Which is better for Wall Street in the long term?
Was talking to a friend about this today; here's a discussion topic for you:
Which is overall better for the culture and productivity at an investment bank (FO)?
A) The majority of the brightest students* (from whichever major) from the top universities (not necessarily an Ivy) head to Wall Street:
-these students aren't necessarily interested in finance, they are most interested in the best** job they can get out of undergrad (**best meaning pay, prestige, exit opps etc)
-This means that the liberal arts major from xyz target is more likely going into High Finance for reasons other than their interest (or lack thereof) for finance
-Less "career bankers" / more bankers looking for quicker exit opps
B) The majority of the brightest students (from whichever major) from the top universities (again, not necessarily an Ivy) head into the tech space.
-these students aren't necessarily interested in finance, they are most interested in the best** job they can get out of undergrad (**best meaning pay, prestige, exit opps etc)
-This means more students with an actual interest in finance are able to break in* e.g. Johnny with an MSF from WUSTL lands an analyst role at a BB instead of settling for a role at a mm bank, or Katie from a semi target who would have had to settle for a role in the BO lands a FO job, or hustling Timmy from a non-target has a better chance to land an informational interview with an IB associate at BB. etc etc etc -
-Higher qty of career bankers
-Overall "IQ" may be lower, but interest/motivation are higher, in theory
-Does this lower the quality and output of work? I wouldn't think so, ESPECIALLY at the analyst level. Potentially at the VP/MD level yes, but again that's up for debate.
I wrote this up quick, and only have had a little time to think it over, so please feel free to disagree, but curious to hear which one is better for Wall Street long term.
DISCUSS!
A vast majority of the kids you see gunning for Wallstreet jobs are doing it for money; this includes your "brightest" students from all the top schools.
Don't need IQ in banking; just an uncanny ability to swallow excrement, and peoples skills.
I personally don't like the current banking recruiting methods. This is probably because I'm on the disadvantageous end of the spectrum, as I come from a non-target school. Top Silicon Valley firms open up their scope to much more than just too Ivy Leagues. In addition, they're doing hiring throughout the entire year, unlike banking. I think it's silly how banks limit themselves to only Ivies. While you can never go wrong recruiting from them, BBs have the resources to expand their scope. They don't do that because of silly prestige
The reason that BBs focus on targets has very little to do with prestige. Simply put, it's about resource allocation and yield. On-campus recruiting is a major resource drain because you have to pull people away from their deal teams and actual work to go recruiting. The target schools have a much deeper pool of qualified candidates, and recruiting is institutionalized in a way that the kids are more polished and better prepared.
If you can go to 5 schools and find 50 qualified candidates versus 50 schools with 5 qualified candidates each, it isn't a hard call from a time and expense perspective.
I went to UIUC and did campus recruiting for a BB IB at both UIUC and Wharton. The preparedness of the Wharton kids was significantly better. At UIUC we'd interview about 30 kids first round and 4-5 would be worth bringing back to super day (a nearly 100% offer rate though for those 4-5). The ratio from a larger pool at Wharton was much higher. That said, the candidates who made it through from UIUC almost always ended up being high performers which is why they let us keep going back. It sounds like recruiting has fallen off there in more recent years though.
The idea that BBs only recruit from the Ivies is a misnomer in 2016. Go look at the other recent thread "Sleeper Undergrad Schools" for a discussion of non-Ivy schools that place heavily onto the Street.
But to answer your question directly, I don't think this is something easily quantified/tangibly measured. To say that "overall IQ would be lower" because banks recruit from "nontargets" is a) an unfair (and inaccurate) generalization and b) irrelevant, because investment banking is not really that intellectually difficult. We aren't trying to unify quantum mechanics and relativity, derive new stochastic options pricing methods, or write machine learning based AI software for use in mechanical prosthetic limbs. The hardest thing about IB is the hours and the endogenous stress. If anything, I think recruiting from non-Ivies improves work output, because these kids are going to have a much stronger work ethic and more mental horsepower since it took them more effort to get the job in the first place.
Finally, after getting the job in the first place, your pedigree becomes mostly irrelevant if you plan on becoming a career banker. If you're good, you'll move up, regardless of if you went to HYP or State U for undergrad. So in the end, it really doesn't matter.
I sang your last sentence to Linkin Park while I read it.
LMAO. Totally what I was going for
In essence your assumptions implicitly rely on a socially darwinian outlook on the world. That is, ceretis paribus higher IQ = better output. Then you add the assumption that motivation 'may' provide a factor that provides for more sustainable and higher quality performance (i.e. lower IQ hungry people getting into banking).
If I were to accept those assumptions as they stand, then I'd say the lower IQ, hungrier people would provide better value, not on the basis of their output, but on the basis of their cost - less exit opps etc means they're effectivley stuck once they have a job and thus pricing power remains with the bank.
Now I need to clarify I DONT accept those assumptions as they stand. I don't know about the US education system per se, but I did have a small exchange stint at a pretty prestigious University so have a rough idea of what its like. In essence I'm not comfortable with a direct linear relationship between grades and IQ. So harvard 4.0 GPA is smart, but so is 4.0 GPA at other Uni - I wouldn't be able to make a perfect statistically significant estimate of 4.0 GPA harvard's IQ. The other aspect that I dont' agree with is the 'dumber, hungrier'. First of all I acknowledge a relationship between enthusiasm and drive and performance, but I have anecdotally seen many, and unfortunately against a 'smart, hungry' person they get eaten alive (e.g. retail day traders).
So to sum up I don't see any real value in having only 'one' class as superior to the other, long-term value in banking should really be a product of both, and I believe that this is happening (to a degree).
To the broader abstract concept that the smartest should be doing the things that maximise humanity's potential, I agree. But I don't think you can categorically say 'tech' is the right option, either. I've said previously there's been a fad-level of enthusiasm for useless apps, but broader than that there's an practical constraint on R&D. That is, there is no direct causal relationship between IQ * amount of people working and 'humanity changing output', that unfortunately is in the realm of 'luck'. Breakthroughs cannot be counted on, incremental improvements have limits (i.e. our current rate of processor development has now ceased to be exponential - google Moore's Law). Also refer to Nassim Taleb's statements on directed research vs incidental research. Also refer to historical anecdotes of most breakthroughs (penicillin etc). Thus, given the level of uncertainty there is an 'exchange cost' between the benefits of having the 'brightest' working in other industries.
The final thing I'll mention is that of motivation, drive or whatever you want to call it. Capacity does not equal output. (In fact you'll find research that supports the hypothesis that there is a negative relationship between output and your average 'bright' person). Hungry people get shit done, smart people think about shit.
Many people's views on this topic are misguided. When comparing highly-ranked schools to less prestigious schools, the major differentiating factor is the competence and intelligence of the "middle" pack of students. The dumbest and most incompetent kids at Ivies are just as dumb and incompetent as those in Southwestern Oklahoma State. The brightest and most driven kids at Ivies are just as good as the ones in standard state schools. It's the middle pack that's different. The students who are in the middle in UPenn, Harvard, Stanford, etc. are smarter and much more resourceful than those at average universities.
Contrary to what many may believe, IB predominantly attracts middle-of-the-road students. The brightest students go into the hard sciences and become programmers, doctors, and researchers. If they're interested in business/finance, they get a quant role at a HF or something similar. Because of this reality, it is more economical for banks to go to "target" universities, where, in general, the "middle pack" students are generally smarter, and a greater number of them are aware of and interested in IB. Of course, there are smart kids who are excellent candidates at non-targets as well,
While I somewhat agree with the first half of your post, I think the second half of your post is based on the assumption that those in STEM majors are naturally smarter than the types of people who go into IB. Perhaps that conclusion could be drawn from my original post as well, but that was definitely not the message I was trying to convey. The hard sciences are certainly more intellectually demanding than anything a banker does on a day to day basis, but there are plenty of bright and talented individuals who choose to go the finance route simply for the paycheck, who would have been equally successful in a hard science had they chosen to apply themselves. The middle of the pack students who are even aware of IB will likely weed themselves out either in the interview process, or in the SA stint, or even later in their analyst years whenow they fail to get the A2A promote. Yes, as someone had mentioned, the "yield" may historically be better from "targets" but as I ended my original post with, and to fully answer OP's question, in the end it does not matter because the people who are good will move up in the hierarchy. I understand the recruiting economics, but in the long run it won't matter.
Strongly disagree that the top and lowest students at ivies and random state schools are of the same caliber.. Look, theres plenty of "dumb" people even at ivies, but "dumb" is still a relative term. The "dumb" ivy student is only "dumb" in the sense that maybe he/she got a 2100 on the SAT or had a 3.7 in HS as opposed to the average "unhooked" ivy student with a 2300/4.0. The lesser student is still in the top 2 or 3% of the country academically, and likely made up for the deficiency in grades/SAT by being a top ranked athlete or overcoming adversity as a URM.. I would understand the argument that the lowest quartile students at Harvard would be academically equivalent to the lowest quartile at a slightly lower ranked school like Georgetown/ND, but definitely not a random state school. Also the "top" students at ivies are the smartest students in the world. Especially with the financial aid that these schools give out. Harvard is basically free up to 100k family income, and you would only pay full price if you make over 300k, in which case you can afford to invest in your education. The argument of the most intelligent students getting into ivies but not being able to afford it, and ending up at their state school is largely exaggerated since for 90% of americans, an ivy is cheaper than a state school after fin. aid. No one is turning down Harvard for Southwest Oklahoma State to save some $$, and there is a serious difference between the top students at ivies and standard state schools (minus Berkely/Mich/UVA ect).
You are making the assumption that that at the undergraduate level, all students are accepted on merit. This is far from true. A significant number of students who wouldn't have any chance otherwise get into ivies because of legacy status and / or large donation from their parents. As far as I know, Stanford is the only top school that bars making donation linked to kids admission and the practice is extremely common at ivies (it will obviously cost more to get into Harvard than into Brown, but you get the point). All that to say that there's plenty of "dumb" people at ivies.
I think the major mistake you're making is assuming high school GPA and standardized test scores are always indicative of future success and intelligence. Having gone to both a state school and a highly ranked private school (not an Ivy, but close), I've met enough people who did very well in high school but completely fell apart in college at both. Peer pressure, alcohol, drugs, general lack of interest in studies, etc. have all contributed to people falling apart. In this way, the worst students at top schools are no better than the worst students at run-of-the-mill universities.
On the other hand, there are brilliant students at average universities who didn't go to better schools for a variety reasons. Maybe they couldn't afford it, didn't feel it was worth the extra cost, didn't have the prototypical profile that would get them into a top school, etc.
The way you phrase your argument, I get the sense you think college admission departments at top schools are 100% effective at spotting talent, which they're not. Many very smart students slip through but end up doing very well at average schools. Likewise, many students who look good on paper and get accepted to top schools end up underperforming.
"The brightest students go into the hard sciences and become programmers, doctors, and researchers. If they're interested in business/finance, they get a quant role at an HF or something similar."
Oh no you di'int!!! lol
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