by Brian DeChesare Comments (157)

It’s Not Rocket Science: Why You Should Stop Learning Partial Differential Equations If You Want to Break Into Investment Banking

It's Not Rocket Science: Why You Should Stop Learning Partial Differential Equations If You Want to Break Into Investment Banking

“Hi, I was wondering which class I should take to break into investment banking: Advanced Partial Differential Equations or Quantum Field Theory. Do you think it will ruin my future if I only learn up through Multivariable Calculus?”

No, I don’t make this stuff up: I get emails like this all the time.

Sometimes they’re from undergraduates, sometimes they’re from MBA students, and sometimes they’re from the occasional MD or PhD candidate.

But my answer is always the same:

It doesn’t matter.

You don’t do “real” math in investment banking, so stop worrying about it and spend your time more wisely.

Got Obsession?

So why is there such an obsession with learning advanced math / winning the Nobel Prize before you start working as an investment banking analyst or associate?

You’re Good at Math

If you’re interested in finance to begin with, there’s a good chance that you’re already good at math and have taken a lot of math classes. You’ve either:

  1. Been interested in finance for a long time and have taken a lot of finance/math classes; or
  2. You were an engineer or science-type who got bored of that and wanted to move into business.

Yes, there are bankers with liberal arts backgrounds as well but bankers in categories #1 and #2 outnumber them.

We Like to Blame Other People

It’s the same reason we believe so strongly in the myth of the career path.

If you can get into finance simply by calling hundreds of people and being very aggressive with networking, failure to break in would reflect poorly on you.

But if you couldn’t break in because you didn’t have that class on quantum physics, then you have the perfect alibi.

We Like to Stay In Our Comfort Zone

Getting out there, talking to people, and meeting them in-person is uncomfortable. It’s way easier just to sit at home watching TV…

…or to sit at home completing your math homework.

Going through dozens of advanced math classes also gives us the illusion of progress without actually requiring us to make any progress. It’s part of the 80% you should be eliminating.

The Truth About Math

There are 3 points you need to know about math in investment banking:

  1. You don’t use it that much.
  2. The math you do use is very simple. As in, arithmetic.
  3. Therefore, you don’t have to be a math genius – but you do have to be good with numbers.

Say What?

You don’t use math that much because you don’t do that much modeling work, even in “technical” groups like M&A.

Think “administrative work,” emailing people and updating lists of information – just look at a few days in the life of an investment banker if you don’t believe me.

And when you do use math, 90% of the time you’re working with existing templates or simple models rather than creating everything from scratch.

Yes, it’s cool to be able to say you can create a hyper-advanced LBO model from a blank spreadsheet, but in the real world no one has time for that – so you use templates.

But What About Modeling?!!

Even when you are working with financial models, none of the math is complex.

There’s addition, subtraction, multiplication, and division… and occasionally built-in Excel functions like IRR, Mean, and Median.

You never use calculus or differential equations or even geometry / trigonometry. Just arithmetic and sometimes algebra.

Think about all the basic formulas in accounting: Revenue – Expenses = Profit. Revenue – Cost of Goods Sold = Gross Profit… and so on.

Notice how there are no integrals anywhere in those equations.

So Why Do You Still Need to Be Good With Numbers?

If the math is so simple, why do you need to be good with numbers at all?

Although the individual mathematical operations are simple, you can end up working with huge spreadsheets where a lot of calculations are linked together.

1 + 1 = 2 is simple, but now let’s say you have 100 similar calculations, and the input of each one is linked to the output of another calculation.

That’s exactly what you run into in investment banking, and it gets tricky to trace everything – especially when it’s someone else’s model.

Exceptions & Other Fields

In other fields of finance the math can get more advanced.

The main example is trading, where some funds may use advanced algorithms and higher-level math to make trading decisions – so if you go into one of those, advanced math classes might actually be helpful.

For hedge funds, it depends on what strategy the fund uses: long-term fundamental investing has less math than algorithmic trading.

Also in trading, mental math (17 * 35) is more important because you need to make quick decisions.

Outside of those, the math in other industries like private wealth management is as simple as it is banking.

So What Should You Do About It?

Stop taking advanced math classes – especially if they hurt your GPA.

Bankers look at the overall difficulty of your major but they don’t go in and analyze every single class – a 3.8 GPA with easier classes is much better than a 3.3 GPA with “tough” classes.

Plus, taking such advanced classes takes away from time you could be spending on internships, school-year internships, networking, and activities.

When reading your resume, bankers pay attention to the school you attended, your internships, and your GPA – not individual classes.

Beyond Undergraduate

Despite rumors to the contrary, sometimes you have to do work to get through business school.

At this level, taking “more advanced” classes is an even worse use of time because:

  1. At the MBA-level networking is even more important.
  2. Hardly any “math-intensive” finance positions hire directly from business schools – you don’t need an MBA to be a top trader. You just need to make a lot of money.

So if you’re at this stage and you’re serious about breaking into investment banking, forget about advanced statistics / financial math classes and do the bare minimum.

Summer School?

I also get a lot of questions on whether “finance summer school” or taking classes during the summer instead of an internship is worth it, and the answer is always “No, unless you have no better options.”

Bankers don’t like taking risks, and they always prefer to hire someone with investment banking internship experience over a newbie.

What About Your PhD / MD?

Bankers tend to look down on advanced degree holders.

They want people who can burn the midnight oil and who are aggressive enough to find ways to make or save money – and they don’t think that advanced degree holders fall into this category.

Getting these degrees is far more difficult than anything you do in banking, but most bankers don’t like to acknowledge this.

So if you’re already deep into one of these programs, cut your losses and get out early or take the path of least resistance if you’re too far in to drop out now.

Improve Your Communication Skills

If you really want to improve your skills before you start working, forget about math and focus on your writing and speaking skills.

There are tons of analysts who are good at math, but few can describe what they did and how it helped their bank make money in plain English.

And if you want to move up, you need to interact with senior bankers a lot – so getting to the point without rambling or stuttering is essential.

And If You Really Want to Improve Your Math Skills…

If you’re still set on improving your skills, forget about classes and have a friend in the industry send you a complex model with many different tabs.

Then, try to “reverse engineer” it and figure out what the key drivers are and how they affect the output.

Creating a model yourself is relatively easy because you control everything – the real challenge is looking at someone else’s model and figuring out how it works in the first place and how to modify it.

So spend some time playing around with complex models and get used to the process of tracing individual formulas and outputs.

And please, no more partial differential equations.

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 Jerry Chi Comments (147)

Sales & Trading vs. Investment Banking, Part 1 – Recruiting

Investment Banking vs. Sales & Trading“So, how much food do traders eat?”

“Can you really make $10 million instantly if you’re a star trader?”

“Can I write about my gambling addiction and how much money I made with poker on my trading resume?”

You’re about to learn the answers to all of those and more, in this 2-part podcast series on Sales & Trading vs. Investment Banking.

Since I know close to nothing about trading personally, this one is an “interview” with Jerry, who does know a lot about trading – having done a trading internship, worked full-time at a bulge bracket bank and then started his own prop trading firm.

What You’ll Learn In This 40-Minute Interview

  • What you need to succeed in sales vs. trading vs. investment banking, and why none of them require “rocket science”-level math
  • What to do if you don’t have a pedigree, and why trading might be a good option for you
  • Networking tactics for both fields and the best time to cold-call a trader
  • The 3 most important points to highlight on your sales & trading resume, and how to write about your poker hobby (addiction?)
  • Interviews, telling your “story,” and how pitching a stock differs in sales vs. trading interviews

Listen to the interview right here:

[audio: http://podcasts-00.s3.amazonaws.com/S&T-Part-1-Recruiting.mp3]

Introduction

  • 1:15: Intro to Jerry and his background
  • 1:45: Skills required for trading, psychology, and why you still don’t need to be a rocket scientist to succeed
  • 4:30: Who succeeds in banking vs. trading and the math required

Recruiting

  • 5:30: Recruiting at a bank vs. prop trading firm
  • 7:40: Recruiting for sales
  • 8:09: What to do with no real finance experience – and why exams and certifications aren’t the answer
  • 10:30: How to break in from unusual backgrounds and if you’re already out of school
  • 12:10: From programmer to prop trader?

Asia vs. the US and Language Requirements

  • 12:55: Recruiting in Asia vs. the US and elsewhere
  • 14:00: Language requirements in banking vs. sales vs. trading and what to do if you don’t know the local language

Networking and the Best Time to Call a Trader

  • 16:50: How to network like a ninja in both fields
  • 18:00: The best time to cold-call a trader (hint: not when he’s trading, eating, or abusing interns)
  • 19:23: How to approach traders differently from bankers, and why “business talk” might be a better strategy

Why the CFA Is Still Useless

  • 21:05: Are there any useful exams for breaking in? Nope, sorry, please try again…

Sales & Trading Resumes

  • 23:05: Sales & Trading resumes and which skills are not as important to highlight
  • 24:53: The 3 most important skills to focus on in your trading resume, and what to do if you don’t have them
  • 26:16: Should you write about your gambling addiction? What about knitting yarn or extreme sports?

All About Interviews

  • 27:45: How banking interviews differ from trading interviews
  • 30:22: How much corporate finance / valuation knowledge do you need for S&T interviews?
  • 30:48: How “fit” questions are different
  • 32:05: Why and how you need to tell your “story” differently and how to talk about your future plans in trading interviews
  • 34:34: Can you prepare for S&T interviews?
  • 35:50: How to pitch a stock and technical vs. fundamental analysis
  • 37:15: How sales interviews differ from trading interviews, and how you should pitch a stock differently

Sales & Trading vs. Investment Banking Podcast Series:

About the Author

Jerry Chi graduated from Stanford, worked in equity research and trading in Japan, and then started and sold his own prop trading firm in China. He earned his MBA from Wharton, and then worked at Google and Supercell in Japan.

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

We respect your privacy. Please refer to our full privacy policy.