Your First New Year’s Resolution: Stop Worrying About Minutiae and Focus on the Principles
Do interviews change over time?
While the topics that banks test have stayed the same, the methods of testing have changed quite a bit: more case studies, more real-world exercises, and more conceptual questions.
But I would argue that interviewees change far more than interviews themselves.
I’ve operated in this market for almost 10 years now, and over that time I’ve seen massive changes in how candidates prepare for recruiting.
One of the biggest and most concerning trends I’ve seen in the past few years is an increased focus on minutiae at the expense of core principles.
This trend is most obvious when I look at many of the technical and case-study questions we’ve received, where people are worrying about things that do not matter – at all.
But it’s bigger than that.
It extends to incorrect thinking about resumes, networking, and even your approach to promotions and career transitions.
And if you want to succeed, you have to overcome this trend toward trivia.
What Exactly is “Trivia”?
Here’s a perfect example of a question that demonstrates this trend:
Really? So knowledge of one specific topic is more likely to result in a job offer? Right.
But there are dozens of other examples:
- Readers often submit multiple, very similar, versions of bullet points for work experience entries and ask which one will result in the highest response rate.
- One time a coaching client kept re-doing his story and changing one part back and forth between “advised on” and “worked on” because he felt that one word choice would result in a higher call-back rate.
- One time a BIWS student submitted a page-long question asking about the trade-offs of EBITA vs. EBITDA when valuing companies, and which metric would be most appropriate in various obscure scenarios.
It’s as if that one answer – or that one bullet point or choice of words – is as precious as Frodo’s ring:
Why So Much Trivia: Which Jeopardy Category Will You Try Today?
This trend didn’t just pop up in a vacuum.
Instead, a few specific factors and changes explain it:
1) Bankers LOVE to Focus on Irrelevant Details: It’s Part of the Culture
It’s one of the reasons why investment banking interns have died in the past: an inordinate focus on tiny details that results in all-nighters and no useful outcomes.
While this has been part of the culture for a long time, it seems to have had a compounding effect: bankers get so attentive to detail that it rubs off on new recruits, and that, in turn, spreads to students and career changers who want to get in.
So why not memorize some trivia about whether to use EBITA or EBITDA in a certain edge case?
It’s just preparation for those periods you’ll have to fix on page 254 of that presentation.
2) You Like to Feel in Control of Your Life
Event X went well because Y happened; Interview A went poorly because of Question C, and precisely because you gave Response D.
You want to pinpoint what happened and why.
So if you could just figure out the exact set of questions, or word choices, or bullet points, that would result in success and then memorize all of them, you would instantly succeed, right?
It’s far more random than that; you’ll get rejected or accepted for completely illogical reasons, and sometimes for no reason at all.
3) Interviewers Don’t Want Put in the Effort to Interview You
Rapid-fire technical questions on minutiae are also a sign of a lazy interviewer, or at least an interviewer who doesn’t want to be there.
It takes time and effort to go through a real case study, or to read your resume in-depth and ask intelligent questions about your work experience.
By contrast, anyone can ask random, disconnected questions on accounting or valuation that have nothing to do with the job itself.
This candidate understands the three financial statements in-depth, including how to link everything?
Good! Time to whip out EBITDA vs. EBITA now!
4) You Don’t Really Understand Valuation and Financial Modeling
This one might be the biggest factor behind this new focus on trivia.
A lot of students and professionals understand that interviews are getting more technical, but they respond in a poor way: they attempt to memorize as many questions as humanly possible rather than learning the principles behind them.
And I’ll claim partial responsibility for this problem, since I haven’t done a great job of explaining the following two points:
- The 80/20 rule very much applies to modeling and technical skills. Everything is not equally important; a small line item that represents 1% of a company’s Assets doesn’t matter. For most businesses, only 3-5 factors make a big difference.
- These tools deliver, at best, vague and imprecise answers. Valuation is useful for determining that a company trading at $200/share should be worth only $10/share, but it’s not so useful for pinning the exact price at $8 or $12.
Modeling is helpful for ruling out certain outcomes, but it’s not so helpful in deciding which particular outcome is the most likely.
Why the Trivia Will Kill You
This focus on tiny details distracts you from your bigger goals: winning internship/job offers, promotions, business school admissions, and exit opportunities.
From observing thousands of customers over the years, I can also tell you that the most successful students and professionals have not asked that many hyper-detailed questions.
Here are a few examples that come to mind:
- Energy group at a top bank to a top energy hedge fund – Completed the Oil & Gas course and barely asked any questions.
- Boutique consulting firm to top MBA program to top bulge bracket bank – Completed various courses and didn’t ask a single question the whole time.
Everyone above understood that the big picture and your cumulative effort over time matter most.
By contrast, I’ve never once seen someone who repeatedly asked tons of hyper-detailed questions do particularly well.
How to Deal with It: Clearing Away the Jeopardy Categories
Here’s what I suggest for both interviewees and interviewers, including what to do if you have little time to prepare:
Interviewee Tip #1: Tie Every Single Question, Fact, and Practice Exercise Back to the Underlying Principle
Suppose that you’re reading questions about the items that go into Equity Value and Enterprise Value (oh look, we have a free video on that one…).
You should not memorize the specific items to add and subtract.
Instead, learn the underlying principle first and apply it to each question.
The principle here is that Equity Value represents the value of ALL the company’s assets, but ONLY to equity investors, whereas Enterprise Value represents the value of ONLY the company’s core business operating assets, but to ALL investors.
If you understand that principle, you can answer almost any interview questions on this topic.
Even if the question is about an item you’ve never heard of before, you can at least state the principle you know, say that you do know that much, but that you’re not sure which category this item is in.
Interviewee Tip #2: Reframe Everything in Terms of the Bigger Picture and Real-Life Use Cases
Going back to the example I gave in the beginning, let’s say you do get some interviewer who’s obsessed with grilling you on EBITDA vs. EBITA.
I’ve seen similar interview stories firsthand, so this one is not too removed from reality.
You could answer that type of question by saying something like, “I don’t know if it’s an ‘either/or’ question; the point of a valuation is to see whether a company is valued roughly correctly, or if it’s wildly off.
You do that by looking at a wide variety of metrics and methodologies. So in this case, if I really couldn’t decide which one to use, I might use both and show them along with several others.”
If he still presses you after this, punch him in the face go to tip #3 below.
Interviewee Tip #3: Offer to Look It Up and Get Back to Them
Now suppose that the interviewer presses you on some obscure point you just don’t know.
You go back to the “core principle” tactic, but that doesn’t work because he demands a specific answer from you.
In this case, just admit you don’t know it and offer to get back to him… and then look it up and reply shortly after the interview.
Interviewee Tip #4: Apply the “5% Rule” to Avoid Losing Your Hair
Suppose you’re completing a case study or other technical test, and you don’t know exactly how to link an item or what the corresponding item for one entry is.
If this item represents less than 5% of the company’s revenue or less than 5% of its Assets (for Balance Sheet items), stop stressing out and simplify it and move on.
It’s perfectly acceptable to consolidate and simplify messy financial statements, especially ones that have dozens of small, irregular items; equity research reports often take this approach.
I’ve seen a lot of students get lost in minuscule details – items that represent 0.05% of a company’s Assets, or ones that represent 2% of a company’s cash flow.
But the truth is that only 4-5 items make a real difference for most companies: revenue, expenses, CapEx and D&A, and the overall direction of Working Capital.
If you find yourself obsessing over something that isn’t one of these, re-think your approach.
And Now for the Interviewers Out There…
Nope, you’re not off the hook either. I’ve seen so many horrible interviewers that something must be done about it.
Interviewer Tip #1: If You’re Going to Ask Technical Questions, Make Them Case Studies or Conceptual Ones
The usual objection is that you “don’t have time” due to busyness at work.
Actually, though, it takes less time and effort because you can generate these questions once and then use them over and over again.
They don’t lend themselves to memorization, so there’s no harm in using them repeatedly.
You don’t even need to prepare a real “case study” – just pick a deal you’ve worked on, and explain the background dynamics to the interviewee.
And then ask him/her to think about each part of it: how would you select potential buyers/targets? How broad a process would you run? How would you advise the company on its valuation?
These questions should take no effort on your part because you’re re-using something you’ve already worked on.
Interviewer Tip #2: Rely on the “Big 5” Question Categories
I believe you can learn 90% of what you need to know about a candidate from 5 simple questions and follow-up questions / sub-questions:
- Tell me about yourself / walk me through your resume or CV.
- Tell me about a deal you’ve followed recently, or a deal or investment you’ve worked on.
- Why do the three financial statements exist? Why do we need them? Why might we not need them?
- What do Enterprise Value and Equity Value mean? How do items fit into these definitions? Why do you add, subtract, or ignore various items?
- Walk me through the intuition behind each part of a DCF (e.g., Terminal Value calculation, discount rate, etc.) and explain why valuation multiples represent shorthand for a real DCF.
Fewer than 5% of candidates would be able to have intelligent discussions on all the points above.
If you suspect the person has just memorized the answer to a “top-level” question, ask follow-up questions that require him/her to apply the concept.
For example, you could follow up on question #4 and ask, “But then why do you add Unfunded Pensions when calculating Enterprise Value? They seem to have nothing to do with the definition of core/non-core assets and different investor groups.”
Someone who has just memorized answers would not be able to explain that.
Interviewer Tip #3: When in Doubt, Fall Back on the Person’s Resume/CV
Perhaps you’re interviewing someone more experienced, and so it doesn’t make as much sense to rely on those five questions above.
In that case, you should base your questions on the person’s resume/CV and dig into their prior experience.
If the individual has had banking or buy-side experience, that’s easy: point to each deal, ask what the person did, how he/she moved the deal forward, and what the critical issues were.
If the person is a career changer, go through each experience and ask how the skills gained translate to the role they’re currently interviewing for.
Interviewer Tip #4: Tie More Specific Technical Questions Back to the Core Principles
Let’s say that you’ve run out of reasonable questions, or that you’ve ignored my advice to focus on conceptual questions, case studies, and past work experience.
If you do get into “Ask random technical questions” mode, ask the person for the principle behind the answer after he/she answers.
For example, if you just asked the person about how to deal with Noncontrolling Interests in a DCF (exclude Net Income to NCI in FCF and then factor in NCI as a debt-like item at the end, or include Net Income to NCI but don’t factor in NCI as a debt-like item at the end), ask for the underlying principle.
And in this case, it’s simple: you shouldn’t double-count items.
Either factor an item into FCF or include it at the end when moving from Implied Enterprise Value to Implied Equity Value, but never both.
Killing Trebek: Clearing Away the Trivia
So if you follow everything above – whether you’re being interviewed or you’re interviewing someone else – you’ll have a good shot at overcoming the trivia and focusing on the principles.
It might be scary at first, but you’ll do fine…
…as long as you understand the difference between EBITDA and EBITA for Sri Lankan companies acquiring Zimbabwe-based shell corporations, of course.
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