by Brian DeChesare Comments (326)

No, You Can’t Have It All: Why Finance Does Not Guarantee You $10 Million and Your Own Beach in Thailand

No, You Can't Have It All: Why Finance Does Not Guarantee You $10 Million and Your Own Beach in Thailand

“Life is either a daring adventure or nothing. Security is mostly a superstition. It does not exist in nature.”

– Helen Keller

I almost decided not to publish this article.

But it needed to be said.

This one is long – so grab some yerba mate, take a seat, and close your YouTube window before you start.

How It All Started

“I’ve been keeping up with your blog for quite some time now and I’ve noticed that a very diverse group of people eventually “discover” that they want to become a banker (former premed students, engineers, lawyers, entrepreneurs, …).

That said… do you find it odd that so many people always ask you about exit opportunities in the first place when they’re still trying to break into the industry? This makes me suspect that some people have the wrong mindset going into the game (models & bottles).”

Yeah, of course *I* find it odd.

But does anyone else?

No, apparently not – just look at comments like this one:

“Damn… there goes another profession I was aspiring to do go down toilet. I thought the travel involved in consulting was just exaggerated. But I was wrong. I heard from Kevin that consultants at McKinsey travel 50-75% of their time. I’m sorry but I just can’t handle that. My only other alternatives are PE and HF. How are the hours and travel like for each of those professions. I’m praying that at least these jobs don’t screw up my life…”

At least he’s done his homework though: he understands some of the trade-offs between these different options.

But he’s still searching for the magic-bullet solution: a way to become a deca-millionaire with no risk and no 100-hour weeks.

About twice a week I get emails asking, “So, if I work at a boutique can I go home at 10 PM rather than 2 AM each night?”

If you don’t work in the industry or if you haven’t done an internship, I can understand why you don’t “get it” yet.

But then the other day a friend at a top bank emailed me saying:

“Man I’m so tired of banking right now, do you know anything else that would pay me this much and give me much better hours?”

And that’s what pushed me to hit the “Publish” button on this one anyway.

What Do You Want?

It’s a broad question, but most “goals” can be reduced to:

“Become a deca-millionaire without doing much work and also getting my own private beach in Thailand while having the best life ever.”

This brings up a slew of other issues – such as, “Wait, so what then? You’ll get bored in a week of doing nothing” but we’ll put those aside for now.

Based on this goal, you may have already decided that finance is the best route to becoming rich with no risk – and sure, the hours may be bad, but they get better over time, right?

Not so fast.

If this is your plan, you don’t understand the trade-offs between finance, different fields within finance, and different options altogether.

Trade-Offs?

There are an infinite number of variables, but we’re just going to look at the most important ones here.

Pay

This is one of the biggest lures of finance: just work for a few years and you’ll become a millionaire instantly, right?

But it’s also one of the most poorly understood trade-offs: most people in finance save little money, and any money they do save they either manage poorly or not at all.

$500K per year doesn’t mean much when it’s only $250K after taxes and $240K of that goes into models, bottles, and sports cars.

Prestige

I almost cringe writing this one – but it needs to be addressed here.

The secret that no one tells you about prestige: no one in the real world gives a crap where you work or where you went to school.

I can’t even remember the last time I told a stranger where I went to school, even though it’s supposedly one of the top universities in the world.

And not to turn this into a dating column, but citing a “prestigious” school or company won’t attract members of the opposite sex – at least not the ones you want.

Lifestyle

Sure, your life may suck for awhile but once you hit 35 and have $10 million you can just deposit it all in bonds, make $800,000 per year in tax-free income, and then retire to the Caribbean right?

Except I know of no bankers or other financiers who have actually done this.

To quote a friend who finished the Analyst program at Goldman Sachs a few years ago: “Even Partners take calls in between their kids’ soccer games on weekends.”

If you’ve been working that much for that long a period of time, you’re going to be bored out of your mind if you actually “retire early.”

Enjoyment

You might actually get a thrill out of running around and being on-call all the time; you might like traveling every week; or maybe you just want to relax.

So it is relative.

But we can say a few things with certainty: for example, banking has a lot more grunt work and repetitive tasks than other fields. So you’re probably not going to “like” what you do on a daily basis compared to other options.

Social Aspect

This one seems like an afterthought: who cares how many friends you have at work, right? It’s all about the dollars!

Well, not quite. Certain fields are lonelier than others – and one untold benefit of banking is that you’ll make a lot of close friends because you spend so much time at the office.

But in most other fields you’re either alone most of the time, or you don’t have close peers.

And what good is money if you have no friends?

Risk

“You might get rich if you start your own company, but it could also fail, you’ll go bankrupt and your life will be over. On the other hand, if you go into finance you will easily become a deca-millionaire with almost no risk of losing money or getting laid off.”

If you haven’t been hiding under a rock for the past 2 years, you know that the second statement here is false.

But you may not realize that the first statement is also just as wrong. The real risk of starting your own company is not going bankrupt – it’s something else that nobody ever tells you about (yes, you have to keep reading to see what it is).

Ok, Now Let’s Get Specific

“Ok,” you say, “but what about all the fields I’m interested in? Why are you saying I’m wrong about everything?”

Investment Banking

Yes, this one is well-worn ground and we’ve talked about everything from stuff investment bankers like to pay to stuff investment bankers don’t like.

But there’s more.

Besides the pay being extremely variable, you should note that most bankers save nothing in their first few years.

$60K-$70K base salary is barely enough to get by in New York, and your bonus just pays off credit card debt. Even at the VP-level and up, plenty of guys make $500K, then spend it all and have no savings.

Think you can avoid that and still save a lot? Peer pressure is tough to resist.

If you really want to “get rich,” you have to stay in the game until you’re at the MD-level, and then be a seasoned MD with regular business coming in.

And that doesn’t happen in 5-10 years.

Prestige? Well, your parents can brag about it to other prestige-obsessed parents but otherwise it has no effect on your life.

Lifestyle: if you have clients and live transactions, you’re always on call – no matter what level you’re at. MDs spend a lot of time answering email and checking their Blackberries “on vacation.”

But despite other drawbacks, banking is good for forming real relationships with people – you spend so much time at work, it would be hard not to. And that keeps you (relatively) sane.

Everyone has heard about “risk” in terms of layoffs and hiring freezes, but actually getting laid off at the entry-level doesn’t matter much: when you’re young you have plenty of options.

But when you reach the mid-levels it gets very, very difficult to “jump back in” if you get cut – which is a big problem when you have 2 mortgages, 3 BMWs, and 2 kids.

Sales & Trading

“Ok,” you say, “so banking is not that great – I know, I’ll do Sales & Trading instead and make as much or more money but also have a life!”

On the surface the lifestyle is better because you work roughly market hours – it can go beyond that, but you’re not going to be pulling all-nighters.

And hey, you can tell people you work at a bank, so it must be prestigious right?

Plus, the social aspect is quite similar to banking: you make a lot of friends because of the environment you’re in. Sure, you might get hazed but that’s just a part of any fraternity trading desk.

And many traders like their work more since there are no pitch books and there’s much less grunt work and coffee-fetching (unless you’re an intern).

So what’s the catch?

Risk and exit opportunities. Most entry-level traders at large investment banks get paid roughly the same, and it’s more dependent on group performance than individual performance.

But as you move up the ladder that changes – more so than in banking, where even a crappy VP might get paid well just because his MD did well.

So yes, if you’re a rock-star trader and can make millions effortlessly year after year, you’re set – but if you have a bad year, don’t say I didn’t warn you.

And no matter what area of trading you’re in, you don’t have as many exit opportunities as bankers: as one reader pointed out, this doesn’t make much sense – but that’s the way it is.

You either stay in trading, trade at a hedge fund or prop trading firm, or you get out of finance entirely.

If you’re an intern or you’re relatively new you can move elsewhere but you don’t have the flexibility that banking analysts do.

Private Equity

Ah yes, the Promised Land: private equity. Better pay, even more prestige, and much better hours to boot – right?

Well, not exactly.

Let’s start with prestige: whereas 99% of people have heard of Goldman Sachs, the average person doesn’t even know what “private equity” means. KKR or Blackstone may sound prestigious to you, but anyone outside finance is unlikely to know them.

Pay: despite rumors to the contrary, it’s not dramatically different for most people moving into PE. Yes, if you come in from a banking background you’ll get a higher base salary and possibly some sort of guaranteed bonus, but you’re not going to instantly start making $1 million at age 25.

Yes, Partners at the largest PE firms make 10x more (or more) than the top bankers do.

But very few people make it to the top, the industry is much smaller, and if you’re responsible for one bad investment you could be done.

The risk of getting laid off as a junior guy or girl in PE is lower than in banking – but advancing is just as difficult, if not more difficult.

There is less grunt work than in banking, but just a quick reality check: if you don’t find valuing companies, building models, and doing due diligence interesting, you’re going to hate PE too.

The social aspect always gets overlooked – once you move to the buy-side, you lose that large group of friends you used to hang out with, and your co-workers will be much older.

Yes, lifestyle is generally “better” but that’s not true if you go to a large fund – it’s banking hours all over again. And when you get busy with a deal, you’re going to work. A lot.

Hedge Funds

Much of the above applies to hedge funds as well. The average pay may be higher, but there is so little reliable data on what people at hedge funds actually make that I’m reluctant to say this.

And once again, the lifestyle is not much different from banking at the largest and most well-known funds: You work. A lot.

The risk is even greater with hedge funds, for one simple reason: they have a habit of collapsing.

I’ve been compiling lists of regional banks, private equity firms, and hedge funds, and as I was going through the hedge fund list I kept coming across “As of last year, such-and-such fund has ceased operations” in the “business description” fields.

This isn’t meant to scare you away from hedge funds: it just means that they are more risky than you think, pay is more variable than in banking and private equity (more similar to Sales & Trading), and the lifestyle may not be as good as you think.

Management Consulting

I had already given consultants a good beat-down last year, but hey, let’s give it a go once again.

First, the pay is less than any of the other fields mentioned above – unless you’re at a small prop shop that pays $0 base salary.

It’s hard to say whether McKinsey or Goldman Sachs is more “prestigious” – but the average person is more aware of “consultants” than they are of “private equity guys.”

And then there’s the travel aspect: this seems fun at first, but you quickly get tired of flying to the Yukon Territory every week to “advise” on a new oil drilling project.

Most travel is not that bad – but if you don’t want to be away from home every week, you’re going to hate the consulting lifestyle.

One of the big lures of consulting compared to banking is that there’s less “grunt work” and what you do is more “intellectually stimulating.”

But is that true? There’s certainly more “variety” than in banking but I know plenty of consultants who find it very repetitive and think that most of the “research” you do is just fluff.

Still, on average there’s probably more “fun” in consulting.

Another big lure: exit opportunities. One consultant once told me, “Management consulting is the only industry that gives you unlimited options.”

But ask any consultant who’s interviewing for PE or finance-related jobs, and they’ll tell you a different story: yes, it’s possible to get in coming from a consulting background but it’s significantly more difficult than if you were a banker. It’s hard to “prove” you know how to model an LBO if you’ve never done one before.

It’s good preparation for business school or for “management” jobs at companies, but if you’re coming from a consulting background you’re at a disadvantage next to bankers for finance jobs.

Large Company

I don’t get many emails or comments about this one, probably because no one wants to do it or because you already know the trade-offs.

But I do get a lot of emails saying, “I want to do corporate development after banking to get a better lifestyle. Can you tell me about it?”

My take on it is simple: it’s similar to private equity, but with reduced hours, pay, and upside.

Your chances of getting laid off are very, very low unless you’re at a new startup that happens to fold – but your chances of moving to the top, especially at a huge conglomerate, are slim.

The lifestyle is definitely better than the other options presented here: not much travel most of the time, and the hours are fairly standard except for when you’re working on a live deal.

The other trade-offs vary by what company you’re at and how your group runs – sometimes you might be the only person who isn’t married, and sometimes there’s a bigger group of people your age.

If you go into this after banking – or anything else on this list – you’ll find it very slow since you’re used to constantly running around and being on-call 24/7.

Also, there’s no clear “exit opportunity path” as there is with some of the other options here. Most likely, you’ll end up going to business school or moving to a different company.

Entrepreneurship

I have a theory that everyone who goes into banking secretly wants to start their own company instead. I get a lot of comments and emails that start out like this:

“Hi, I want to stay in banking for 2 years and then use all my money to start a company afterward. Do you think this is a good idea, and if so which group do you think I should be in?”

No, that’s a stupid idea because: 1) You will barely save any money over 2 years. 2) Banking is terrible preparation for entrepreneurship.

This one is almost impossible to write about because it depends on what kind of company you start – offline, online, products, services – and whether you aspire to be the next Google or you’d rather just start a bar with your friends.

But there are 2 important points that no one else ever brings up:

  1. The real risk is not going bankrupt or ruining your life, but rather wasting time going nowhere.
  2. This is the loneliest of the options here, because you don’t have peers – you’re either flying solo, or you have employees.

Yes, you could completely fail, but your life isn’t over – this happens all the time in Silicon Valley and everyone bounces back. More often than not, you might spend months or years on something and not get much traction – so you don’t get rich, but you also don’t lose everything.

On the social aspect: even if you end up with employees, you can’t really “hang out” with them. Especially if you started everything alone or with 1 other person, it’s quite lonely.

Pay, enjoyment, and lifestyle vary so much by what you do that it’s impossible to generalize: you could work 100 hours a week and hate your life, or you could treat your business as a simple part-time job.

If you’re wondering why everything I do is online, it’s for exactly those reasons: offline requires far more work, doesn’t give you as much leverage, and restricts your lifestyle a lot more.

Cliff’s Notes

Ok, that was really long. And maybe you didn’t read everything.

So here are the major points:

  1. Wanting to stay in finance for “just a few years” to “get rich” or “have enough experience to do something else” is a poor strategy. You’re not going to be rich after that short a time – and if you want to do something else, be like Nike and just do it.
  2. Most finance-related jobs entail a lot more risk than anyone ever talks about. And the lifestyle never matches what people with “normal jobs” get, no matter how high up you are.
  3. If you want to reach the top of anything listed here, it requires work, sacrifice, and risk. This doesn’t happen in “a few years” – it happens by spending 10-20 years or more excelling. There’s no magic bullet.
  4. The social aspect of all these options is huge and it’s something that almost everyone ignores. Hopefully you’re thinking about it now.
  5. Be aware of limits on exit opportunities. Hardly anyone tells you, for example, that once you’re at a specialized hedge fund it’s tough to move somewhere that uses completely different strategies.

So, What Should You Do?

Hey, I can’t give you all the answers.

I’m just like Fox News: I report, you decide.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (2)

Recruiting in a Down Market, Part 1: The State of the Market

Recruiting in a Down Market, Part 1: The State of the Market“Ladies and gentlemen, the state of our union is strong.”

-President Bill Clinton’s State of the Union Address, 1998

(If only we could say the same about the state of our industry.)

Part 1 of “Recruiting in a Down Market” (the presentation Kevin and I have been giving) begins today, with an overview of how things have changed in the past few years and where we’re at now.

After that, we’ll move onto the 4 major ways you need to change your recruiting strategy in a down market, and some key considerations when thinking about your “Plan B” (…and Plans C – Z).

Major Changes vs. 2004-2007

I hate to repeat depressing news, so let’s get this out of the way quickly.

In 2004-2007 the market was in recovery / boom year mode and competition for recruits was fierce. Banks had it harder holding onto top talent than you had finding jobs back then.

Now it has completely reversed and every bank has had multiple rounds of layoffs, enacted hiring freezes, and sharply cut back on recruiting.

You might think that such a poor environment would affect underlying demand / interest in these fields.

Whenever I tell new friends about this site, that’s always the first question they ask – “Who wants to do finance / consulting anymore, anyway?”

Even the Wall Street Journal has poked fun at this before.

So who does want to do finance/consulting anymore, anyway?

As you might expect, those with only lukewarm interest have fallen out of the market – but the core set of students and professionals who have always been interested in finance/business remain interested.

And some schools have such strong pre-professional leanings that nothing aside from a meteorite hitting Manhattan will change students’ motivations anytime soon.

So the number of people interested in finance/consulting has declined, but the quality of applicants has gone up – and competition is tougher than ever.

Another side effect: virtually anyone interested in finance is spreading his/her net wide and applying for anything available – making it tougher to get interviews if you don’t have top grades/experience.

Order of Magnitude & Some Numbers

The question of specific numbers / order of magnitude came up in a few presentations. Hardly anyone has “real” numbers showing how things have changed, but here are a few stats / guesstimates:

  • In past years big firms like Goldman Sachs might award 50-100 offers at core recruiting schools (not all of these would be for banking / front office roles).
  • This past fall that number was way down – maybe more like 10-20 – and some troubled firms just stopped recruiting altogether.
  • At most “target” schools this year, each bank has been interviewing 30-40 people and giving out 2-3 internship offers.
  • The number of applications, on the other hand, is up and everyone is applying for everything, even if they have no interest in doing it. The general pattern seems to be hundreds of people applying for each position and the same 20-30 always getting interviews.

Consulting vs. Finance

Management consulting serves as “Plan B” for a lot of prospective bankers, but is that realistic?

Not according to Management Consulted, which has written about reduced hiring at McKinsey and layoffs at other consulting firms like Accenture.

Even if consulting has been less affected, keep in mind that the industry is smaller than finance to begin with.

When times are good, it’s still tougher to land an internship / job at a top 3 consulting firm than it is to work at a bulge bracket bank.

Also, many companies view consultants as optional – a “nice-to-have”, but not a “must-have” – in all but a few cases. So they’re just as likely to cut back on consulting as they are to stop buying / selling companies.

So Who’s Actually Hiring?

Ok, so no one is hiring, apocalypse is upon us, and yes, believe it or not, they’re still selling remnants of Lehman Brothers on eBay.

That’s what you hear if you listen exclusively to the mainstream media, but a few firms actually view the current times as a great opportunity – opportunity to expand, hire quality bankers from elsewhere, and prepare themselves for future years.

Elite Restructuring / Advisory Boutiques

The most notable boutique that has been on a hiring spree lately is Moelis & Company, which is poaching senior bankers left and right and hiring lots of new junior people as well.

And they’re not alone – many boutiques are attracting laid-off or disillusioned bulge bracket bankers and luring them in with promises of higher pay and more independence / stability.

Back when I wrote Boutiques vs. Bulge Brackets, I said that larger firms were a better bet to start at – but I could this reversing itself in coming years.

Internship / Entry-Level Hiring

As I predicted in Summer Internship Recruiting: Down But Not Out, virtually all firms – even ones on the brink of collapse – hired summer interns this year.

It’s not in their best interest to “save” several hundred thousand (against revenue in the hundreds of millions) by not hiring interns, especially since no one knows when the market will recover.

Outside the US

Other parts of the world have been hit harder by the downturn than most people stateside have acknowledged, but they’re still in better shape than New York / London.

One point Kevin has made is that consulting firms have actually been hiring more people in high-growth regions like Dubai.

Oil prices and the real estate bubble popping have hurt the region, but the government is spending a lot on infrastructure projects and they need consultants to tell them what to do.

Coming Up Next

Coming up next: the 4 major ways you need to change your recruiting strategy to stand out in this market, and how you need to change your attitude toward recruiting, especially if you’re at a top university / business school.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (48)

Damn, It Does NOT Feel Good To Be A Banker: Investment Banking Apocalypse

Damn, It Does NOT Feel Good To Be A Banker: Investment Banking ApocalypseFor those who weren’t paying attention over the weekend, top government officials in China and the US reached an agreement whereby China has agreed to acquire all outstanding stock of the United States at $1.00 per share, with an implied valuation of $1 trillion.

Although the US GDP is close to $14 trillion on paper, analysts have said that extreme exposure to subprime mortgages and a failing financial system pushed its value down to only $500 billion.  China made a last-minute rescue, acquiring the country at a 100% premium.

(This is a joke, but I wouldn’t be surprised to see a headline like this soon.)

Ok, so in case you were on vacation, Lehman and Merrill both failed over the weekend, and the US financial system continues its descent into bankruptcy as banks and hedge funds spiral into a bottomless abyss.

So what can you do about it?

The Effects Of The Apocalypse

The collapse of 2 bulge bracket banks will have a big effect on you, but probably not in the way you’re thinking.  Most commentary has focused on how the absence of 2 huge banks will reduce job openings and summer internship opportunities.

While this is true, the larger problem is that you’ll now be competing with everyone who will be laid off from Lehman and Merrill (and BoA, of course) – thousands of newly unemployed bankers in the system, also looking for work.

What The Unemployed Will Do

From what we’ve seen earlier this year, my guess is that a good portion of the unemployed – especially at the junior levels – will simply forget about finance altogether and just “move into industry.”

But the truth is a lot of them will also stick around and go for positions at middle-market and boutique firms.

Especially at the VP-level and up, anyone working at one of the failed banks is in a “limbo” where it’s too late to make a career switch altogether, but where it’s tough to find anything within banking – unless they get really lucky.

Bottom-line, though, is that you will be competing with a sizable pool of newly unemployed bankers.

Wait, But Won’t The Boutiques Get Bigger And Take Over?

No, I don’t think so.

I’ve seen some questions around whether the smaller banks will grow and take over the spots once occupied by Merrill, Lehman and Bear.

I think this is unlikely for 2 reasons:

  1. Deal-making is slow.  It’s tough to grow a major business in a terrible market, and investment banking revenue is down over 50% from last year.
  2. This crisis proved that the pure-play investment banking model doesn’t work so well.  So I doubt that these boutiques have any ambition to grow and replace the failed bulge brackets.

What You Should Do

So, what should you do in the face of apocalypse?

Sadly, there’s not a whole lot you can do – a broken financial system in the world’s largest economy is a big problem and one that’s well beyond your control.

Earlier I wrote an article on how to boost your recruiting chances in a tough market, and I would reiterate that advice here.

By now, if you’re seriously looking at bulge bracket banks (well, the ones that are left…) and have no previous finance experience, you’re basically crazy.  Focus all your time and energy on smaller places.

However, even that strategy is problematic because everyone knows about it – so you have to consider some alternatives.

I think one of the best options is going abroad to find work – especially in the Asia Pacific region.

Yeah, everyone says you should start out in New York, but these days you’re more likely to run into laid off bankers jumping out windows than you are to run into a job.

Final Thoughts

One of the questions I’ve been getting lately goes something like this:

“Hi, I want to make a lot of money, not work a lot, have no risk and be able to do whatever I want all the time.  How can I get into investment banking?”

I hate to shatter your dreams, but nothing’s perfect – every profession has a downside.  Just refer to the graph below for the downside of working in finance:

Damn, It Does NOT Feel Good To Be A Banker: Investment Banking Apocalypse

Source: Bureau of Labor Statistics

It’s incredibly cyclical – and therefore far riskier than other industries.  Over 100,000 will probably lose their jobs in this downturn.

So if you can’t get exactly what you’re looking for, you have two choices: either wait it out or compromise.

And with the state of the economy and all the news over the weekend, compromise is the better option.

Update: It’s not all doom-and-gloom just yet, guys.  Looks like Credit Suisse and Moelis & Co. are both “on the prowl for bankers” – which just goes to prove what I wrote above about opportunities still existing at smaller firms and outside the US, especially in the AsiaPac region.

Update 2: Looks like Barclays is buying Lehman’s investment banking and capital markets divisions, saving between 9,000 and 10,000 jobs – so it’s not the end of the world quite yet.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Break Into Investment Banking

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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