Q&A Interview with SirTradesaLot, Part 2/3

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 at IBD as 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 investment bank). Even for those that started their career in IBD, 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 your DCF models 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 asset management 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.

Walk-away Number
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.

Comments (20)

Sep 19, 2012

"You need to ask tons of questions and actually listen, to see what motivates the client in order to be persuasive."

This is very true. You can do the exact right thing for the clients but still lose them, they don't care what's right or wrong, they do care what saves their ass.

The Auto Show

Sep 19, 2012

A lot of good points in here, but a little scatter-shot. In regards to firm prestige, etc., I think that for first jobs coming out of school (either undergrad or masters) name recognition is pretty important. I have had heads of HR tell me, if you have name brand schools and name brand experience - you will get moved at least to the phone call pile. Insomuch as this is true, firm recognition (assuming the job is the same) makes the most sense right out of the gate.

Later on, when you are getting a piece of the action, a smaller firm that has great deal flow is obviously the best bet. Which brings up another point. Having the opportunity to start your own shop is dictated by your ability to raise capital, which is dictated by your track record, which is dictated by your opportunities, which is dictated by the firms you have worked at. It's much harder to get people to invest in you without the pedigree background.

Sep 19, 2012
av8ter:

Having the opportunity to start your own shop is dictated by your ability to raise capital, which is dictated by your track record

I agree with this statement. Here is the point I'm trying to make: don't take a position at Goldman Sachs if the place where you can get a better experience or learn more is at another bank or other financial institution. How successful you are in that role will play a much larger role as to how future potential investors will perceive you than the firm where you worked.

Also, don't apply for investment banking (or whatever) if the job itself doesn't interest you, there are plenty of other jobs that you would find interesting and places you can learn a lot. You can launch from there.

I think people feel artificially constrained as to what their choices are in life based on what other people's expectations are of them. I have known plenty of people who went into banking and spent 80 hours a week for two years in their early twenties doing something they didn't enjoy. Of course, they left never to return to the industry.

My question for them has been why did you feel the need to do banking in the first place? The responses were similar to what you read from people on WSO. But, if you don't enjoy it, you will underperform those who do. Why not find a field where you actually do enjoy the work?

Sep 19, 2012
SirTradesaLot:
av8ter:

Having the opportunity to start your own shop is dictated by your ability to raise capital, which is dictated by your track record

I agree with this statement. Here is the point I'm trying to make: don't take a position at Goldman Sachs if the place where you can get a better experience or learn more is at another bank or other financial institution. How successful you are in that role will play a much larger role as to how future potential investors will perceive you than the firm where you worked.

Also, don't apply for investment banking (or whatever) if the job itself doesn't interest you, there are plenty of other jobs that you would find interesting and places you can learn a lot. You can launch from there.

I think people feel artificially constrained as to what their choices are in life based on what other people's expectations are of them. I have known plenty of people who went into banking and spent 80 hours a week for two years in their early twenties doing something they didn't enjoy. Of course, they left never to return to the industry.

My question for them has been why did you feel the need to do banking in the first place? The responses were similar to what you read from people on WSO. But, if you don't enjoy it, you will underperform those who do. Why not find a field where you actually do enjoy the work?

Just to go along. You apply at a BB to S&T and IB... you come across as indecisive and not a good candidate.Not a great look

Sep 19, 2012

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.

True.

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.

70% of the world's derivatives are traded in London. Anyways, you'll wanna keep those hours if you are actively trading. Have you considered entering a RMB (Renminbi) Fund -that seems to be a new thing, In Hong Kong but also it has started in London

Sep 19, 2012
Financier4Hire:

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.

True.

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.

70% of the world's derivatives are traded in London. Anyways, you'll wanna keep those hours if you are actively trading. Have you considered entering a RMB (Renminbi) Fund -that seems to be a new thing, In Hong Kong but also it has started in London

To clarify, when I refer to fund seeding opportunities, what I mean is that I give money to someone starting a business that is a hedge fund business. It does not need to be in the derivatives area.

In other words, let's say you want to start a long-short fund. I believe in you, so I give you $50 million, making it easier for you to raise additional assets and should give you enough revenue to survive on a shoestring.

However, you are your own firm. I introduce you to institutions and wealthy people who can invest in your fund. Since I've started a fund before, I can also give you advice on legal, admin, etc. For all of this, you give me 20% of the revenue of your firm forever and 20% of the proceeds in a sale of the firm. I don't have to come into work every day. I can do this with multiple firms and share in the revenue of each.

Think of this as a free call option for believing in someone early.

Sep 19, 2012
SirTradesaLot:

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 asset management 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 reread this several times

    • 1
Sep 19, 2012
UFOinsider:
SirTradesaLot:

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 asset management 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 reread this several times

A very long time ago oil and the refining business was scalable; this is how Rockefeller became filthy rich.

DELETED_ACCOUNT

Sep 19, 2012
En_Passant:
UFOinsider:
SirTradesaLot:

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 asset management 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 reread this several times

A very long time ago oil and the refining business was scalable; this is how Rockefeller became filthy rich.

Yes, it's so obvious that I missed it when applying it to my own career. I deal in heavily customized transactions, and this is what I need to add more of to my career.

Sep 19, 2012

[/quote]
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.
[/quote]

Funny thing is this still holds true for IBM cept now its their stock. If IBM stock tanks 20%, NO ONE would get fired over it. Your more likely to get fired for selling IBM because older HNW ppl recognize the name and love it.

    • 1
Sep 19, 2012

Fantastic post. One of the best interview series so far I think.

Sep 19, 2012

Wow, great post. I am not too sure why, but I think this is one of the more inspiring posts I have read on here... perhaps because everything he said makes sense to me.

Thank you Sir TradesaLot. I'll have you know that I had been actively checking for this next installment and will be doing the same for the third.

"That dude is so haole, he don't even have any breath left."

Sep 19, 2012

Very engaging Q&A. A quote from the Dalai Lama comes to mind, "What befuddles me the most about human beings is that they sacrifice their health to become wealthy, and then spend their wealth trying to recover their health."

In any case, I don't know if a disillusioned quant perspective is relevant here, but there is now this faint sense of gloom creeping over the mathematically oriented in finance as firms seem to be turning away from the classical BS framework with the exotics and other fancy stuff having lost credibility. As a result, I think QF will see a smaller percentage of practitioners who genuinely enjoy the subject, and a larger percentage of people who are simply there for that "exit strategy generator"...

Perhaps forcibly lowering the wages with somekind of an infernal socialist bonus cap would rid the industry of the status obsessed, thus leaving more room for the genuine finance nerds? After all, the pay in occupations like pure math research is dismal, but would anyone say it is a field filled with incompetents?

Sep 19, 2012

Sirtradesalot you always deliver. Thanks bud

Sep 19, 2012

Wish there were more people with your philosophy and attitude out there. The world would be a much more interesting place. Hopefully, some of the next generation will pay heed to your words. +1

They all have husbands and wives and children and houses and dogs, and, you know, they've all made themselves a part of something and they can talk about what they do. What am I gonna say? "I killed the president of Paraguay with a fork. How've you been?"

Sep 20, 2012

You've got lots of HFs and PE buying HFs, last summer KKR bought Prisma Capital (a fund-of-funds)(http://in.reuters.com/article/2012/06/18/us-kkr-pr...)

Sep 20, 2012
Financier4Hire:

You've got lots of HFs and PE buying HFs, last summer KKR bought Prisma Capital (a fund-of-funds)(http://in.reuters.com/article/2012/06/18/us-kkr-pr...)

Not are if this is in response to my earlier post about hedge fund seeding or not. The difference between the attached article and hedge fund seeding is that hedge find seeding is done as a fund firm is starting, not as they already have tons of assets. However, the article describes how I could exit my current firm at some point.

Sep 20, 2012
SirTradesaLot:
Financier4Hire:

You've got lots of HFs and PE buying HFs, last summer KKR bought Prisma Capital (a fund-of-funds)(http://in.reuters.com/article/2012/06/18/us-kkr-pr...)

Not are if this is in response to my earlier post about hedge fund seeding or not. The difference between the attached article and hedge fund seeding is that hedge find seeding is done as a fund firm is starting, not as they already have tons of assets. However, the article describes how I could exit my current firm at some point.

Next SirTrades post: "How I sold my HF, made a giant pile of cash, and [insert one of below options]"

A) Now live on an island in the Carribean, travel, and do interesting random things
B) Accepted a C-level position and now will take over the world
C) Started a groundbreaking nonprofit that's ending world hunger

Sep 24, 2012

very good post. thnks for teh sharing

Oct 20, 2014
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