How was Investment Banking modeling done back in the day?

Have always wondered this. Investment banks have been around long before excel - even back to the 80s and 90s - so how would investment banks and private equity firms create IPO pricing, valuations, LBOs, etc?

Comments (49)

Jul 6, 2018

Paper and a 12c calculator

Jul 6, 2018

Damn, that doesn't leave much room to change around assumptions and whatnot

Mar 17, 2019

No easily-changed assumptions meant smaller, simpler pitchbooks and . . I can't even imagine this part . . actual conversation about strategy.

Jul 6, 2018

Anthropologists in southern France recently discovered wall cave paintings that may be remains of a primitive LBO. You think being an analyst is tough? Back in the Ice Age era, analysts were carving DCFs out on stone tablets.

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Jul 6, 2018

Major props to them honestly

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Funniest
Jul 7, 2018

I heard that CS (Credit Sphinx) analysts had to run the Pharaoh's pyramid financing models on tomb walls in hieroglyphics under candle light. Then the Pharaoh decided that slave labour could be used and they had to re-calc the uplift in EBITDA for their MD in one day whilst plagues rained down on them.

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Jul 7, 2018

You think that was bad ask someone who worked on a trading desk how they keep their P&L and bank balance sheet before Excel and Lotus 1-2-3.

MSFS Incoming Intern

Most Helpful
Jul 8, 2018

I still have to write my history of investment banking post. Someday, I will find the time.

Lotus-123 came out in the early-80s and that changed everything. That, along with the M&A boom, was really the birth of investment banking as we know it today from a junior banker perspective. Excel took over from Lotus in the 1990s but in a sense spreadsheets are spreadsheets. Its no surprise that the first formal analyst programs were in the early to mid 80s.

For a few years before Lotus-123, there was apparently "the computer" which associates (analysts were very rare before spreadsheets) had to book where you provided model inputs and then an hour later, you got outputs.

Before that it was graph paper and a calculator with a typing pool that typed up the model outputs. I'm told my people who were junior bankers in that era that it was a blessing and curse. Obviously it was a pain in the ass but people were thoughtful about the analysis they wanted. There was no "run me an accretion / dilution analysis for 12 targets at 5 different premia using base case, upside case and downside case earnings, and I want that at 8am tomorrow"

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Jul 8, 2018

Damn. Very cool. Were the inputs in "the computer" just part of a template, or could you have some formula wrong that you'd find out after an hour of waiting, and would have to hope you could fix it the next time around?

Jul 8, 2018

I understand you had to input the variables and the formula and then let "the computer" calculate, so any mistake would be seen after the hour. And because "the computer" was often booked up, you wouldn't be able to fix it for a day. Now everyone senior thinks they were gods gift to finance when they were junior bankers, but people who had to use "the computer" say their attention to detail needed to be impeccable because they only had once change to get it right. Of course, anyone who did is in their mid to late 60s and all but a few have retired - there are some vice chairmen around though who were young bankers in the 70s.

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Jul 9, 2018

awesome post! this is why I keep coming to this website

fuck nevada i ain't goin to that state

Jul 17, 2018
mergersandacquisitions78:

I still have to write my history of investment banking post. Someday, I will find the time.

Looking forward to that !

Mar 13, 2019

What would have been the "entry" level position for bankers before a true analyst program was established? Would someone come in later in their career?

Mar 15, 2019

One of my good friend's Dad was an MD at a respected bulge bracket back when lotus was first coming out and quickly became known as the "lotus modeler". Hearing him speak about his experiences of having everyone come to him to build models, sounds like it was the biggest mistake of his life. He showed me some of his models he makes in Excel and everything is in R1C1 style... it's just painful.

Jul 8, 2018

@mergersandacquisitions78 very cool, thanks for the insight. I'd love to see your history of IB write up when you've done it

Jul 10, 2018

I had an MD once who started as an analyst in the 80s. Apparently he was working on some cross-border deal back in the day and he once had to send the model to the offshore office.. by fax.

Jul 10, 2018

Not IB related, but a retiring partner at a law firm once mentioned that prior to advanced Word processing software, legal redlines used to be done by hand by some poor associate. Print the documents, put them side by side, and go to town on the document with a red pen and a ruler.

Bruuuuuuuuuutal stuff. Thank god for technology

Jul 10, 2018

Makes you wonder how many old deals were done with just back of the envelope/napkin and a handshake between old timey finance bros (maybe some would argue not much has changed).

I guess that's why prestige things like where you went to school and who you affiliated with used to matter a lot more, it was basically the only way to actually know that you were talking to someone that knew their stuff or wasn't going to just fuck you over. Glad that has (for the most part) changed but it would be interesting so see the deal life cycle during late 60's/early 70's.

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Mar 12, 2019

Richard Rainwater used to make people pitch him deals by using the front and back of a single index card. If you couldn't explain the investment within that space, no funding... Buffett seems to take a similar approach...

Jul 10, 2018

I've wondered about this too but more about 18th / 19th century times...you always read about bankers from back in the day (early Rothschilds, Warburgs etc) - how did they do things? just lend some money and expect a return? how did they decide what was a good price to pay to buy a company or land / assets etc? Were some principles like DCF around back then too (in a simple way)?

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Mar 10, 2019

They were the money at the table hence you would bend over to receive some money what ever was the price - when they were in such monopoly's they could basically price the interest at whatever level they wanted and would have great returns. Also consider that currencies were a lot less stable back then, hence lending gold was frequent to hedge inflation/currencies changing due to some new emperor.

Jul 10, 2018

While we're at it, what the heck did Consultants use before Powerpoint? Curious to see what a 1970s presentation may have looked like

Mar 13, 2019

:\

Mar 13, 2019

I went down a fun rabbit hole as a consultant and discovered that McKinsey slides from the late 90's were literally just clipart and those textured backgrounds, replete with slide animations like the letter-by-letter typewriter (unfortunately not the laser pew-pew-pew)

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Jul 10, 2018

I wonder what its gonna be like in 20 years when juniors are talking to a senior bankers about IB back in the day, and seniors going off about excel models and shit and juniors look at each other and go "what the fuck is excel"?

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Mar 17, 2019

Maybe. But old habits die hard. HP 12c is older than anyone on this message board and I have 3 of them on my desk right now.

Mar 18, 2019

There are definitely a handful of people here in their 40s

Jul 10, 2018

My boss was in investment banking in the late 60s and early 70s along side some of bigger names around town. He and some of his fellow phds would program punch cards for larger clients..

Mar 9, 2019

Must be a shitty banker if he isn't retired yet.

Mar 9, 2019

He was. Now he's a shitty hedge fund manager.

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Jul 10, 2018

Merchants of Debt (about KKR) talks about how they did calculations on paper, and how it changed once simpler computers showed up, how things got efficient and they could run different cases, etc. Also covers how they made LPs for example.

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Jul 10, 2018

Ah very cool. Will have to definitely check that out

Jul 10, 2018

In the future, believe it or not, people will question how we used complicated systems like excel and PowerPoint to evaluate deals.

What an easy life the people in the AI future will have.

Jul 16, 2018

I vaguely recall having to purchase a software called something like Alcar Value Planner/Planning, back in the late 1980s for the analysts when I worked in the corporate library of a Japanese bank.

This would have been in the Lotus 1-2-3 spreadsheet software heyday - which was an IBM product. And we used Wang word processors! Wang Laboratories, oh goodness, haven't thought of that in ages! We had a "cool room" for the printers and fax machines since so many of the earlier versions of computer equipment peripherals didn't have decent internal fans, if they existed at all!

I wouldn't get my introduction to Microsoft's Excel, version 2 or 3, I want to say, until the early 1990s.

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Mar 11, 2019

Not banking related, but my father was active in Silicon Valley in the late 1980s and early 1990s. When keep track of transactions, he recalled recording them on Lotus 1-2-3 and basically said in those days it was IBM or nothing. It was until 1992-1993 that he jumped over to Windows and Quattro Pro, and then by 1997, everything was just Microsoft Excel.

"Work ethic, work ethic" - Vince Vaughn
Mar 12, 2019

this thread is the best thing I've read this month. thank you all for the input! I'll look up Merchants of Debt...

Mar 12, 2019

With blood, sweat and tears laddie

Mar 13, 2019
Howard Hughes:

Have always wondered this. Investment banks have been around long before excel - even back to the 80s and 90s - so how would investment banks and private equity firms create IPO pricing, valuations, LBOs, etc?

A form of banking existed even before the 80s. It probably looked more like merchant banking or some form of today's world but 99% of prices based on word of mouth. It makes sense that you had to have a high tolerance for coke and viagara back in those days. There's no honor in your entire day's work being based on how good of a cock sucker you are to super rich SOBs.

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Mar 15, 2019
iBankedUp:

There's no honor in your entire day's work being based on how good of a cock sucker you are to super rich SOBs.

I have some bad news for you about being partner at a firm.

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Mar 13, 2019
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Mar 23, 2019