Andy note: SirTrades' decided to get deeper into the story so we're making it a trilogy. Enjoy part two below, part 3 is coming up next Wednesday, and make sure to check out part one here (which includes his bio) if you haven't already.
Importance of Gaining Relevant Experience vs. Brand
One of the biggest fears that people have is looking stupid. This causes all sorts of strange behavior.
The first relates to the old adage, "nobody got fired for buying IBM" which was used by purchasing managers many years ago to justify their sub-optimal purchases of computer equipment, but helped the buyer protect their position in the firm. The same mindset is prevalent in the investment business.
Some portfolio managers will buy the same security as most other portfolio managers because they know it will be harder to criticize them if the security depreciates ("hey, everybody else owned it") and easier to criticize them for not owning a winner. These managers are closet indexers and it is the dominant strategy in mutual funds. Unfortunately, doing what everyone else is doing is rarely a winning strategy.
A corollary is what I see young people aspire to here on WSO. Much like the reputation protecting purchasing manager, many college students would rather walk down the well beaten path, because, if it doesn't work out, at least they failed conventionally. For those who look atas nothing but an exit opportunity generator, they are closet indexing their career path. In my experience, very few portfolio managers I know spent any time in the investment banking division (although plenty/most worked at an ). Even for those that started their career in , I think there is a confusion between cause and effect.
Many intelligent people enter investment banking as an Analyst out of college. The question should be: what percentage of those people who were qualified to go into investment banking but chose another path in finance ended up in the hedge fund space (or wherever else they desired) after a few years compared to those who actually went into investment banking and ended up in the hedge fund space? My guess is that those who were qualified but chose a different path probably had higher probabilities of ending up working for a hedge fund, partially because most good hedge fund managers I know are somewhat unconventional in their thought processes.
The other corollary is the desire for so many to work at the largest firms possible (dare I say the nightmarish word 'prestige'?). If you were to take this mindset and apply it to Silicon Valley, it might be easier to see the absurdity of it. Do you think that the biggest money to be made in the next 10 years is going to be an employee of Microsoft or Google? Or is it more likely that it will be from some firm that you haven't heard of yet? I understand the desire to get training at some of the big firms on Wall Street and some good money can still be made there, but it is far from the be all, end all of finance. There are no name people working at no name firms, making ungodly sums of money because they found a niche or have an expertise in something...that is the kind of experience I would be going after, not a name on the resume.
Learn How to Sell
The ability to sell is of crucial importance to almost every desirable role in finance and is the least appreciated skill amongst college students. In order to sell effectively, you need to be able to deliver what a client wants rather than than what you have. You need to ask tons of questions and actually listen, to see what motivates the client in order to be persuasive.
Many people think they are above selling and those that do usually have low ceilings on their career. The people who look down on sales people, but go into investment banking are particularly hilarious. What exactly do you think banking is? Do you really think those large fees are being earned because a client gives a shit about yourmodels with highly precise, wild-ass guesses about the value of a business?
Here are some suggestions that have worked for me to have a productive meeting:
1. Have clear objectives for the meeting
2. Have questions prepared for the meeting that help you understand the client/prospects underlying concerns
3. Rehearse and simplify your message
4. Describe benefits, not features
5. Listen, don't just wait for your turn to speak
6. Ask more questions and repeat
Having a Scalable Career
Time is the most valuable thing we have in life. If your compensation is directly linked to the hours you put in, you have severely constrained the upside in your career. The business is attractive to me because managing a portfolio takes nearly the same amount of work whether you are managing $1 million, $1 billion, or $10 billion. Obviously in the latter cases, you make significantly more money for your efforts. I would never choose a career where you get paid by the hour (directly or indirectly), like a legal career. I would also be leery of 'clock-watching' or 'face-time' environments. They are unproductive and frustrating.
I'm not sure that I have a walk-away number. If I sold my current firm, I would continue to work, but probably at a more relaxed pace where I was not tied to market hours as much (or at all) and I certainly would not work for a big firm. For instance, I would consider entering the fund seeding business where I would pool my money with friends and clients to provide capital to start-up fund managers. In exchange for providing seed capital, advice, and relationships, one can participate in a revenue share in the business. I would need something to do and this sort of role would keep me engaged, without necessarily needing to be in the office everyday.