For no apparent reason this site is seeing more email traffic. With that said, it seems there are a lot of myths about Wall Street Floating around out there that need to be flushed out and burned. In no particular order here are the highlights of the ideas that people believe that simply are not true.
Easy Path to a Billion Dollars: This one is the most outlandish. Assuming that you are not well connected and you are actually a hard working, passionate and smart individual who landed a Wall Street job… You could potentially make a few million. A billion is simply out of reach. Here’s the basic reason why. When you start in Investment Banking or even in a Hedge Fund there will be someone who is actually well connected. If your dad is the number one Portfolio Manager at Capital Group (FYI this is a $1 trilion+ fund) you will have an extremely easy time moving up the “ranks” so to speak. That’s life. Now for the rest of the potential candidates out there be prepared to work hard. Some of the best workers on the Street are ex-military or ex-division 1 athletes, these hard working souls go through the ranks the hard way, 80+ hour weeks, playing politics, taking risks by jumping jobs and by simply getting a little bit lucky as well. Assuming everything clicks, in general, you’re looking at a Director/Managing Director slot long-term which nets you roughly $1M annual.
Bulge Brackets Are Where It’s At: This is another bad one. Just because you got a job at Morgan Stanley or Goldman Sachs does not mean you’re going to get paid more than someone who works at Quatalyst, Lazard, Moelis or any other firm… Even the mid-markets. Why? Two reasons. 1) If you are straight out of college they know (GS/MS) that they can pay you less and you will still stick around for more work because you want that exit opportunity and 2) Companies are still companies, if you worked at Lehman or another firm that got destroyed, you’re not getting a good bonus. In fact, generally on the lower to even mid-career there are many smaller banks that will pay up for the best talent. Like for like a managing director at GS is certainly better off but again at that level it is performance based so you should be making the firm large amounts of money. As you’d expect, the best worker is always the one who makes the firm the most money.
You Need to Be Good at Math: This is another common one. Can you run percentages in your head, do algebra, spit out quick rule of 72 numbers and quickly look at numbers to see outliers? Congrats you’re done. Now if you actually want to do the “math” side of the business get ready for a whole different type of career path. Get your PHD in mathematics from a major top 20 College. To drive the point home, you will be asked for your SAT math score or GMAT score but we do not care about your math courses in college only the finance ones. That should make the difficulty level clear.
Wall Street is a Lazy Way to Make Money: This is another knee slapping, “rolling on floor” laughing and just saw a guy benching the bar funny assumption. Unless you are the PM at Capital Group or a PM at another long-only mutual fund with billions of dollars collecting a few “bips” your life going through the ranks will suck. If you read the first paragraph notice how military and athletes do well? They work harder than you can imagine and don’t complain about it. Don’t get us wrong everyone is forced into complaints and unhappiness at some point, but generally speaking a military guy or an athlete is a much better fit than an engineer with a 4.0 who grew up in the suburbs. Every recruiting season we have to answer the same tired question on what makes a great Wall Street candidate. The answer is here “A Smart guy with a positive attitude who grew up poor and wants to earn money no matter how hard he must work”. We will choose an ex-military finance major from a top tier school over a archaic mathematics major with the same 4.0 GPA any day of the week and it is not even close.
The Buy-side is Always Greener: Another good one. As noted the buy-side is the most prestigious but this does not always mean more pay. Lets say you are 28 years old and you are about to get promoted to the Vice President role on the sell-side, you’re almost guaranteed to clear $400K+. Now lets say you are 28 years old working at a $1B fund that just lost 10% year to date and saw fund flows decline, congratulations you get $0 for a bonus which can be 66% of your total compensation at that point. The correct way to think about the buy-side is unlimited potential. A simple anecdote would be comparing put and call options. With calls your upside is infinite (buy-side), with puts your upside is limited (sell-side). Another good way to think about it – the variation in pay is severe on the buy-side and much tighter on the sell-side.
The Best Skill to Have is Modelling: Almost want to put this one as the first paragraph because this is the worst advice to possibly give someone. You should not take any modelling courses before you start your job and you would be better suited practicing hot keys in Microsoft Office. How speed is much more important? Look at a financial release such as this one from Google. You must update your hand-me-down model with 0 errors for all new numbers in 30 minutes to an hour, that’s your benchmark.
Stock Performance is Everything: Another great one. People believe Sell-Side analysts get paid to “pick stocks”, simply not true. This is absolutely true on the buy-side where you can make a ton of money running a profitable book at a hedge fund but the sell-side is named that for a reason. Your job is to sell. So the best skill possible is salesmanship. Get companies to like you, build relationships and network… now you can see why a “positive attitude” is so key, you’ll never see a strong salesman who is unhappy, negative and mean to clients all of the time. In addition, it would actually be in your best interest to make sales your number one priority even on the buy-side. Why? You’re likely not connected so the only way to get your Portfolio Manager to take a position in a stock (one-third, half, two-thirds or full) is to sell him on an idea. Not only that but you’re going to be jumping around Wall Street to move up the ranks quickly. Your resume will look like a ping-pong machine so you better be a good interviewer… sales again.
Steep Learning Curve: A great one you will always hear. The truth is this. You will learn how to hold your emotions together better and better with each passing year. When you are bombarded with 100 emails in 20 minutes, must respond, must be political, must be happy and must be accurate on 0 hours of sleep get ready to learn to contain yourself. Everyone gets unhappy and complains at times but your job is to hold this in better than your peers at all times. Oh and by the way, a real all nighter is when you get ZERO hours of sleep and then work a FULL 16 hour working day without leaving the office. So university “all-nighters” are pretty much bush league.
With all that said here is the quick summary of what has much more truth to it.
- When you invest you’re playing rigged poker. Generally yes. The PM at Capital Group can get any CEO on the phone with him.
- You will gain 30 pounds of fat from 2 years in Investment Banking. Yes unless you are extremely obsessed with perfection.
- Wall Street Saying “Family, Friends, Girlfriend… choose two”. Yes, you already know our advice.
- Primarily “D-bags and Assholes”. Yep, you’ll meet a lot of disturbing pieces of human garbage.
- They usually don’t get laid. Yes again! This is usually due to the bragging, prestige and one-upsmanship.
- You Don’t Get Lunch Breaks. Correct again, you usually go outside and buy it (quickly) or have it delivered.
- You Get Meal Allowances. Yes, horray! You worked over 12 hours so you get $25 for dinner, wait you’re getting fatter…
- You Get a Free Cell Plan. Yep, have fun with those morning or late night blow up “FYI emails” get used to typing “Will do”
That should suffice.