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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I talk about some of your points in response to Formaldehyde41 below. I agree with you though that non-trading / human focused positions will definitely be less affected.
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.
Personally, I pick the STEM major every time over the eager charismatic business major. Hard foundational skills, not necessarily in relation to what the student has specifically learned in their specialization, but the learned way of thinking/logic and ability to tackle complex problems are things that you can only encounter by facing extremely difficult subjects. The threshold is higher, which is important from the perspective of the interviewer in being able to differentiate between those who have the skills and those who don't. A business major by itself is far too noisy as a variable for measuring future potential, and is one of the many reasons that subjective variables like relationships end up being such huge factors.
Your comments regarding relationships within the industry is definitely still a point to take into consideration. I largely agree with your sentiments and think human facing roles like private equity, venture capital, mergers & acquisitions, et al. will be able to stave off much of the decimation in the coming years that trading focused areas won't be able to.
I think you underestimate, however, how quickly and exponential the transition will be. When the job of 10 general non-technical analysts can now be done by, let's be conservative here, 4-5, that's already a massive reduction within an already highly competitive environment. I won't go so far as to say the basic knowledge non-technical roles will completely disappear, they likely never will as people will always need some human intermediaries, but for the incoming college student today, choosing the business major over the STEM major is a losing bet in my opinion.
You are basically saying a Cornell STEM graduate is better than a Harvard Finance/Eco Graduate. Unless you can prove that it is just hypothesis.
Also STEM students take those subjects not to go into banking. Furthermore, just because someone is a STEM student it does not mean he/she will automatically be better at their job compared to a business major. Rather, if you are interested in Finance why in the world would your first preference be Hard Science and not what you are intereted in?
That is the flaw in the above reasoning.
Lol ! Another finance is dead thread.
If you want Markets just learn programming yourself. If you wanna go to Corporate learn your business subjects well.
Don't see how opportunities are dead. You sir are making excuses.
I completely agree. There’s nothing stopping someone from learning the skills they’ll need in the future to avoid obsolescence. My main focus is more on the idea that choosing to major in business is a net drain due to the fact that one could choose to major in a more technically oriented field and learn the necessary skills in an academic setting rather than having to bootstrap it by themselves.
If by technically oriented field you mean something like CS then he/she will have to bootstrap the business knowledge. For example, a student who does his/her UG in economics can far more easily pick up the requisite technical knowledge than a student with an UG in CS can pick up the requisite knowledge in economics.
Why? Because, for example in coding you write a program and you immediately know whether you are right or wrong. Such kind of feed back mechanism does not exist the other way round.
Yes, I agree getting a techical oriented education first and then a business education can be a boost in today's economy but it does not mean that the other way around is not worth equally as much. Both have their own pros and cons and each will be weighted according to a person's aptitude or interests.
Are you that kid who was spewing about getting a Medical Degree from Harvard? The worthless MBA one?
Take a few seconds to click on my profile. You'll notice that this is my only post, and I neither go to Harvard nor plan on ever pursuing a medical degree haha. I definitely wouldn't say that getting a medical degree is worthless though, and I have great respect for anyone willing to invest the time and effort in getting one.
[Accidental Double Comment]
It seems to me if this becomes the case, schools would adjust their "business" curriculum accordingly.
I feel like if this is the future, business schools/programs would, eventually, (1) include more quant-ish classes, (2) shift focus to things like marketing, entrepreneurship, etc., or some combination.
I have no idea what the future of finance will look like, but I'm pretty confident, over time schools would mirror their programs to the market.
Makes sense. I'm sure that'll probably happen.
Seems like it would be of greater value to just study those "new add on portions" business schools/programs try to bring in from the specific majors themselves though no?
A good example of this is the inclusion of information systems as a business major
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.
You are positing a lot of stuff without actually providing the logic for it -_-
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."
All this talk is worthless, it comes down to the school. You’re Ivy econ and McIntire/Ross/Hass kids aren’t going anywhere and quite frankly I’d take them any day over some random engineer or CS kid from Oklahoma state or some other T100 place. As for your stem kids with high GPAs from Stanford and MIT, sure they win but there also is sure as hell not enough of them out there to make enough difference. Those are a different breed of students who you’d be lucky to find would ever want to step inside some financial institution.
I definitely agree to a certain extent. It's impossible for a recruiter to be able to sift through every single application so certain heuristics have to be used in order to constrain the amount of people that make it into the interview process.
Discounting the variation in potential schools though, assuming that two applicants are from the same university for example, I think the STEM major has a higher probability of being successful in terms of aptitude than the business major. Of course, things are different on a case by case basis, but looking from a distributional standpoint and assuming no other access to information, I would make the bet that a randomly chosen computer science major will have a higher expected value than a randomly chosen business major.
LOL. Merely getting a STEM major from an Ivy doesn't make you a genius. These tend to be very smart people but to suggest that they're all holding out for something "better" (however you define that) than mere finance is laughable
LOL. Merely getting a STEM major from an Ivy doesn't make you a genius. These tend to be very smart people but to suggest that they're all holding out for something "better" (however you define that) than mere finance is laughable.
The 'rare breed' you are alluding to is actually a small segment of this already rarefied group of students, and in the end they mostly end up doing things that are of roughly similar quality (in terms of compensation, 'prestige', etc) to every once else that's pretty/ very smart
Bravo - another asinine WSO thread about SUPER HARD STEM vs. WORTHLESS business majors. School can give you the academic background but the vast majority of knowledge will come on the job. College is more about making sure you aren't some awkward kid who can't socialize worth a damn and checking your work ethic (aka GPA) - at least in IB.
as the urban philosopher nas once said, "beyond the walls of intelligence, life is defined."
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.
I think we generally are on the same page here. Everything you said in your comment, I agree with.
My argument is more centered around the expected value and utility of getting a business degree over a more technically inclined one. I argue that for people entering into college today, a business degree is no longer the safe bet as it has traditionally been and that those who fall into the trap of the business major are going to be majorly screwed in terms of finding new graduate positions.
and what I'm saying is you are wrong. a low value add person who studied CS or EE is equally as useless as someone who's a low value add person with a finance degree.
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.
You are 100% right about everything.
With a finance degree, if you are one of the few serious enough and lucky enough to make into a FO IB office out of undergrad, the good news is you can work yourself to death to make up for all that partying you did in college.
Otherwise you are fucked and have wasted ~50,000 and what's worse? Now you have to pay it back. Moron.
That said, that the trend works in the opposite direction as well. Yes, the top programs are producing smart (although infantilized and entitlted) students. But there is 20 times the dogshit / pigdicks / cow teeth that is being crammed into that meatpress to produce only a marginally increased number of quant sausages.
Moreover, industry is still not perfectly adapted to using those skills - ie there are not a lot of jobs you can do with that kind of knowledge.
Quality of business degrees are going down, yes - but so is the quality of the degree in general, as well as the quality of just about everything here in the good old US of A. At least I will get to keep more of my bonus this year.
Going to invest it in Mexico Bonds so I can have the satisfaction of telling my children when the Barians were at the gate (and everywhere else, including the Academy), that I loaned them the money they had to pay for The Wall my President built to Send 'em, Back! and Keep them out!!!
MAGA
LOL. Merely getting a STEM major from an Ivy doesn't make you a genius. These tend to be very smart people but to suggest that they're all holding out for something "better" (however you define that) than mere finance is laughable
This isn't really a change. With a few exceptions (one: Wharton), econ and finance are taught at a pretty low level of rigor/ difficulty at the undergrad level. Technical degrees are more impressive b/c they tend to teach more intellectual rigor (and require more work). With that background it is then easy to fill in the gaps in your finance/market knowledge (Financial Accounting , Corporate finance 101 covering interest rates/risk premia, CAPM, etc).
If you're doing finance b/c you expect the degree itself to mean something you're already pretty far off course
People always underestimate how much finance is a relationship business. Maybe STEM majors are smarter but that does not mean they are more pleasant to be around in the office 15 hours a day, better at editing a powerpoint, and better at talking to clients. Not everything in life is about how good you are at solving a math problem.
I learned Python in 6 months, that's all you really need. Maybe a bit of Java. Join a bootcamp and focus on networking. If you do that well and came from a decent school, you can get 99% of "finance" jobs out there.
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.
Yep, this is similar to what I was trying to get at in my post above. Agree 100%.
This STEM vs. business dick measuring contest is absurd and immature. The "STEM advantage" doesn't even carry over into the hard data.
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