How much of finance success is just a giant parlay?
To make real wealth in finance, you basically need a parlay of 10 things to hit. If 1 doesn't hit you are done.
Probability of (1 top HS grades (to get into college) x 2 top college grades (to get IB interviews) x 3 crush recruiting for IB x 4 crush buyside recruiting x 5 do well on the actual job (mix of staffings, team politics and how good you actually are) x 6 get promoted to principal/partner/PM x 7 have good deals/P&L x 8 firm/pod grows and fundraises x 9 founder is generous and doesn't hoard economics x 10 not get burnt out along way)
If any of them don't work out (you struck out on recruiting, your boss played politics poorly, you were oil investor in mid2010s, your own deals/book did well but the the pod shut down/fund can't fundraise, all the stars aligned but the founder is stingy and keeps all the bonus pool), you end up being in almost the same place as starting out at a regular job in corp finance/corp dev, except you have worked way harder in college and possibly lost out on experiences in your 20s and early 30s?
Seems like a huge # of high effort, low probability stars to align to become meaningfully richer than just starting in corporate out of college (or even big 4 and get promoted to partner making high 6/low 7 figures, or an MM ECM/DCM desk working 50-60 hours making the same)
1) Getting good HS grades are not a parlay. That is all on you
2) Top college grades are also on you
3) IB recruiting is a black box, but very rarely do you see top target school kids who prepped all the interview questions had good grades and good resume experiences strike out.
4) Buyside recruiting is largely based on the last 3 factors which are mostly in your control, combined with preparing well.
5) Staffing is the only "luck-based" part of this argument, but even then if you play the politics well and your staffer likes you this is not up to luck
6) Promotion is being good at playing politics, some semblance of luck sure
7) mix of luck and skill
8) mix of luck and skill
9) luck and skill
If you quit this path at step 4 or 5 and go work in FP&A/ Corp Dev you're still set for life in an upper-echelon career that is at least more interesting than big 4. You don't need to be some multi-billionaire Ken Griffin to make "real wealth." Big 4 partners are still big dealmakers and are top performers in their own right btw.
This is not a parlay. I'd like to propose a new sequence of events:
1. Be a smart, enterprising individual who, sure, does okay in high school or college or what have you
2. Works at any number of honest professions for several years and saves ~$250-500K
3. Levers up and buys a small business on a 7(a) loan or houses or multifamily on FHA loans
= very good chance of retiring with $10M, $20M, or more money
Going through the rigmarole you outlined is not a parlay; it is for most people a boring and unfulfilling path to $5-10M by constantly doing things because they want to please other people and never because they want to do it for themselves.
3 is a very high risk bet, no? every search fund winner you hear about there are those that barely break even and would have been better putting the money in the S&P
First of all, I said nothing about search funds. I said buy a small business, which is different from the search fund model. Secondly, there are LMM business brokers and M&A advisors. Do you think that LMM people always make a return less than the S&P 500? I've got news for you.
Thirdly, there's so many different paths in real estate as well. You can buy a multifamily on an FHA loan, get it to cashflow, live in one of the units, have it season for a year, and build on to the next one. In a decade of that, you could have 40 multifamily units just by doing 1 deal a year. That's retirement territory for sure.
Luck is the residue of design… read Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
Bro LIFE is just 1 big parlay.
Was thinking the same thing. Even growing up as a kid. You gotta crawl first then walk then run. We all crawled around at some point before walking. Then you gotta pass 1st grade to get to 2nd and so on. And with math you have to learn the basics before going on to Algebra and Calculus. Can’t take CFA L2 exam until you pass L1.
Basically, you are coming to the conclusion that working in finance is a lot of soul-crushingly hard work for decades, which requires a healthy dollop of luck to turn out optimally.
No shit. You haven't drawn back the veil on some unbelievable cosmic secret. Yes, you need a little luck in finance to be successful, but that's true of everything. Finance is attractive to a certain type of highly risk-averse person because it requires less luck - as you've sort of noted, there are a series of steps and they're pretty well known. People who are willing to totally sublimate themselves to their job can thrive in those circumstances, since all you need to do is work insanely hard and you're guaranteed a pretty high base level fo pay
1. Don't be born in sub Saharan Africa etc
elon musk has done well
I was under the impression your parlay was probabilistic not literal. Or maybe I can try to make a list of people who've missed a leg of it ?
Elon Musk is not a sub Saharan lol
When it comes to 'luck' the biggest parlay factors have to do with how you were born/raised, and the opportunities that could follow.
Did you come from a two parent home? Did you live in a safe neighborhood? Did your parents work jobs that you could at least peak into the world of finance and consulting at a young age (if your dad was a plumber and mom was a teacher by the time you realize what you need to break in it may be too late), Did your parents instill a good work ethic in you? Did you avoid any medical or genetic limitations, etc. etc.
I am a big proponent that we all control our own destiny to an extent and that accountability = freedom. However it only becomes easier to experience this autonomy the further removed you get from your living situation assuming it's poor. So much of breaking in involves coming out of the gate strong, that means being in high school with purpose and college as well and living a well rounded life with sports, socialization, academic success, etc. That frankly is extremely difficult bordering on impossible for many kids.
The list goes on. Were all just lucky and hit green on the roulette of genetics and environment.
In addition to other commenters' explanations on why this is a dumb way to think about it, parlays are also single event based generally. Did x athlete perform well in this game, for example. You can abstract milestones to such a degree, but in reality getting good grades isn't a binary, it is based on 5-10 tests per semester over multiple years. Thus, you can course correct or make some mistakes along the way but still get to where you want to go.
A lot of this is highly correlated (succeeding on the job after crushing recruiting), well within your control (grades) or can be avoided by doing your DD before joining a shop (get promoted = do DD on upward mobility, have good deal/P&L = do DD on past fund performance or PM track record, founder doesn't hoard economics = do DD on founder). Not getting burnt out along the way isn't really luck either.
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