Is Wall Street still lucrative? Explain why has Wall Street declined over the past decades

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There is an article about a fellow in the 30's named James Levin (search him up) from Harvard and works at Och-Ziff. He was recently given $250 million (couple years ago he was given $119m compensation package). Levin made a bet on structured credit that netted OZM $2 billion back when he was 29. As a high school student who read a lot of books about finance, it gave me hope again that the lucrativeness of wall street is not entirely dead yet - further, it reminded me of the good old days in the 80's and 90's when Wall St was the place that could blast you off from 0 to a million in no time if u were committed, smart, and lucky.

Way before 2008, firms like Drexel, Enron, and Gruntal offered a lot of opportunity for young guys to make their names on Wall Street by making a lot of money for their firms (usually through prop. trading). Those were the times when star traders and bankers racked up million dollar salaries in their 20s. Even Goldman and other BB's used to give employees greater autonomy to bring in the dough. Now it seems, these types of opportunities are not available anymore (w/exceptions like the James Levin guy).

What happened? Perhaps it was increased regulations, interest rate changes, increased quantitative trading, or maybe society's growing hatred of Wall St. And, how can young Wall Streeters make it big nowadays?

Market volatility and market inefficiencies have generally declined over time - and I believe this is reason why there are no more opportunities to make extremely lucrative trades (think: Soros Breaking the pound or John Paulson shorting CDOs). What James Levin of OZM did with his structured credit bet is extremely rare to see in our present financial paradigm. Moreover, the modern-day challenge is not only finding a extremely lucrative investment opportunity but also to wield a large amount of capital in order to make a lot of money. No longer do you see banks and funds giving young guys the opportunity to make these types of bets due to regulation and perhaps simply a general distrust towards them.

What do you think?

Comments (88)

Mar 21, 2017

1) Automation
2) Regulation
3) Artificially low volatility due to the effects of QE, which by the way is still going on with the residuals from the previous new liquidity injections.

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Mar 23, 2017

Quantitative Easing destroys financial trends and hence why you see a lot of Macro funds struggling now compared to in the 90s. I think QE has impacted the HF more than what most people think.

Mar 23, 2017

QE destroys the entire active management industry. Even though historically active management on average has achieved a lower rate of return than the index, with QE that gap is highlighted even more because a rising tide lifts all boats.

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Best Response
Mar 21, 2017

Glad we didn't go a full week without one of these posts again...

Mar 21, 2017

Perhaps the question is repetitive but I haven't secured a satisfactory understanding of the state of the finance industry now in context of the history of wall street - why aren't people making as much money as before and more importantly, how is it possible to become a wall street superstar because this is the industry that I'm targeting with 1/2 of my interest driven by money! There are plenty of other industries/jobs that I could pursue to make money but I am truly passionate about business (1/2) and firmly believe there are still big opportunities in this industry :) I'm just seeking certainty

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Mar 21, 2017

I think you're thinking too much into everything.

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Mar 22, 2017

If someone could predict the state of the economy and the finance industry and they still decide to go into Banking they are dumb as rocks. If I knew exactly how the economy was going to be in 1, 2, 5, 10 years, i would be levering up and trading in a personal account..

point is no one knows. The industry isn't going to disappear anytime soon, people will always have to adapt (AI, technology) etc.. There will be peaks and troughs and slow recoveries like the one we are in

Don't read into it too much, and try to learn as much as you can, and adapt and you'll be fine

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Mar 22, 2017

Obviously it's still lucrative since, assuming an economy exists, there will always be a demand for individuals who can markets or provide high levels of consistent ROI. I'll toss out a theory for buy-side: In essence, more people going into the field, technology scaling research/investment processes, and greater access and visibility of fund performance for those shopping the "buy-side marketplace" increases overall money-allocating efficiency.

I imagine there's a dichotomy of rewards between the highest performing funds and everyone else, with a growing trend of funneling additional money (and thus rewards) to the top money managers, ultimately squeezing out a greater percentage of the underperformers. This could be exacerbated by a bolus of finance professionals entering the market who witnessed the success of those in the 80's, 90's and 00's and want to try and follow in their footsteps.

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Mar 22, 2017

As Heister pointed out, Automation alone will most probably ravage the industry in the years to come. The software that's being made, and has been out for some years, is doing work that analysts and associates would do. What 15 analysts could spend a week on 20 years ago, takes a couple of seconds today. This goes for *every *job where the main task is to go through data, do number crunching, and present them in a meaningful way. Even junior lawyers aren't safe anymore.

Sure, you will always find some firms that will pay out big, if the recipient managed to make a ton of money for them. James Levin got a huge paycheck because he was right on his bets. But if the fund could find a robot to do the same work as him, that would be 200 million saved. And he'd be out of a job.

I think that 10-15 years from now, you must have a pretty different background, and go through different channels in order to break into high-finance. If the lowest tier / level in banking (interns / analysts / associates ) is decimated, I don't think banks will just start hiring beginners and freshmen for VP positions. In fact, I'm gonna go ahead and predict that future bankers will need to know solid programming/scripting skills.

The past few years I've noticed that there's more and more demand on skills like data analysis, basic programming skills, and data handling (i.e knowing how to retrieve data from databases) for regular finance positions. Still in a minority, but I can see those skills become valuable in the future.

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Mar 22, 2017

There could also be a bifurcation in roles where there's a lower paid track to work on models/pitchbooks and a higher paid track that leads to senior banking roles.

Mar 22, 2017

I don't think automation software will take the place of entire analyst classes, however it will continue the trend that has been going on since the release of computers. The market is cyclical, therefore I do not think that jobs can never increase. It will just be impossible for the industry to reach relative numbers it has had at its peak in the past.

Follow the shit your fellow monkeys say @shitWSOsays

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Mar 22, 2017

It seems to me that Finance no longer holds the notoriety and lucrativeness that it used to. Everyday monkeys see finance as a mundane but stable career path like accounting, except it pays a more - you get a set salary and decent bonus that goes up over time steadily but we're all just nutz and boltz in the economy. Hopefully the future has more treasure in store for prospective monkeys....

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Mar 22, 2017

I agree! But dude, IB (and more generally, Finance) is just another job...like accounting except finance pays more. If you want to make real money go to Silicon Valley or Hollywood because there are more people striking rich by starting up companies and becoming celebrities than in Wall Street today. Do what you are passionate about in life and hope it gets you rich, not the other way

Mar 22, 2017

Yea you get what I mean fellow prospective... Finance is just another job .... a lot of WSO people here are just too stuck up in their careers to really think/care about the big picture. They're all on-board the Wall Street train that's going too fast to get off while we're thinking about where that train is heading....Seems like the train is heading towards a fantasy land

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Mar 22, 2017

You hit the nail on the head in the last paragraph

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Mar 24, 2017

I want my kids to learn computer science and/or engineering. How much cooler is it to say that you designed an iPad or video game, designed a more efficient artificial limb, or something like that, rather than doing something that ultimately makes rich people richer or got someone a little bit more retirement money?

I like my job, but admit that what I am doing is not some huge benefit to society.

Mar 24, 2017
SirTradesaLot:

I want my kids to learn computer science and/or engineering. How much cooler is it to say that you designed an iPad or video game, designed a more efficient artificial limb, or something like that, rather than doing something that ultimately makes rich people richer or got someone a little bit more retirement money?

I like my job, but admit that what I am doing is not some huge benefit to society.

Designing a new video game is a huge benefit to society?

I want my kids to do whatever they are interested in. If they happen to take after me, they likely will be much more interested in business and understanding how companies work, rather than computer science. I don't think that would make them more or less valuable human beings than classmates that have different strengths and interests.

Mar 24, 2017

$135,000 @ age 22 isn't what it used to be?

The only thing that has changed is our sense of entitlement, or are you all too blind to see it?

Mar 24, 2017

-Average overall compensation for 1st years at BBs has dropped from $150K in 2007 to $125K in 2012 (source: M&I).
-Inflation from 2007 to 2012 is approximately 11% (source: BLS).

Thus, from 2007 to 2012, overall compensation has effectively dropped from $150K to approximately $113K. Our real compensation is now approximately 75% of what it was five years ago...and the outlook is bleak.

Mar 24, 2017
SwaGGeReR:

-Average overall compensation for 1st years at BBs has dropped from $150K in 2007 to $125K in 2012 (source: M&I).
-Inflation from 2007 to 2012 is approximately 11% (source: BLS).

Thus, from 2007 to 2012, overall compensation has effectively dropped from $150K to approximately $113K. Our real compensation is now approximately 75% of what it was five years ago...and the outlook is bleak.

Did you just say the outlook is "bleak"? Are you fucking kidding me? $113k for any college grad is not bleak.

Gives mafioso pat on the cheek*

Mar 24, 2017

IBD is still probably the long term best job on a risk adjusted basis...

Mar 24, 2017

excessive wealth in is finance/entrepreneurship. I was biomedical and chemical engineering for UG and its not all that awesome. I loved some of it but the mind-numbing work kills you and with policy the way it is the real innovation (which takes risk) is not happening

Mar 24, 2017

lol at the code writing > girls dressing up

@OP I think finance can still be lucrative provide you use your skills/experience well

Sorry to hijack the thread but you read about the banker who told his 2 gfs what stock to buy (because he knew the stock price would go up) and got them about PS2 million?

Mar 24, 2017

Getting a job at FB/GOOG/AAPL as a CS student is like landing a front office finance position: both are reserved for the top tier of graduates from their respective fields. On average a mediocre engineering grad makes more than a mediocre finance grad.

But at the top level, banking and the buyside pay far more than what you see at tech companies. You can hit 250k 3 years post graduation. A talented engineer might take a decade to ramp up to that level, if ever. Engineers are still a cost center (albeit one critical to the business). The rarely get to realize substantial upside from their output.

I'll assume that the average reader of this site is of above average intelligence, but not freakishly "Ren Tech" smart. For him, finance offers a much more lucrative career. To touch finance compensation as engineer, you to be the smartest guy in the room. Were you the sharpest guy in you undergrad engineering classes? No? Then you probably won't be in the top few % at Google either. Banking allows success through perseverance, provided some baseline level of intelligence exists. (This is less true on the buyside - although good marketing and luck can go a long way)

Of course, the guys making the most money will always be entrepreneurs. Starting a software company will always be easier than navigating the regulatory maze of setting up a financial institution. But nobody should count on this type of success. For every 27 year old selling his iPhone app company for a few million, there are hundreds who fail horribly.

And none of this is a criticism of engineering education. I believe that engineering (and CS/Math/Physics) is one of the most useful degrees you can pursue. It's far more rigorous than finance at most universities. Worst case, you have effectively put a floor on your salary of ~70k. And I say this as an Econ grad (although I did do a lot of CS).

Mar 24, 2017

Question - if the capital gains taxes were the same as normal income taxes, would finance still pay so well?

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

Mar 24, 2017
Anomanderis:

Question - if the capital gains taxes were the same as normal income taxes, would finance still pay so well?

Most definitely. Think about it, bankers don't get any capital gains. Their income is taxed as income

Mar 24, 2017

I'm not the first to say this here, but it's not that being an engineer is "increasingly attractive" all of a sudden. It's that high finance sucks right now.

Mar 24, 2017

I know it sounds bad, but I don't care that much if what I'm doing specifically is "beneficial to society", whatever that means. It's not like Mr. Society did any particular favors for me. Ms. Luck helps me from time to time, but she's a little bipolar and wouldn't accept a gift basket filled to the brim with meds even if I offered it to her nicely with puppy dog eyes and a toothy smile.

I think a field should be judged on: do you find it interesting, does it pay well enough, and how are the people. High finance tends to miss the mark on one of these. I don't think anything gets all three though, so pick your poison?

Mar 24, 2017

Does no one like the deal making aspect in high finance? Obviously not as a monkey at the bottom of the rungs, but after you climb your way up? I think the attribute of many of the industry vets entices me...but then again there is always the money.

Mar 24, 2017

Given that some estimates are a decade or more before the next real boom, I'm considering other options for a few years and then possibly coming back in. Go and join military, start a business, or just be an accountant, and then get an MBA as things start heating up....jump back in, make some $$$ and bounce out for good. Or I might just stay where I am, I don't know yet.

I'll say this much though: thousands of people a day, on average, are being terminated and it's fucking demoralizing. It's gotten to the point where I people I used to send resumes to are now sending me theirs, and everything is taking place on shifting sands. Also, I'm still relatively new, but I get the distinct impression that I could make a whole lot more money doing something else...but since I don't have any functioning ideas, I'm staying put for a while.

Mar 24, 2017

What does everyone think about rotational 2-year corporate finance programs, such as the one offered at GE? I'm going to graduate in May and banking remains my top choice, but the general realization that I've had is that ibanking jobs are becoming ridiculously hard to find right out of undergrad unless you are a top tier student or go to a target. I feel like the corp fin roles might be the way to go given this hiring environment.

Mar 24, 2017
Huskies25:

What does everyone think about rotational 2-year corporate finance programs, such as the one offered at GE? I'm going to graduate in May and banking remains my top choice, but the general realization that I've had is that ibanking jobs are becoming ridiculously hard to find right out of undergrad unless you are a top tier student or go to a target. I feel like the corp fin roles might be the way to go given this hiring environment.

Make sure you read the thread about GE FMP before you make any decisions. TL;DR - it won't lead you into banking

Mar 24, 2017
Bankn:

One big thing you have to think of with many engineering/CS jobs is their ability to be outsourced. I have a talented friend who graduated with a PhD from John Hopkins in chemistry, who very seriously is worried about their job at Merck being outsourced.

I'll echo this. Chemistry and biology bench jobs are certainly being outsourced. The plus is that you can find jobs at the CRO where they are being outsourced to. But these aren't the high paying, posh jobs that were once found post-Phd in chemistry and biology at places like Merck/Pfizer. You kill yourself for 5-6 yrs making 25k (at best) in grad school only to find yourself jobless on the other end. Large pharma doesn't do much R&D nor do they innovate anymore. Too risky for them. It's much safer for them to buy their pipeline. What it means is after your phd, you'll probably work at a smaller biotech at 3/4 to 1/2 the pay. The S part of STEM is not the route to riches by age 30.

Mar 24, 2017

I am a CS major and said f that and went into finance. CS is boring as heck and MOST of the people working in the field are dry and boring. And the average salary of finance > average salary of CS

Just like the top in finance > top in CS

People here keep saying oh engineers and programmers make a lot of money if they are good! Well so does finance...

In this thread people are comparing top CS vs average finance OR average CS vs top finance. How does that make any sense

edit: and entrepreneurs are in the same boat, yes the top ones make tons of money but the average is a joke. its the same with anything in 99% of industries if you are the top at what you do, you make more money...

BUT the average person is going to make more in finance as average than any other industry

Mar 24, 2017
yeahright:

I am a CS major and said f that and went into finance. CS is boring as heck and MOST of the people working in the field are dry and boring. And the average salary of finance > average salary of CS

Just like the top in finance > top in CS

People here keep saying oh engineers and programmers make a lot of money if they are good! Well so does finance...

In this thread people are comparing top CS vs average finance OR average CS vs top finance. How does that make any sense

edit: and entrepreneurs are in the same boat, yes the top ones make tons of money but the average is a joke. its the same with anything in 99% of industries if you are the top at what you do, you make more money...

BUT the average person is going to make more in finance as average than any other industry

Really? Any other? Even say medicine?

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

Mar 24, 2017

I've completed multiple years in banking and private equity and, honestly, the pay might be down a bit from what it once was in IB, but the hours are much more reasonable than they were in '06. Sure 22 year olds were making $150k+, but they were also slaves to their desks. If anything, you might argue that pay per hour is better now, although some banks/groups are known for crushing their analysts regardless. Also, you still learn wayyyyyyyy more than you would in any other job.

Re: PE, maybe it isn't the black box that it once was, but you won't find any job that pays you as well as it does only 2 years+ out of college. The only other way, IMO, to fast-track your way to riches would be to get lucky in the startup game. Or law school, but add 3 years to your timeline. Talking to younger kids, seems like there is a little bit less interest in getting into IB but based on the resume books I've seen, there's still PLENTY of competition for these jobs.

Mar 24, 2017

Gordon Gekko just shed a tear

Mar 24, 2017

Just to toss in my penny stocks, I was originally a pre-med student because I wanted to help the world and live a miserable life paying off epic amounts of loans. Then I realized, if trading turns me on then why not get into this finance porn? As someone mentioned above, the number of years it takes to get into the higher income bracket in other fields is fairly high compared to finance and that is unacceptable to a money hungry capitalist like me. Plus, economic history didn't start in 2008. When economies eventually turn around and regulation eases (inevitable) thats when the road to big paychecks will light up again.

Studying this material beats learning about organelles of cells and bacteria types any day

Mar 24, 2017

I've been reading the comments above and realized what many of you think is so different from what people in India (BRIC?) think. OK, so I'm from a top engineering uni in India and a lot of my friends are doing MS from top unis in US/ EU or opening up tech companies (some of which will become very successful), but finance is still THE sht here. Could be because the finance industry is largely underdeveloped and there is a huge potential to make a ton of money as the economy loosens up and develops further.
It's also not all that cool, with >1 mil engineering grads every year, every f
ckwad you know is "working on the next generation technology" (No they are not, they are writing shitty codes in outsourced jobs).
To get really rich through engineering/ CS you still need that idea which will make you money.

Mar 24, 2017

well....I have to say, I'm in the healthcare field...and while it might take a few extra years to get the earning power of bankers...it it SO rewarding a field. I don't think many banker/finance types feel that rewarded (other than monetarily). Being a doctor is one one of the most highly respected fields in society...when all the rich bankers get heart attacks they are mighty grateful for all the wonderful,caring people in the hospitals....there is nothing so humbling as being faced with your mortality....all you you rich bankers should be a bit less high and mighty in your thinking you are such masters of the universe. We are all human....and you will be so grateful for the high tech,caring medical professionals when you need them. Do what you love...don't do it for the money...if you sell out for high salaries all you get is huge expenses to keep up your lifestyle and high maintenance women. I browse wso occasionally because I know some young people in the field...and they all hate it and are leaving for better, more rewarding pursuits now that the guaranteed $$ are more elusive.

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Mar 24, 2017
bellvino:

well....I have to say, I'm in the healthcare field...and while it might take a few extra years to get the earning power of bankers...it it SO rewarding a field. I don't think many banker/finance types feel that rewarded (other than monetarily). Being a doctor is one one of the most highly respected fields in society...when all the rich bankers get heart attacks they are mighty grateful for all the wonderful,caring people in the hospitals....there is nothing so humbling as being faced with your mortality....all you you rich bankers should be a bit less high and mighty in your thinking you are such masters of the universe. We are all human....and you will be so grateful for the high tech,caring medical professionals when you need them. Do what you love...don't do it for the money...if you sell out for high salaries all you get is huge expenses to keep up your lifestyle and high maintenance women. I browse wso occasionally because I know some young people in the field...and they all hate it and are leaving for better, more rewarding pursuits now that the guaranteed $$ are more elusive.

LMAO, do you feel better? What a pathetic and insecure post.

Mar 24, 2017

What is the point of being a doctor and 'saving people' if you think people are all scumbags?

Mar 24, 2017

I read this last weekend, according to the article finance at its peak encompassed ~8.1% and will drop to 4%. A lot of that was attributed to the bank closings. I'm a little skeptical how far the Fed's oversight over compensation. I don't know how much affect it'll have on entry positions.

"Cowards die a thousand deaths, but the brave only one,"
Bill Shakespeare

Mar 24, 2017

Good, more money for me...

Cheer up, Bateman. What's the matter? No shiatsu this morning?

Mar 24, 2017

Actually when you have that kind of money it's actually easier to build wealth over time by being frugal, smart investing and decisions - It's also luck and staying ahead of the game through informers.
Nowadays you can become a millionaire way easier than it was before and if you want to be a billionaire you have to invent something or take something and make it better but coming up with a worthy idea is hard and executing it even harder.

Mar 24, 2017
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Mar 24, 2017
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