In the News: Recent Developments

A Road Map for the Investment Banking Analyst

By Joseph S. Fichera
Published in Princeton University’s Business Today
May, 1996

The road to riches for an elite group of college graduates continues to be Wall Street and its two-year analyst program. Each year thousands of ambitious college seniors go through a rigorous recruiting process with the hope of becoming the next Wall Street legend. Money attracts brains, providing a certain inside edge for students trained at elite schools. However, while Wall Street places a high premium on intelligence, a strong work ethic is just as important.

Most major investment banking firms have an entry level program typically consisting of a two-year “contract” usually in the investment banking department where the focus is on corporations that issue securities or need strategic advice. Other areas of the firm, such as Research, where fundamental and technical analysis
of markets and corporations is done or Sales and Trading where the focus is on advising and selling securities to institutions with money to invest, may have programs, albeit smaller ones as well.

Salaries begin at $50-60,000 with a potential bonus around $20-30,000. At the end of the two years (though the analyst could be let go earlier), the analyst is expected to leave the firm for business school or further professional training. However, some firms have the option of extending a permanent offer to the occasional truly outstanding employee, where additional training would be redundant.

In exchange for the pay, analysts devote the substantial part of their lives to the firm. 9 am to midnight workdays are the norm, not the exception. Weekends will involve work as well, with the occasional all nighter added to remind you of that “term-paper-up-all-night” feeling.

An investment bank’s organizational structure is fairly flat. Few management levels or reporting arrangements separate the analyst and the top levels of the firm. Opportunities for interaction with seasoned and experienced leaders in the field, on projects in teams of 2-3 people, present themselves almost immediately.

The work involves research and presentation of generally complex information with no margin for imperfection. Eighty percent of it is focused on developing “pitch books”. Senior members of the firm use these materials to present to current and prospective clients to originate business. Generally, analysts gather financial information and organize it for the presentation. Work of this nature invariably involves using a spreadsheet program such as Microsoft’s Excel. In short, you will spend more time with Excel in two years than you will with your significant other.

While analysts will work very hard, the actual nature of the work can change dramatically. The work can go from the sublime to the “I can’t believe they’re paying me so much to do this”. Most analysts also become superior Xerox machine operators and repairmen, extraordinary cut and paste designers and provide delivery services rivaling Fedex in speed and efficiency. The general operating principle is that when something needs to get done by a deadline you get it done. Leave the ego at home and make sure the project is accomplished.

So, what are some practical tips to hit the ground running as an investment banking analyst? First one must understand the concept of excellence as well as the need for both hard and efficient work. To survive, and thrive, in this environment one needs intelligence, discipline, attention to detail and a sense of humor. It is essential that the analyst understand the basic operating procedures of the profession. In most organizations, operating procedures are rooted in common sense and should thus be fairly obvious. Other procedures, however, come from painful experience in which common sense failed to reveal certain subtleties.

During my 14 years in the business, and after countless assignments with analysts and others, certain principles have become remarkably clear.

  • Balance the details and the “big picture”. In all tasks, focus on the details but be sure to see the big picture. Ask questions, be inquisitive so as to build your perspective. However, remember that the big picture is not what they are paying you for (well, at least not yet).
  • “It’s good enough” should not be a phrase in your vocabulary. These three words undermine quality. Excellence is the minimum standard. You rarely win by being “as good as” the competition. You win by being better.
  • Remember, the obvious is overlooked more often than the obscure. More often than not, good work is undermined by items you never thought you needed to check.
  • Working smarter is far more rewarding than simply working harder. Burnout and
    frustration are common traits for the analyst who just keeps putting in the hours, doing and redoing assignments. Here is where the “big picture” perspective can be useful to you in every day work.
  • Don’t worry about making a mistake. One can learn from mistakes. Therefore, make mistakes sooner rather than later but learn from them immediately. Start seriously worrying after you have made the same mistake three times.
  • It will always take longer than you think. Planning and implementing in our world requires a sober realization that time is not on your side. Estimates of how long something will take should be generous, not optimistic.
  • If in doubt, ask. Being timid when it comes to understanding what you are supposed to do, when you are to have it done and how it should be done are crimes against common sense.
  • You can delegate the task but never the responsibility. When you ask someone else for help, it is still your responsibility no matter what that person does.
  • Read your own work. Reading does not mean skimming. Read it, word for word. You will be surprised how much you will catch before your superior (or your client) does.
    Here are a few pointers that will start you off in the right direction.

1) Be Organized.

Understand clearly what’s expected of you and write it down. When you go to the office of a senior member of the firm to discuss a project or assignment, always have a yellow pad or other notebook with you to take notes. Written notes are much more reliable than mental notes.
During completion of a project, keep a journal. Whenever you learn something new or have uncovered a different way of doing something, write it up and keep it. This way, you are working smarter because you have a precise record and a source to go back to late at night or when all alone.

When at a meeting with people inside or outside of the firm on a project, keep notes and a list of ALL assignments discussed at the meeting, even if someone else is the official note taker.

This means keeping track of what others are supposed to do as well as what you are to do. If you know or remember what others have said, you will be become a very valuable member of the team.

2) Follow the K.I.S.S. Principle (Keep It Simple Sir).

Enthusiasm often leads to more work than is necessary. Analysts plunge into a project without thinking about the most efficient way to organize an effort. So, we have the K.I.S.S. principle. Keeping something simple does not mean the mere elimination of work or effort. Rather, it is understanding that adding items to a project or assignment (i.e., creating more things that could go wrong) is likely to lead to disaster. Analyze what the essential objective of the assignment is. Then, focus on how each item helps you achieve that objective. If the item requires more effort of you or others, and only
marginally helps achieve the objective, it can probably be eliminated. WHEN IN DOUBT, ASK.

Nevertheless, excellence often requires more work and effort. It may even complicate a project. But, the reason something like this is pursued (and does not violate the K.I.S.S. principle), is that the benefit far outweighs the
complication. Understanding the difference between these two is very important. It is the essence of good judgement. Pursuing excellence often leaves you alone late at night or on the weekend. While there is never a traffic jam on the extra mile, it is critical that each of us travel that road.

3) Break It Down and Do It Now

When planning schedules, most professionals
create action item lists. When a project or task is important, it goes right to the top of the list. One naturally thinks that, by putting XYZ’s $1 billion stock buy back at the top and describing it in general terms, it will remind the person to do all the things necessary to complete the project. Unfortunately, typically right below this important task are a host of smaller, less important items that also need to be done. They are so contained that they can be dispatched quickly. What follows is human nature. The smaller, less important items get done first so that the individual feels a sense
of accomplishment and then can concentrate all his/her energy on the larger, more important XYZ
project. WRONG!

Large, important assignments must be broken down into their smaller component tasks. The XYZ project can be made into specific, almost mundane jobs. By making priority assignment tasks highly specific, they can be tackled incrementally. Thus, completing a specific item on this list, no
matter how small, promotes completion of the highest priority project.

After listing each item, the best time to begin implementing the tasks is now, immediately. Do it now! As William Wordsworth once said “Thought and theory must precede all salutary action; yet action is nobler in itself than either thought or theory.” In other words, don’t just sit there, do something, now.

4) Writing Must Be Concise: Presentations Must Be Thorough

Use simple declarative sentences, i.e., Hemingway-esque. If a sentence has more than 2 verbs in it, it is too long. Our clients don’t have time to sift through verbiage to get to the point. Ernest Hemingway created a writing style that conveyed powerful messages in simple prose. If we can get close to that style in our presentations, we will have a great chance at success.

Write summaries first, then provide the detailed supporting material. Tell them what the problem is, what the solution is and then prove it. We should always have detailed supporting materials available. They may not be included in the presentation, or they may be an appendix or supplement. Clients must always maintain their confidence in our thoroughness and detail.

Perform a sensitivity analysis; it is the key to effective analysis. There is rarely
one right answer and almost never one result of a financing given the volatility of the market. Consequently, every economic analysis of results must include a sensitivity analysis if our assumptions are incorrect. Sensitivity analysis also allows one to better assess risks.

Footnote everything! Charts, tables, analyses, summaries everything should have a clear guide to the assumptions and sources of information that produced them. In many economic analyses the assumptions are critical. They must be clearly spelled out in the beginning of the presentation so that there is agreement with the client on what went into the analysis and what the analysis produced. Almost any assumption can be made so long as it is footnoted.

Know the sources of information used in charts, tables or anywhere in a
presentation. If it isn’t footnoted you should know the base source of all data used in a presentation. This goes to the source of information used by others. For example, if you attach an article on trends in put bonds and it shows a dramatic rise in their use, you should know where they got their data and how it was analyzed. Few things undermine credibility more than not knowing where your facts come from.

5) Presentations are never finished.

A presentation completed and made to a client or prospect has no claim on excellence. It must be revisited, over and over again. During the client presentation, the client should be observed as to how he/she reacted to specific sections. This information should be used and the presentation revised. There is a trend in investment banking to create “boilerplate” presentations, i.e., ones that can be reused with little editing. This trend leads to complacency and mediocrity. If your work product is to be the best, it must be constantly evaluated and changed in light of new information.

6) Existing Clients Always Come First

Whenever there is a conflict between new business and the need, desire, or even whim of an existing client, the existing client always comes first. In business development it is often easy to be so focused on the big deal just around the corner that those people who have already done deals with you get neglected. This is both wrong and shortsighted.

So you want to be an investment banker and you’re willing to work real hard. It is not enough. You must reduce your ego, increase you energy, broaden your approach to
thinking about the work, the assignment and the sometimes cruel political environment you may work in and devote a significant part of your life to the business. The rewards are mainly money (and what that may bring to you now but mostly later) and a satisfaction of surviving and thriving in one of the most competitive careers around. Most people don’t
do investment banking for a lifetime but use it as a conduit to other things. This road map, however, should help you get to your destination. Forewarned is forearmed. Good luck.

Published in Princeton University’s Business Today May, 1996
© 1996 Joseph Sebastian Fichera