Is Traditional Finance Dead?
The freshmen going into college today, blind to the realities of the world, will dutifully complete their business degrees, and in 4 years come out realizing that they are absolutely 100% fucked. Surprisingly, however, I have yet to see any major transitional upheaval. There seems to be a disconnect here, and I can't tell if it's just delayed reaction, an innocent lack of knowledge, or straight up purposeful adamant denial. I've been lurking WSO for many years now, all the way back to high school come to think of it, and I've always enjoyed the community here.
It's been interesting to see the gradual shift over time, and I'd love to hear what your guy's take on all of this is.
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Investment banking and to a lesser level PE and VC in the end is mostly about relationship/sales. The junior level positions could be affected by automation but not senior levels. You can be reincarnation of Einstein but if you can't source a deal, then you are finished. Also, corporate finance is not quant heavy. There is nothing about complex derivative in the financial statements of Lockheed Martin.
Lets take a look at your examples:
I would posit that in the near future, the only thing left will be that of quantitative positions basically.
Nice! It’s great that you have a solid statistical background. I think that having that foundation will be increasingly required as a basic prequisite, regardless of position.
I would posit that you're wrong. How are investment banking, management consulting, private equity, venture capital, and activist investing going to be come quant focused? An algorithm can't build relationships and it can't actively intervene.
This has nothing to do with the strength of my statistical background and more to do with you pretending that an extremely basic concept taught in introductory finance courses is above the heads of "mere business majors."
finance versus quant passive versus active left versus right north versus south east versus west
it never ends and it's gotten to the point where it's a near religious argument. either you're a luddite and think that things will stay the way they are or if you're a techie, you think everything can be done better by a computer and humans outside of your field are irrelevant. you're both wrong. I've been getting told that finance is dead for years. I've seen commercials telling me I can be automated and that the robots attempting to do my job are the future.
my revenue and income are up 30% this year. fuck off. I refuse to be automated.
automation gets rid of low value-add services, not high value-add. operations jobs like trade reconciliation? absolutely easy to automate with the help of quants. it'd be great if the middle office could be run by a couple of engineers instead of 40 sweaty guys from Rutgers plugging into spreadsheets all day. that's a low value add service.
structuring a B2B asset swap while subsequently relocating a company into a different jurisdiction for tax purposes while simultaneously keeping debt/equity ratios at a certain level? not easily automated. that's high value add, and not easily automated.
filing electronic medical records & updating charts? GREAT application for automation, if you quants built sophisticated enough natural language processing to keep doctors and nurses seeing patients instead of tied to EMR, quality of life would improve for them or wait times would plummet for us. hell, even surgery can be automated.
you know what can't easily be automated? doctor to patient interaction, active listening, etc. I imagine a world not totally automated and not totally with robots, but with people and robots working in tandem. the foreman directing his robot construction machine to build a frame for a house, the doctor using IBM Watson to aggregate similar cases to his patient to improve outcomes, bankers using data from supercomputers to help companies maximize the timing of secondary offerings, and so on.
it's not either or, it's both and. stay woke kiddies.
You sure know how to rile people up with such a click-baity headline.
There are definitely valid arguments on both sides of the issue, but I generally agree with your point of view.
As you later stated, I do think that the point that you should have pivoted to earlier is not the "benefit" of a STEM vs business degree which is pretty subjective, but rather its utility, which is far more quantifiable and defensible. Having the ability to code software that can perform a variety of tasks regardless of industry is an incredibly versatile and valuable skill no matter how you look at it.
Of course having a STEM degree by itself isn't going to make anyone a better candidate for a finance related role, but I think most people do understand the difficulty and rigor of the STEM curriculum, which is something much more actionable and worthy of consideration when evaluating candidates. I can't tell you how many times I'd find my buddy knee deep in a statistical thermodynamics textbook poring over equations which spanned multiple page lengths that I couldn't even begin to comprehend on a friday night... while i'd been loafing around being an overall degenerate since noon. If i were hiring someone, I'd have far more confidence in the ability of a kid who has successfully endured 4 years of subjects like multiscale flow and fluid dynamics etc etc AND taken a demonstrable interest in finance (which is why they're applying in the first place!) vs someone with... well a biz degree (assuming an equal level of social likability). That speaks a great deal not only about intelligence but work ethic, and it's simply more impressive to me 9 times out of 10. After navigating material like that, you'd have a hard time convincing me that they wouldn't be able to digest concepts like modern portfolio theory or option pricing models once they've put their mind to it. Are any of those subjects relevant to the field of finance? Not really, but that's also not the point.
As a business major myself, i sincerely regret my major choice, or at least not double majoring in something else. Most, if not all, of my finance knowledge has come from work and the CFA (which literally anyone can take). If only I could have spent that 120k of tuition on something else to round out my skillset! (or invested it in BTC... smdfh).
And please don't get me wrong. These aren't the grumblings of a jaded biz major who hates his job, because I absolutely love my job (PERE). But It's important that you, or someone else in this thread, made the distinction between "high value add" and "low value add" positions. Being fortunate enough to be part of the former, I do think that working with people with diverse backgrounds and modes of thought (such as those adopted by STEM grads) is what ultimately helps adds value in what we do. When you're evaluating a $100M+ investment, it's not necessarily helpful to be fishbowling ideas with a room full of "finance" guys. That's how your fund ends up with a negative IRR real quick. What is helpful is having the perspective of someone with a health sciences background when evaluating the credit of a biotech firm, or having a Mech E's opinion when performing DD on a 400k sf property and discovering streaking in the glass facade. To an uninformed analyst, that might just represent additional albeit reasonable capital costs. The Mech E might opine to more sinister underlying structural concerns which may have severe repercussions down the line which could kill a deal, or would otherwise make our JV partners very upset.
It's funny to see how see how strongly people stand on this, but i think it's still a good conversation to have when evaluating the actual value of a business degree and how the curriculum can be enhanced going forward.
now we're getting somewhere. all else being equal, STEM degrees are more rigorous. there's much more prework, higher level math & stats, and so on. so I think it's fair to say that someone with a STEM degree probably had a harder time earning that degree than someone of equal intelligence did who earned a finance degree.
my comments were about value. fuck your degree, if you can't bring value, you're worthless. anyone can learn to code just like anyone can learn how to do a DCF, few people are high value add, and to assert that someone's degree will clue you in to their value is utter bullshit.
for context, I'm not anti CS. my brother has a CS degree from a top 5 university, my dad was a software architect, most of my clients work at tech companies (many have CS/EE degrees) or have other STEM backgrounds. my biggest beef with this conversation is (whether you're saying this literally nor not, it's implied) the assertion that someone with a CS degree automatically is a more valuable employee. I've seen some of the engineers at fortune 50 tech companies when I've visited their campuses for client meetings. they may be very smart and do things with a computer I can't do, but for many of them, their "utility" is very questionable.
This entire STEM>Business perspective is immature, and clearly written by somebody with zero work experience.
The entire argument that success is more likely from a STEM graduate because of their "learned way of thinking/logic and ability to tackle complex problems" because of their more rigorous course work (correct me if I'm misunderstanding the original argument) is short sighted. Sure, logically this makes sense - but practically it has no basis.
Think of it this way: Everybody who completed high school with good enough grades to go to a solid university is smarter than the majority of the population. Let's assume this is the top quartile of people, And Everybody who excelled in university and secured top grades is in the top quartile of those individuals. If you work in a competitive area of finance, your level of intelligence is very similar to those working beside you, compared to the rest of the population. In other words, everybody is smart enough. They meet the base level of intelligence required to learn their job, and do it diligently.
What sets people apart in the real world is not some incremental advantage in aptitude, which they gained from their university experience.... but rather much less quantifiable aspects.
How passionate are they for the job? Do they get along well with others? Are they fun to work with? Do they have the confidence to lead others?
Frankly, I think these aspects are much more important for professional success - and this is what a business degree aims to nurture, through group projects, class presentations, and competitions.