Careers on Wall Street
Student Investment Association
October 5th, 2011
Buy Side
vs
Sell Side
Agenda
• Sell side coverage:
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Investment Banking
Capital Markets
Equity Research
Sales & Trading
Investment Banking
Main Street America’s Perception of
Banking
• Offer depository services such as checking,
savings and CDs
• Financing in the form of credit cards, auto
loans, student loans, and home mortgages
Overview of Investment Banking
Investment Banking Services
M&A Advisory
Raise Equity & Debt
(Underwriting)
IPOs
Investment
Grade Debt
High Yield Debt
Private
Placements
Restructuring
Fairness Opinion
Structure of Investment Banking
Industry
Product
Consumer & Retail
Mergers &
Acquisitions
Energy & Power
Financial Sponsors
Technology
Leveraged Finance
Healthcare
Equity Capital
Markets
Real Estate
Debt Capital Markets
Media & Telecom
Restructuring
Financial
Institutions
Investment Banks
Hierarchy
Managing Director
Director
Vice President
Associate
Analyst
Back Office Support
Analyst Responsibilities
• Financial analysis
• Industry and company research
• Developing client presentations
• Valuation (Financial Modeling)
• Marketing materials, management
presentations and road show involvement
What You Should Expect
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12-15 hour days
Very high stress
Multi-tasking
Lots of menial grunt work and micromanagement
Meetings and conference calls throughout the day
Sacrifice your personal life and health for this career
3 meals/day at work
Very common to be forced to cancel vacations and miss
holidays/birthdays when needs arise
Typical Day
• 9:00 am: Arrive in office, Check e-mail, start work on valuation
model
• 11:00 am: Finish up pitchbook for upcoming presentation
• 1:00 pm: Conference call with deal team, which may include people
from other product and industry groups who work in conjunction
on a project with you (cross border/international deal teams are
common)
• 3:00 pm: Put together a set of trading/transaction comparables
Typical Day (Continued)
• 5:00 pm: Gather industry reports and put together a working group
list for a deal team on transaction
• 7:00 pm: Put together a few public information books and balance
out discounted cash flow model
• 9:00 pm: Make changes to pitchbook before sending it to Managing
Director
• 10:00 pm: Make edits to the MD’s comments
• 11:00 pm: Go Home
Typical Late Night
• 9:00 pm: Send final presentation and financial models to associate
or VP for a final turn before sending to MD
• 9:30 pm: Associate sends back comments
• 9:40 pm: 11:00 pm: Finalize changes
• 11:10 pm: Send final copy to MD hoping he is satisfied
• 12:00 am: MD returns with the stamp of approval
• 12:10 am: Send final copy to printers and beg them to hurry
• 12:20 am: Work on other staffed deals
• 2:00 am: Get the final books from the printers
• 2:10 am: Check the books, order a car for yourself and the books
and leave as quickly as possible
Benefits of Investment Banking Analyst
Program
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Significant Learning Opportunities
Learn all elements of corporate finance
Wide variety of industries and transaction types
Significant impact early in your career
Integral part of the transaction team
Dynamic and exciting environment
Entrepreneurial environment rewards excellence
Culture of Teamwork and Partnership
Opportunity to work on high profile deals
Getting In
• Most banks recruit analysts exclusively from
ivy league colleges; top east coast liberal art
colleges and select masters programs
• Unless you’re exceptional or have a
connection in the business, getting in from
MSU will be extremely difficult – but not
impossible
Recruiting
• Recruiting Timeline
• Full-Time Positions
– August - October
• Summer Analyst
(Intern) Positions
– December – March
Interviews
• Interviews usually consist of:
– Two first-round interviews
• Either phone or in-person
– Superday interview
• Consists of 8-10; 30 minute interviews
• Usually on a Saturday
Sample Questions
• General
– Walk me through your resume
– Why did you choose Michigan State/ your major?
– What do Investment Bankers do?
– What is the most striking thing you’ve read today in the WSJ?
– You don’t seem like a very driven person. How will you handle a
job in banking?
– Say you are supposed to meet your girlfriend for dinner, but the
MD asks you to stay late. What do you do?
Sample Questions
• Technical
– What happens to the three financial statements when you
change capital expenditures?
– In what ways can you value a company?
• Walk me through a DCF
– All else equal, should a public or private company garner a
higher valuation?
• Other
– What stocks do you like?
– How many Northwest planes will take off in the next hour in the
United States?
– If I shrunk you down to the size of a nickel and placed you in a
blender, what would you do?
Useful Courses/ Resources
• Classes
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FI 311- building block of Corporate Finance
FI 414- case studies and modeling skills
FI 455- Excel skills and financial modeling
ACC 201, 300, 301, 305
• Resources
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Vault Guide for Finance Interviews
Wetfeet Guide (free through MSU Career Services)
Wall Street Journal/ Financial Times
New York Times DealBook
Fact vs. Fiction
• NOT like Wall Street & Boiler Room
– Not spending evenings on the yacht & weekends in the
Hamptons
• Rarely traveling to meet clients
• Yes, the hours are just as bad as you’ve heard…but the
compensation is just as high as you’ve heard, too
• You don’t have to be a genius to be a good i-banker…
• Connections matter
Things To Do Now
• Solid precedent internships with known firms
• Accreditations/standardized test scores help open doors
• Reach out to MSU alumni and current students
– Financial Markets Institute (FMI)
• Leverage all personal connections you may have
• Be willing to jump on a plane to interview/ network
– East Coast undergrads have Wall Street in their backyard
• Stay on top of the markets and current deal landscape
Summary
• Investment banking is an intense, life-absorbing career path that’s not for
everyone
• Potential rewards attract the brightest and most competitive individuals
from the strongest backgrounds, so getting in is difficult
• It’s definitely worth doing if you get the chance
• Decide if it’s for you:
– Work/life balance
– Family vs. career
– Geography
• Life will go on even if you don’t land a Wall Street job!
Resources:
• Educational:
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NYT Dealbook: http://dealbook.blogs.nytimes.com/
Wall Street Journal: http://online.wsj.com/home-page
Seeking Alpha: http://seekingalpha.com/
MarketWatch: http://www.marketwatch.com/
Bloomberg: http://www.bloomberg.com/?b=0&Intro=intro3
Investopedia: http://investopedia.com/?viewed=1
• Recreational:
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Wall Street Oasis: http://www.wallstreetoasis.com/
Dealbreaker : http://dealbreaker.com/
BankersBall: http://www.bankersball.com/
Mergers & Inquisitions: http://www.mergersandinquisitions.com/
IBankingFaq: http://www.ibankingfaq.com/
Capital Markets
Capital Markets Banking
• Raises money for clients
• Two main methods
1. Equity (IPO and follow-on offerings)
2. Debt (Bond offerings)
• Broker between two groups
1. Has money, wants an asset (buyer)
2. Wants money, has an asset (seller)
Capital Raise Example - Bonds
Bonds
$500 million
Client
IB
Investors
Equity Research
Thomas Robb & Clayton Meyers
What is Research?
• Investigating an asset to reach conclusions on
future fundamentals and price
• Many Different Assets
– Equities
– Commodities
– Fixed Income
• Sell Side – Investment Banks
• Buy Side – Money Managers
Sell-Side
• Become an expert in ~10-20 companies in a
specific industry
• Create actionable ideas based on historical
performance and expected fundamentals
• Produce & publish research reports
• Provide ideas to S&T & buy-side
= Think Tank
Equity Research
Department
Hedge Funds/MM
Sales & Trading
Desk
Equity Research Products
• Industry research reports
– Market trend/conditions
• Past and future outlooks
– Current industry leaders and lagers
• Company-specific reports
– Three categories: Initiation, Update, Rating Change
• Short-term notes on importance events
– Earnings Release
– News item
– ST trade recommendation
Ratings
• Downgrade (Underperform)
– Lower expected earnings power, diminished growth,
turnaround plan suspect
• Hold (Neutral)
– Do not expect much growth, potential problems, analyst
and market is wary, perform in line with group
• Upgrade (Outperform)
– Better expected earnings, smart acquisition, beneficial
long term trends starting to develop
Hierarchy
• Basic Structure
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Teams of 4 to 8
Covering 10 to 20 companies
Associate is junior to Analyst
Analyst runs the group
• Decides investment recommendations
• Within the Equity Research Department
– Teams are typically very independent
– Sectors will try to coordinate information flow
– Most regarded talent sits on SSC
Responsibilities
• Goal is to sell ideas – not be right
• Associate (90% Research, 10% Sales)
– Help senior analysts better serve clients
– Create/update models
– Typically write reports
• Analyst (90% Sales, 10% Research)
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Connect with clients and drive trading revenues
Talk with industry contacts
Develop thesis
Develop relations with company management
Lifestyle
• Market hours
• Work longer during earnings season & initiation
• Travel for research analysts
– Meet w/ clients
– Company management teams
– Assist with road shows
• Associate Salary (est.):
– $70K (more if MBA perhaps) + 10K signing bonus + 35-55K
year end bonus
– Bonus based on helping senior analysts please clients
Earning Season
March
April
May
• Focuses on EPS (Est. EPS needs to be close to actual)
• Discuss with management regarding the quarter
• Heavy research on industry conditions
• Update reports on earnings by other companies
• Report company earnings: answer Inst. Inv.’s questions
• Update report on the specific comp. (earnings, ratings, analysis,
etc.)
• Relaxation and work on long term projects (industry pieces,
initiation reports, etc.)
• Work w/ I-bankers: helping w/ research
Buy-Side
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Follow entire sector and know holdings very well
Create investment ideas that beat benchmarks
Typically no physical products
Pitch ideas directly to portfolio manager
Earnings Season
Before
During
After
• Check analyst estimates & compare vs. own
• Is there a profitable inefficiency to exploit?
• Listen to conference calls
• Trade?
• Monitor similar & other important companies
• Monitor holdings
• Screen for new ideas
• Deep research
Hierarchy & Lifestyle
• Flatter organization w/ fewer people
• Typically shorter hours
– Based on idea generation not client demands
• Fast vs. Slow Money
• Bonus based on performance
– Can be very stressful
What a Career in Equity Research Will Do
for You
• Strong training programs provide
– Terrific Excel, Powerpoint skills
– What the important information is
– Writing to grab investors’ attention
• Modeling
– Building initiation reports from scratch
– IPO Model from scratch
– Updating models
• Most importantly, you’ll learn how very smart
people think about stocks and the market
Formula for success
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Work hard & learn quickly
Comp skills (Word, Excel, PP)
Good writing skills are mandatory
Good communication skills
Good listeners and ask good questions
MBA is not mandatory to advance
Enjoy analyzing companies and trying to
outsmart other people
Sales & Trading
Sales & Trading
Yuchen Su
What does the position entail?
• S&T Team originates and transacts
• Sales: distribution arm for the Investment Bank’s
products
– Sales force's prime responsibility is to build and maintain
effective relationships with institutional investors.
• Trading: handles the risk management of the firm’s
positions in various financial instruments
– Make markets for buying and selling securities
Sales
Trading
Buffer between
PMs & IB /
Research
Trade securities on
behalf of firm
(Proprietary)
Sell IB Deals /
Research & Trading
Ideas to PMs
Trade securities on
behalf of buy side
(Flow)
S&T Desk - Communication
Buy-Side Trader
Buy-Side PM / Analysts
Communication
Sell-Side Trader
Equity Salesman
Equity Research & Investment Banking
Sales
• Client coverage and relationship management
• Knowledge of client asset or liability needs, as well as
industry trends
• Knowledge of current economic environment and
market conditions
• Knowledge of market opportunities and firm’s
product capabilities
• Promotion of the firm’s products and capabilities
Trading
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Pricing and execution
Providing liquidity to firm’s clients
Portfolio management (hedging)
Knowledge of current economic environment
and market conditions
• Knowledge of flows being executed in the
market
• Maintaining views on potential movement of
underlying instruments
How is money made?
• Client driven (Flow Trading) — bid/ask spread,
or market making
• Proprietary trading
• New security issuances
Schedule of a Junior Trader
• 6:30 am: get into the office, confirm all previous day’s trades
and cross-check with the details generated by back office
• 7 am: confirm starting positions, be informed of any news
regarding held positions; plot strategy
• 7 am – 8:30 am: relay noteworthy trades on ECN’s made
throughout the night to sales-force; morning meeting
• 8:30 am – 9:30: economic statistics are released, breakfast,
post indications
• 9:30 am: markets open; must be uncrossed and unlocked
• 9:30 am – 4 pm: open market hours; take orders, work the
orders, build relationship with sales-force, make good prices
• 4:30 pm: head home
Why Sales & Trading?
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Market driven & focused
BIG firm, SMALL teams
Steep learning curve
Fast-paced, intense atmosphere
Instant gratification
Performance-Based Pay
Work/life balance
Meritocracy
Questions?