Is it really a bad time to enter the Finance industry ?
Hey fellow WSO Users,
So I've been in contact with a friend of mine currently working on Wall Street. I was looking to change my career trajectory from Computer Science to core Finance by pursuing an MS in Finance from good colleges like Vanderbilt or Boston, but my friend advised me against it saying that it is a really bad time to enter the finance industry, and said that I'm better off doing MS in Computer Science in fields like AI and Machine Learning.
I started doing some research and found some information on Quora. A user had asked whether it's worth it to become a hedge fund manager. Mr Laeeth Isharc , Former co-head in London at Citadel fixed income portfolio management, gave the following answer -
I am afraid to say that if you are starting your career, it’s an exceptionally bad time to enter the finance industry (even as a portfolio manager), and if you have doubts about whether it is worth it you definitely shouldn’t - do something else and see what the world looks like c 2021.
Don’t take my word for it. Watch bank stocks from here and you will have your answer.
On reflection perhaps a touch negative. Steer clear of anything involving illiquidity or borrowed money though.
Since people here are much more experienced and knowledgeable, I'd like to hear your opinion on the topic. Is it really a very bad time to enter the Finance industry? Should I wait for 4-5 years to enter the industry?
If Finance is something you really want to do, why would you wait? The longer you wait to get into the industry, the harder it is to get in.
More importantly, think about whether your strengths align more with finance or computer science. In general, finance requires strong people skills and with technology and automation this will be increasingly important. If you are just another oblivious student that thinks they can be a hedge fund manager out of college, you lack the intuition to be a good investor. Stick to computer science.
here's my thinking, your timing on entering an industry is largely dependent upon when you graduate, which is dependent upon when you were born. I came into the industry right after the crisis. there are bad jobs in finance sure, but if you want to get into the industry, just do it.
"Where will the Finance Industry be in a decade?" (Originally Posted: 12/14/2013)
This is the first in a series of posts where i'll be answering questions that came in via PM
In general, I think we are going to see increased regulation across the board and the bar to enter the industry will become higher and higher. Keep in mind, not all of these predictions will come true, but these are my best guesses based on the current environment. Let's break this down more granularly:Big banks: It is just a matter of time before one or more of the big banks is broken up. It will either be by choice or through force of the government. We had 26,000 people at Lehman at the peak and that's a huge company. Some of these banks employ 10X that number of people. It is impossible to manage something that large and with that many disparate businesses. Frankly, it's worth more when it's broken up. The only problem is that management gets paid to run larger organizations, so the push will need to come from shareholders, the board, or the government.
Sales & Trading: Equities will be almost entirely electronically traded (we're close now). Profits in fixed income trading will continue to be under pressure as leverage limits hinder profits. It may come to a point where the banks push for exchange traded fixed income because of the reduced amount of capital required to trade there. We will see an increasing number of derivative contracts traded on exchanges, volumes will soar when that happens. Investment Banking: Use of Dutch auctions will increase significantly for IPOs and secondaries, which will compress the profitability for banking. More of the focus will be on advisory work, which is harder to completely commoditize.
Asset Management: Index funds will continue to take a larger share of the pie, which will compress industry wide earnings.
Wealth Management: It is almost a certainty that brokers who are offering advice will be held to a fiduciary standard. Right now, the line between broker and investment adviser is too blurry and the regulators won't continue to allow that.
Hedge funds: The focus on asset allocation driven decisions on where to invest will continue the trend of the larger hedge fund firms getting larger and make it increasingly difficult for new entrants in the market. The people making the decisions on which hedge funds to invest in are concerned more about their personal job security than in performance, so the safe decision is to invest in the largest firms, because they will never get fired for making the safe call.
Venture capital: There should be a larger proportion of companies that get seeded through crowd-sourcing and project funding places such as Kickstarter. The terms can be much more favorable to companies and the risk can be dispersed much wider for investors.
That's all for this week. Feel free to ask questions here or via PM for the column next week.
Much appreciated.
I am starting to get very confused because I cannot detect any irony or a comic element in this post.
Weird that you would think that since all of my other posts have been 100% serious.
Definitely real Dick Fuld
This is helpful for me to decide which direction I should head toward.
what about private equity
Is it weird that I'm 18.7% convinced that you are indeed the real Dick Fuld?
Yes, on multiple levels. 18.7% is a highly specific number and is less than 1.
What is your opinion on the Volcker Rule? Will banks find ways around it and still prop trade?
PS I'm bummed that I won't be getting my Bleed Lehman Green shirt because I was the only one who ordered one.
Dick, when are you going to start a new investment bank called 'Leprechaun Brothers'?
Never. My suggestion is that you never attempt to go into marketing or sales. You'll fail miserably based on this question.
I love how WSO keeps expanding it's user base, and even has industry-heavyweights in the discussion. Thank you Mr. Fuld, I've always been a great admirer of what you did at Lehman (most of it).
What's your view on the fate of equity research teams on the sell-side? Will these shrivel into obscurity given they don't generate much in the way of revenues anymore (at least not directly)? They still seem to serve a function in terms of management access, but the analytic component is now largely irrelevant based on the depth of in-house research at asset managers/hedge funds, and of course the research-only boutiques.
As an undergraduate engineering student with a huge interest in finance about to complete his degree next year, I wonder if you have any advice for someone who is interested in finance.
Specifically, do you think algorithmic trading will grow? Is that a lucrative area to head towards? Also, are these predictions true of the industry within emerging markets?
@Volo
"I wonder if you have any advice for someone who is interested in finance."
I do.
"Specifically, do you think algorithmic trading will grow?"
In terms volume, absolutely. In terms of people, significantly less so.
"Is that a lucrative area to head towards?"
For a very few, I would say 'yes'. For most people 'no'. It's a star system.
"Also, are these predictions true of the industry within emerging markets?"
To be fair, they're just predictions. Only time will tell.
Investment banking is a relationship business yes? How much longer before Goldman (for example) stops being the de facto IB everyone goes to?
Maybe the government aren't worried about hindering American/European banks against EM competition with increasing regulation because they know the only thing keeping them around will be their access to the Fed anyway. Will the U.S. dollar become our great export with the Fed essentially becoming an IB themselves?
Big Banks falling apart. That would be difficult, i don't think any govt would let it happen again. But nobody knows for sure Good post, Thanks!
@"Dickfuld" what is your outlook for insurers known for their success at internal AM, such as: Berkshire, W. R. Berkley, and Fairfax?
Also, what is your outlook for biotech for the next 10-15 years. When will the industry take off they way the computer industry did in the 80s and 90s? What are the main hurdles to it doing so? Which areas of biotech will be most successful?
Finally, what will the next merger wave look like. Will it be high PE conglomerates acquiring low PE firms to try to trick investors into thinking that the firms are getting an increase in earnings rather than acquiring a lower multiple industry company? Alternatively, will we see cash cows such as insurance companies or old tech companies, i.e. APPL, GOOG, MSFT, ect., acquiring growth companies?
Unfortunately, you're asking things outside of my realm of expertise. I don't have an opinion on insurance, biotech, or where the next merger wave will be.
Maybe someone like:
@"Simple As..." @"Edmundo Braverman"
or someone else would have some ideas.
Peter Diamandis, founder of the X Prize...among other things, is absolutely convinced that the next $100B company is going to be a Biotech company with a focus in synthetic biology.
@"Dickfuld", where would you start your career if you were doing it today?
I'm curious about your take on the future of VC. We were talking about crowd-sourcing in my Entre Finance class and my professor was talking real negatively about crowd-sourcing, particularly Kickstarter and Prosper.com. He believes these platforms will not be sustainable in the future because of the one-sided nature of information. He was basically saying that most of the projects on Kickstarter were NPVVC termsheets) what the entrepreneur does with the money. You get some cool stickers or something of that nature for funding their projects, but nothing really in return for your investment haha.
For companies looking to get larger funding levels, traditional VCs will certainly still be around in ten years. What you could see on crowd funding sites is investors who have proven themselves and done a good job investing is to take on co-investors for a fee. Maybe they'll do it for a performance fee or maybe they'll do it differently. Ultimately, most people want someone else to invest for them. I can only imagine that the successful investors in crowd funding will have lower fees than traditional VC managers. If an investor can add value besides capital, they can obviously get better deals than those who can't.
I would be curious to hear what others think about this.
.
As much as I think I would enjoy finance one day (I'm only in high school), posts like these make the future of the industry seem very bleak. As a young person, it frustrates me to learn that the futures of careers in fields such as medicine and finance are dwindling, seemingly because of the bad economy and tighter gov. regulations.
Well this is depressing... I suppose we all have enough time to make some decent $ and make an investment in something we're more passionate about.
I've been pessimistic about the prospects of IB since the crisis and still contend that the buyside will have a more robust future. I think we're biased with our recent memories of the golden age for IB in the last 25 years. There will be plenty of opportunities for IB but I just can't see it being like it was circa 2005.
Yes the future does look bleak, but a lot of it has to do with the faults of Wall Street basically killing the goose that laid the golden egg. The 08 crises has really angered people to the point where wall street is seen as a parasite to society offering nothing of tangible value other than shuffling money around.
Well there are def parasite groups within most large financial firms. The problem is that one small group usually takes crazy risks and blows everything up.
Look even at firms such as GE or AIG, it was really one division that destroyed them.
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