A Reader’s Request
Someone asked about transitioning from a finance job to working with a value investing firm.
Your email was lost in the ether, but if you seek a job with a value firm, you will need to network and to show why you solve a problem for them.
But first ask yourself WHY do you want to work on Wall Street? And if you are starting out, is Wall Street the best place to go? Find a boat going downstream. Question all your assumptions and make sure the sacrifice is worth enduring. I have a friend who is an actor and he has had the struggle of always getting a new gig everytime he finishes a show. But you never hear a word of complaint because he loves the stage.
So if you would work for FREE on Wall Street then have at it. I think Wall Street is massively overstaffed and though there will always be a “Wall Street” or capital market, the need for all those brokers, clerks, and analysts will decline. What REAL value is being created? I think the low-cost ETFs are one sign of the market’s view of money management.
If you do want to work in investing, you will need to show examples of your work. My advice would be to write on an idea that intrigues you and then contact the firms you would like to work for–but be sure that your work shows quality thinking, originality and thoroughness.
Say you are a hockey coach with a complete line-up, but then you saw this guy show up–would you find a place on the team for him?http://www.youtube.com/watch?v=gpDdaC1_UGg
Times are tough for Wall Streeters
http://www.marketwatch.com/story/downsized-wall-street-licks-its-wounds-2012-06-25
NEW YORK (MarketWatch) — When it comes to careers, Wall Street has gone from a shining temple of opportunity to a bunker.
Behind the transformation lie years of risk-bundling, synthetic investment vehicles and other byzantine, unsustainable profit schemes. When they ultimately blew up, they threw the economy into recession and, like a financial Frankenstein, destroyed many of their own creators’ livelihoods.
Between January 2008 and January 2010, the finance sector in New York lost 46,500 jobs, the bulk of them in the securities industry.
Despite the carnage, there are still those seeking a career on Wall Street.
Kevin Fernandez is one of them.
The 22-year-old Villanova University graduate interned at Jefferies & Co. last summer and hopes to land an investment-banking job in New York.
But it’s an uphill struggle. New York, one of the world’s great financial hubs, has recovered less than half the finance jobs it lost during the recession.
“I have had interviews since last summer all through now, but I haven’t been able to secure any of them,” said Fernandez, who double majored in finance and international business. He’s been interviewed for various positions in investment banking, private equity and consulting.
“The opportunities are there, but in more limited quantities,” he said. “Given current market conditions, it’s becoming much more difficult.”
New York’s finance sector has seen only modest job growth over the past few months, adding a paltry 2,800 jobs since October 2011, according to seasonally adjusted data from the Office of the New York State Comptroller.
The euro-zone debt crisis, troubled U.S. mortgage market, and looming regulatory reforms are among many reasons weighing heavily on financial institutions, making them reluctant to hire new staff.
Meanwhile, none of these major concerns is resolved, depressing the volume of shares traded on the Dow Jones Industrial Average DJIA -1.00% and raising fears Wall Street could be in for another round of layoffs. Read about energy sector attracting more entrepreneurs.
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http://www.bbc.co.uk/podcasts/series/reith
Reith Lectures
The economic historian Professor Niall Ferguson presents the 2012 BBC Reith Lectures, titled The Rule of Law and Its Enemies. Across four programmes he explores the role of man-made institutions on global economic growth and democracy, referencing the global economic crisis and financial regulation, as well as the Arab Spring. The first programme will be available to download on Tuesday, 19 June 2012.
Young People are Waking up to a bad situation
At least their protests are a first step. More liberty would be a start since less intervention, subsidies and decline in property rights would help capital formation and hence productivity–the only way to lift living standards.
The young should join the Tea Party: http://www.telegraph.co.uk/finance/financialcrisis/9337490/Niall-Ferguson-If-the-young-knew-what-was-good-for-them-theyd-join-the-Tea-Party.html
Professor Ferguson will argue the “young should welcome austerity,” adding they “find it quite hard to compute their own long-term economic interests.”
In his first lecture, which will be broadcast on BBC Radio 4 on Tuesday, Prof Ferguson will insist the current public debt “allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.”
“It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees,” he says in an article ahead of the lecture.
He adds: “If young Americans knew what was good for them, they would all be in the Tea Party.”
The young protest: http://www.telegraph.co.uk/finance/financialcrisis/9338997/Reith-Lecture-Were-mortgaging-the-future-of-the-younger-generation.html
Don’t Give Up!
Good luck
Hi,
I work on wall street and can maybe offer an insight. I worked on the sell side (major broker dealers) for several years and now at a hedge fund. As per your note above, dont consider wall street unless you think you will absolutely love it. As you correctly state, the whole business is massively overstaffed. The growth is over, and headcount cuts will continue for years. It’s really ugly. Also, people seem to be attracted to the money and meritocracy, which is nice. People definitely underestimate how much luck is involved in doing well in that environment. I speak as one who has been particularly lucky. You would think, being smart thoughtful and hardworking are prerequisites of doing well. And you would be wrong. It primarily comes down to luck. so as long as you are honestly willing to work crazy hours, often for nasty people who may not advance your cause for 6-7 years, then dont do it. And most importantly be realistic about what is likely to occur. working 80 hours a week for horrible people is much easier said than done. Be honest with yourself. A great book on being a banker on the street is “monkey business”. the investment banking side has not really changed since this was written. the sad part is that the trading/sales side has become much more like that also. Most people will not make it to the top. And most of the people at the top you would not admire. I would recommend anyone who is considering the street read monkey business and the opening chapter or two of einhorn’s “fooling some of the people all of the time” which speaks to the same thing.
All that being said, im not sure being on the sell side is a great or even good place to start for value investing. The knowledge you get in banking is easily learned elsewhere with self study. On the trading side, I dont think you will get anything valuable (except for how to asses and manage liquidity) unless you are trading something complicated in fixed income – but that is dying too. The one place you may pick up very valuable and transferrable skills is on a distressed desk. So if value is the route you want to go — and you want to start sell side, a 2-3 year stint on one of those desks is probably your best best.
Just my 2 cents.
Hi Shaun,
The knowledge you need may be easily acquired elsewhere. But what is not always easy to acquire, is a list of the needed knowledge!
I am sure you don’t need a homework assignment, but do you happen to have any suggestions from your point of view of “fundamentals you need to know” that a motivated person could then go search out the answers/lessons to on their own time?
Hi Valueprax,
That is a great point/question. I think you have already done well in finding this site. I would definitely check out the greenblatt lecture video’s and all of his books. I would check in @ the Geoff Gannon blog, and do some primary reading on accounting. Then I would very much focus on the negative. I often find it hard to identify if something is a good/great opportunity. However I have become very good at identifying problem areas and things that can kill an investment. And I have a good sense for good problem (transitory and misunderstood) vs potentially life threatening problem. I would read as much as you can on prior financial crises and financial debacles (be they economy wide, or company specific).For example, Devil Take the Hindmost, The Go Go years, BULL (by Maggie Mahar). the March of Folly (not finance related). Try to find books on the worst trades, worst business deals done. Another good book is a demon of our own design. Its just so much easier to see very bad businesses. And as with anything we anchor to what we know. Its so valuable to broaden your exposure to what can go wrong, and to how very bright often brilliant people get it so wrong. Notice what buffett said when he started hiring people in the last few years as investment officers. He didnt talk about alpha, or high risk adjusted returns. No, what he focused on was finding someone who could think about situations (from a risk perspective) that hadn’t been seen before. He is focused on losing first and foremost and trying not to get caught out by blindspots. In my experience the single best way to do this is to have as many prior examples as possible and to generalize them. Someone here noted the Michael Burry commencement address recently. In the introduction they said many brilliant people didn’t spot the real estate bubble. Thats absolutely true. But the real question is why? And why didnt they consider their assumptions and the total assymetry of the outcome. They had all the tools and resources (capital, intelligence and computational) to do so. So why did they miss it?
In particular, how was it missed by traders who have massive resources in terms of data, mining that data and analysing scenarios. In that regard a demon of our own design (the book) gives a very good example. The author describes a formative experience @ Morgan Stanley during the height of the Portfolio Insurance, and how a young salesman saw how vols had been pushed close to 0 by all the portfolio hedgers indirect and direct activity. He simply looked at it — asked a friend what the contracts would be worth if the market dropped 20%, then said this is nuts, and put 50% or so of his net worth into OTM options of different tenor. A few months later the 1987 crash happened and the salesman had made several million dollars. He then retired to manage his own money. That may sound non repeatable. And in equity space those same things may never line up the same way. But if you channel Mark Twain and realise that history rhymes rather than repeating it is very valuable. The lesson from that was portfolio insurers no longer felt need to hedge. Portfolio insurance itself was just program selling on an option model delta basis. but rather than buying puts, they just sold. This behavior massively affected the price of vol, especially out of the money. It pushed it to insane levels. Now, compare that to the recent crisis with ABS CDO’s. All an ABS CDO is tranched risk. Now, what is the attachment point (where you are at risk, for example for a super senior say 30%) is the strike for where losses occur. if it is a levered tranche, then that is where you sold an option on losses. in the super senior, its easy – you sold an option on losses over 30% of the pool for x basis points per annum. When you look @ it like this, then it looks very similar to the portfolio insurance debacle. I remember reading that book in 2006 I think and making the association. Then I took a closer look. If you looked all the way through to the underlying mortgages themselves and the properties that secured them – you could do simple back of the envelope analysis of what happened with housing down 1%, 10% and 20%, And the results were incredible. Anyone with 15 mins could have done that analysis. But they felt like they didnt have to. Likewise, if you read Hull’s book on options, he talked about Metallgesellschaft AG (http://prmia.org/pdf/Case_Studies/MG_IIT.pdf). What killed them in short was a failure to understand the nature of the posting requirements of a derivative. The trade wasnt even a bad one if they didnt have to post. But they did, and they got killed. That was 1993, and it was huge news. Unmissable. And the cause was obvious. So how did investors in AIG stay in it once they found out about the posting requirements on derivatives contingent liability? Its astounding to me. People will say unforeseeable, but they mean unlikely. and because they don’t study history or prior examples (except near past) they weight the likelihood of events often incredibly poorly.
So I would read a lot about those things first to protect yourself and give a good anchoring in what can go wrong and how. It also teaches you not to trust experts or names, but to think for yourself. Chanos has some good examples. Financial Shenanigans is another good book too.
Sorry if the above is a bit disorganised, but that is where I would start.
I like Gannon but also Greenbackd. But mostly read annual reports of all the companies in a particular industry and you will gain alot of knowledge about business. Develop expertise in a few industries as a start. Keep reading and reading. Great post and Thanks for your input.
Hi Shaun,
I truly appreciated your lengthy and thoughtful response. And it was valuable to me to get specific recommendations. I have read and studied a lot of what you’ve mentioned already and look forward to reviewing the items I was not aware of.
Thanks for your thoughts!
Dear Shaun:
You gave better than your 2 cents. Thanks.
John,
I think NF has been co-opted by the elites even though he seems to be giving a contrarian, anti-establishment message. Join the Tea Party? And blunt the one spear you have… standing outside the system?
I mean good grief. The problem is people OPTING IN, so the solution is OPTING OUT. Joining the Tea Party, joining ANY mainstream political movement seeking change WITHIN the system, is a form of opting in. It is akin to being a muscle man and then hacking off your own arms before entering the gladiator arena.
Terrible, terrible advice. Which is why NF giving it makes me so suspicious.
Well, I think the most effective way to change is through education and ideas. 30 minutes studying our ponzi fractional reserve banking system and cartelizing Federal Reserve would cause anyone to want the whole system replaced. Right now we have a massive theft from those who work, save and invest to those who hold the reigns of power.
How many wars would we have fought if the payment was a direct levy on the citizens and not through printing of fiat currency?
I know this website provides quality dependent articles and additional stuff,
is there any other website which provides these information in quality?