This via Marty Chavez, Goldman Sachs's incoming CFO. What are your thoughts?
TechnologyReview.com: At its height back in 2000, the U.S. cash equities trading desk at Goldman Sachs’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. Today there are just two equity traders left.Full Article from technology reviewAutomated trading programs have taken over the rest of the work, supported by 200 computer engineers. Marty Chavez, the company’s deputy chief financial officer and former chief information officer, explained all this to attendees at a symposium on computing’s impact on economic activity held by Harvard’s Institute for Applied Computational Science last month.
The experience of its New York traders is just one early example of a transformation of Goldman Sachs, and increasingly other Wall Street firms, that began with the rise in computerized trading, but has accelerated over the past five years, moving into more fields of finance that humans once dominated. Chavez, who will become chief financial officer in April, says areas of trading like currencies and even parts of business lines like investment banking are moving in the same automated direction that equities have already traveled.
Initially covered by Zero Hedge: http://www.zerohedge.com/news/2017-02-13/goldman-…
Computer: "Hello Mr. RGE, how is your day today? I have gone ahead and compiled a list of acceptable acquisition candidates with varying risks and return for your approval. Please let me know how you'd like to proceed."
IB: "Where are my analysts? Where are my interns?"
Computer: "They have been assimilated and discarded."
IB: "Who's going to get my coffee? Who am I going to go to strip clubs with? Who am I going to talk to and bullsh*t with?"
Computer: "It sounds like your needs are compromising your ability to be a reliable and efficient asset at this company. Prepare for assimilation."
IB: "To Hell With You!"
Computer: "We are Legion."
Computers do not analyze data, they process data. They process what people put in their algorithm, and then a person makes a decision on that information, or another algorithm that has been prepared by a person makes a decision on that information.
Banking already has the leanest deal teams possible, they could not get any leaner unless you were willing to trust an algorithm 100% on every possible task a person would do. As it stands, there is one Analyst today, and there will be one in the future whose job will get slightly easier as it relates to data processing versus data analysis.
Exhibit 2. Real talk, the job of "Analyst" is not going anywhere.
"Hey, Siri, what do you make of the senior management team? Did that CEO sound guarded when answering the question on actioned cost savings?"
"Hey, Siri, can you do (some complicated formatting exercise that would take an hour to explain but could be drawn on paper and explained in context more easily)"
"Hey, Siri, could you take notes on this management presentation dial-in? By the way, the microphone will be across the room, the speaker is from Kazakhstan, and also the microphone is actually a tin can."
I agree with you that banking has some of the leanest deal teams around and that it would take machine some time to be able to analyse data up to analyst's level.
However, the comment about job "not going nowhere" is not quite correct because if machines/computers make the job easier then the demand/need for the analyst actually decrease by some margin. Say you are a MD running a good & lean team and you have six analysts working under you now, but in 5-10 years time will you need 6 analysts working for you as machine will do more of the work and their working hours are less? Probably not, you'll only need 4/5 analysts instead of 6.
If you only need 5 instead of 6 that is a decrease of ~17% and if you need 4 instead of 6 that is a decrease of ~34%. My point is the demand for analysts are bound to come down by quite a margin.
The gap in understanding is how banking deal teams are set up. There are not six analysts on one deal and therefore increased productivity could decrease that number to four or five. There are e.g. three deals, each analyst on two active ongoing deals. Even with computerization, a given analyst simply cannot process three+ deals going on at the same time, you will hit a wall with the analyst's capacity. There is just too much going on, and the analyst (the person) needs to be able to know all of the numbers and the qualitative information - strategy, process, timeline, management, internal politics - for each deal. It is just impossible without a fundamental rewrite of what a banking deal is and how decisions are made.
Let's unpack that last statement and say, somehow, banking is completely changed. Let's say, for example, FutureBankSachs & Co has MD's and a set of algorithms that take all financial information, put it into a model, write up key information, etc. Now, what, the MD has to process 30 deals him/herself based on the input from the algorithm? How can the MD have calls with all of the parties involved? Can't do that, so let's add in 5 VP's below the MD to manage the process for 6 deals each. Okay, the VP's take in the model outputs and read the computerized write-up, and this takes all of their time to synthesize this information and run the process. They run out of time to provide accurate service for each of the deal. They need Associates below them. Banking Associates come primarily from MBA programs, have less of a quantitative background. Somehow let's change that and have them all be computer engineers from MIT. How do these Quantsocciates somehow become banking VPs, Directors, and MD's? The human capital pipeline breaks down somewhere and the system just doesn't make sense.
If I had a nickel for every time I've caught a mistake in CapIQ data, I'd have $2.15. That doesn't sound like a lot, but it's 43 times.
I think the most depressing thing here is that the prevailing idea across the whole financial industry is that we will be the last to go because we have so many "soft skills" and the experience that you can't program....That's bull$hit. In the end formatting, modeling, forecasting, etc. will all be programmed in the not too distant future. I'm not even going to attempt to say when, but if you are like me and looking at another 30+ years of working before retirement it’s not looking good. If you think it's the soft skills that are going to save you I have two words "Renaissance Technology". Learn coding now and we might have another five years after the judgement day described above. It will all eventually come down to data and returns....not to mention you don't have to pay software a bonus.
I was reading something the other day making an argument that the last jobs to probably go will be the craftsmen and construction workers whose experience is cultivated from years on the job and the trial & error tacit knowledge that has been passed down for generations. So maybe it’s time we all embraced our inner hipster, grow a mighty beard, buy some albums on vinyl, and trade in those Ferragamo's for a pair of Red Wing's & vintage carpenter jeans. Of course the counter to that is, have you noticed the recent success of infrastructure funds?