ~ Leonardo da Vinci

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mb666's picture

Didn't Graham lose a fortune

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/5/12 at 2:30pm
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Terriers12's picture

Graham provided the

Terriers12
     
 
(Monkey, 45
 
Points)
 on 5/5/12 at 3:03pm
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bananadine's picture

Have you guys read Security

bananadine
      ER
 
(Senior Chimp, 26
 
Points)
 on 5/5/12 at 3:20pm
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In reply to bananadine
Futures Trader Man's picture

bananadine: Have you guys

Futures Trader Man
      RE
 
(Orangutan, 318
 
Points)
 on 5/5/12 at 3:27pm

"Well, you know, I was a human being before I became a businessman." -- George Soros

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atomic's picture

http://greenbackd.com/2012/04

atomic
     
 
(Baboon, 165
 
Points)
 on 5/5/12 at 4:09pm
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ggsonny's picture

All of you talking about

ggsonny
     
 
(Chimp, 8
 
Points)
 on 5/6/12 at 9:36am
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In reply to ggsonny
mb666's picture

ggsonny: All of you talking

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/6/12 at 12:59pm
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Kenny_Powers_CFA's picture

So "it's hard"=totally

Kenny_Powers_CFA
      HF
 
 
(Neanderthal, 2,199
 
Points)
 on 5/6/12 at 10:20pm

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

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In reply to arant
Kenny_Powers_CFA's picture

arant: Buffett always talks

Kenny_Powers_CFA
      HF
 
 
(Neanderthal, 2,199
 
Points)
 on 5/6/12 at 10:23pm

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

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Gray Fox's picture

There have been a lot of

Gray Fox
      HF
 
 
(Gorilla, 515
 
Points)
 on 5/7/12 at 12:22am
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In reply to Gray Fox
Kenny_Powers_CFA's picture

Gray Fox: There have been a

Kenny_Powers_CFA
      HF
 
 
(Neanderthal, 2,199
 
Points)
 on 5/7/12 at 8:29am

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

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In reply to SlikRick
andyinsandiego's picture

SlikRick: BP fell as low as

andyinsandiego
      CF
 
(Orangutan, 333
 
Points)
 on 5/7/12 at 5:15pm
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cyoungmark's picture

I think profitability in the

cyoungmark
     
 
(Monkey, 35
 
Points)
 on 5/7/12 at 11:33pm
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In reply to lekman
streetwannabe's picture

lekman: SynergyWeek: Slik

streetwannabe
      AM
 
(King Kong, 1,384
 
Points)
 on 5/7/12 at 11:50pm

"History doesn't repeat itself, but it does rhyme."

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In reply to cyoungmark
mb666's picture

cyoungmark: I think

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/7/12 at 11:57pm
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cyoungmark's picture

I meant prediction as in,

cyoungmark
     
 
(Monkey, 35
 
Points)
 on 5/7/12 at 11:59pm
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In reply to cyoungmark
mb666's picture

cyoungmark: I meant

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/8/12 at 12:41am
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cyoungmark's picture

Prediction as in.. you must

cyoungmark
     
 
(Monkey, 35
 
Points)
 on 5/8/12 at 1:00am
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In reply to cyoungmark
mb666's picture

cyoungmark: Prediction as

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/8/12 at 1:16am
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cyoungmark's picture

Your right. I'm discounting

cyoungmark
     
 
(Monkey, 35
 
Points)
 on 5/8/12 at 9:42am
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cyoungmark's picture

I do believe that there is

cyoungmark
     
 
(Monkey, 35
 
Points)
 on 5/8/12 at 9:47am
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sp0634's picture

Markets oscillate back and

sp0634
      ST
 
(Monkey, 35
 
Points)
 on 5/8/12 at 10:38am
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mb666's picture

^ It depends on your time

mb666
      VC
 
 
(Gorilla, 729
 
Points)
 on 5/8/12 at 10:42am
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justanother's picture

so much talk about value,

justanother
     
 
(Monkey, 50
 
Points)
 on 5/17/12 at 5:11am
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sofa king smooth's picture

Wrong - Graham merely pointed

sofa king smooth
     
 
(Senior Monkey, 70
 
Points)
 on 9/11/12 at 3:29am
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In reply to sofa king smooth
Vyraal's picture

sofa king smooth: So no, he

Vyraal
      O
 
(Senior Monkey, 92
 
Points)
 on 10/9/12 at 11:54pm
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Big Macro Picture's picture

I came across this article

Big Macro Picture
     
 
(Chimp, 1
 
Points)
 on 12/4/12 at 8:09am
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meabric's picture

Terriers12: So does he

meabric
     
 
(Orangutan, 254
 
Points)
 on 12/4/12 at 4:55pm
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koojim's picture

it could be relative as in

koojim
     
 
(Chimp, 1
 
Points)
 on 1/25/13 at 3:07am
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Forum Topics

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  • Thoughts on this? Heister brings up a good question: <em>"Who else is going to the job? Which senior Goldman partner is planning on retiring and needs to shield millions in stock options from taxes?"</em> via Bloomberg: <strong>Obama Says Bernanke Has Been at Fed...
    Bye Bye Bernanke? Who Would Be Next?
  • So I've been thinking about looking into getting a part time internship at an AM firm at my college town during the fall semester to buff my resume up a little more for recruiting. My schedule isn't too tough, and I'd probably be able to do around 20-30 hours a week if I include...
    Part Time AM Internship
  • For those of you analysts that wear glasses or contacts... which of the two would you recommend? Forget about the way glasses look.... for the purposes of comfort and practicality, are one them easier on the eyes at 2am after staring at a screen for 10 hours? I'm afraid contacts might dry...
    Glasses or Contacts?
  • Did a pretty extensive search but there wasn't too much information out there. Can anyone provide some color on the pay/lifestyle/exit opps at internal strategy/M&A desks at BBs? It seems like at some banks, this desk is more of a back office role with very good hours but minimal...
    Internal strategy and M&A at a BB
  • Proposed Answer: The pay is atrocious, there is virtually no promotion potential, and the work is not challenging enough. Is this a good answer? If I was to give one answer, which one is...
    "What is the worst part of your job" interview question
  • So all new users to WSO get 6 free financial modeling lessons, 5 of my best tips for networking and my best tips for interviewing over the first month of being a user. Tonght I got a response from one of my networking tips e-mails from a slightly older gentleman that is a "financial...
    Why is this Quant so Angry and So Out of Touch?
  • Assume no CD experience pre-MBA. My thoughts are that working in CD requires making long-term investments (albeit strategic/operational, as opposed to financial), so it may force one to think like a long-term owner, a la value-oriented investing. If possible, how long should it take in CD...
    Post-MBA Corporate Development --> Fundamental/Value HF ... good path to try?
  • Does anyone have PE recruiting resources they'd be willing to share/ trade? I'm looking for modeling tests (with solutions) and have a few tests from top tier funds to trade in exchange. Any other recruiting resources would be appreciated as well. Please PM me....
    PE recruiting resources
  • Hi all - As i have been looking through this site, i have found their seems to be a lack on anything Australian. While that is understandable seeming as the industry is US focused, i thought i'd take the opportunity to try and develop a useful collection of tid-bits and facts by sharing...
    Answering Australian I-Banking Questions!
  • As summer rolls around, many folks leave the office a little earlier on Thursday or Friday nights to make it out for a cocktail event or weekend away from town. There will be a solid amount of extra-industry networking going on, to say the least. And by that I mean sloppy cocktail parties. But...
    Summer Cocktail Events - 5 Tips to Keep the Conversation Flowing
  • ...
    -
  • Hi everyone, I got admitted in the MSF programs at Olin and McCombs recently. Both B.schools are well recognized in their respective regions but I am very confused because of the following factors. Any suggestions will be highly appreciated. I would like to work in IB/ Asset Management. I...
    McCombs MSF or Olins MSF(corp track)
  • Is it possible to get sponsored for series 7 as an undergraduate intern? The company is indeed a member of FINRA. Was thinking of reaching out to one of the executives. Any advice or suggestions are greatly...
    Series 7 while on undergrad internship
  • I've supposedly had one unread PM since registering... but there's clearly no new messages there. Not a big deal but it is annoying, any way to fix...
    "1 unread message"
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Upcoming Events

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<em>Mod note: make sure to see the great comment below by CompBanker</em> I come from a small town where nobody had ever heard of consulting or IB. I was fortunate enough to attend a top target college (a good Ivy) and land a gig in IB at a BB/EB. I'm starting full time this...
Finance Culture - Personalities
<strong>Background</strong> I randomly discovered WSO nearly seven years ago just weeks after I secured a FT MM IB position. The website was extremely nascent at the time with only a few thousand registered users. The majority of the users were college students with only a handful...
How WSO has enhanced my IB/PE career
After over one year in the making, the <strong><a href="http://www.wallstreetoasis.com/2013-wso-compensation-report-full">2013 WSO Compensation Report</a></strong> is here! Access to the FULL 108 page 2013 WSO Compensation Report is <strong>100%...
2013 WSO Compensation Report has Arrived
Where do i even start..I learned so much from this forum. The brutally honest opinions, sincere willingness to help, the technical information and random tips on everything has been absolutely crucial for me landing this offer. Coming from a non-target I didnt get that 3rd year SA position at...
Thank you WSO! Got my FT Offer! ADVICE NEEDED
When I first started as a PE analyst, I constantly struggled with judging the amount of time I should spend on reviewing sourced deals. How much time is enough to really get a handle on the company’s revenue streams? How granular do I need my analysis to be on industry threats? With this...
Misguided Efforts: A Cautionary Tale
Fellow Primates, We are looking for 1-2 students on each campus to help WSO in its sales efforts to student clubs/career centers, and overall promotion at your school both online and on the ground. Below is a description of the position and benefits...thanks in advance for your help! <a...
WSO is Looking for Campus Reps For Summer/Fall 2013 (and beyond)
Many of the questions that have come in surround recruiting for front office Wall Street careers from a non-target so we’ll start with some ideas for recruiting, move on to interviewing, preparing for the job and finally long-term career management advice. Before we begin, it has been...
Stand Out as a Non-Target: Recruiting (Part 1 of 4)
Any Asset Management people here who could give me some insights on it, such as the nature of the work, the pay, the hours, the potential for career advancement, ect? I was looking into IB before but I've decided that I would rather pursue a career that's more intellectually...
Asset Management a better choice than Investment Banking?
<img src="//img.pandawhale.com/48721-Sexually-Oblivious-Female-Meme-Ze2w.png" alt="Sexually Oblivious Female Meme - Favorite Position? I would like to be a CEO.">
If you could be the richest person in the world with your dream job only as a public virgin forever would you do it?
<em>Mod Note: Blast from the Past - "Best of Eddie" - This one is from June 2011.</em> <em><strong><u>Freeriding</u> :</strong> The illegal activity of buying a stock and selling it before paying for the purchase.</em> - <a...
Come On and Take a Free Ride
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