Researching Investment Banks

                                     Analysing the Banks

I have mentioned many times that it is important to do your homework before approaching an interview. But what does that entail? This post is designed to help you get the most of your research, and a long the way, learn a little bit about the differences between banks.

Ranking Investment Banks
Banks generally fall into 5 main categories:

The “Rep. Level” corresponds to the reputation of the category as perceived by the industry. Additionally, your experience, bonus, and exit opportunities will vary depending on the level. Hours depend on the deal flow.

At the end of the day, this information is important for your application strategy. Similar to college applications, diversifying where you apply will increase your chances of getting an offer at a bank. Your goal is getting banking experience, if you get an opportunity, sign.

List of Banks
Whether you’re cold calling or just applying, it is helpful to have a list of banks. Take a look at these links:

How to research the bank before your interview
Okay, now you have your application strategy down. Finding out more information about the bank’s culture and its people is crucial to increasing your response rates and preparing for an interview.

The goal when researching a bank is to identify how it’s unique, find people who you share a background with and can contact, and learn the firm’s history. Here’s how you can accomplish these goals:

  1. Visit the banks website. Teams are listed with their bios and contact information directly on most regional boutique banks. Additionally, don’t overlook bank presentations. Even big banks will list a few people who worked on the deck and include their contact information.
  2. Check out LinkedIn. Then Google the person to find even more information about them, what you share, and how you can reach out to them.
  3. Take a look at the current M&A landscape. Keeping up with deal news regularly helps. Regardless of if the trend is strong or weak, you have a bullish long-term outlook.
  4. Once you are offer an interview, lookup at the bank’s recently closed deals. Identify the deal type, size, and result. You may want to know if they are currently working on a big deal so you can converse with them about it.
  5. One of my friends got an offer at Bain Consulting because he found out all the office hold an annual soccer match. He brought this up during the interview and was able to build a connection with the interviewer. Most banks will conduct sustainability, volunteering, or networking events annually. Figure out what these are and tie them into your interview answers.

Conclusion
Refrain the urge to rank every bank in excel. That’s what league tables are for. Regardless of your application strategy, focus your time and energy learning about the banks culture and people so that once you get an offer, you’ll be able to judge the best fit.

Investment Banking Reading List

An investment bank is split into three departments: sales and trading, research, and corporate finance. Just as the Chinese Wall separates sales, trading, and research from corporate finance, so do I. Within each section, the books are unordered. I would recommend reading at least three of these books in the list before starting your career in investment banking. Additionally, my top choices are stared (*).

                                        Betty Draper Reading

1. Sales, Trading, and Research

*Liar’s Poker by Michael Lewis*

Market Wizards by Jack Schwager

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition by Burton G. Malkie

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham, Jason Zweig

Security Analysis: The Classic 1951 Edition by Benjamin Graham

Technical Analysis of Stock Trends, Ninth Edition (Technical Analysis of Stock Trends) by Robert D. Edwards, John Magee, W.H.C. Bassetti

Capital Ideas Evolving by Peter L. Bernstein

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

Modern Portfolio Theory and Investment Analysis by Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, William N. Goetzmann

The New Market Wizards by Jack D. Schwager

House of Cards by William D. Cohan

One Up on Wall Street by Peter Lynch

*The Essays of Warren Buffet by Lawrence Cunningham*

2. Corporate Finance

Vault Career Guide to Investment Banking by Tom Lott

*Monkey Business by John Rolfe and Peter Troob*

The Fast Track by Mariam Naficy

*Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl*

The Last Tycoons: The Secret History of Lazard Freres & Co. by William Cohan

The Partnership: The Making of Goldman Sachs by Charles Ellis

Just like the list of my favorite business movies and shows, this is a working list. Feel free to let me know if missed any in the comments section. Additionally, I added another “page” on the left side of this blog where you can see what I’m currently reading.

Working Paper - Investment Climate in Haiti: The Case of the Garment Indutry

So far, during my undergraduate career, I have worked on two major working papers. First, I had the privilege of writing a paper with my game theory professor on the effects of increased competition in the credit rating industry on the quality of ratings. I recently presented that paper at a Princeton University conference.

My next paper I’m starting on is about Haiti. The country has had a long history of economic, social, and political turmoil. Most of the nation’s suffering can be attributed to foreign powers and natural disasters. The international community has recently flooded Haiti with money and favorable legislation (HOPE II ACT). Seeing the aid as an opportunity to rebuild Haiti’s economy, I want the funds to be allocated in the most efficient areas. Investing in infrastructure and building Haiti’s apparel industry are the areas that meet this goal.

Most international organizations are proficient in building and maintaining infrastructure. For example, the World Bank and IMF both have a history of successfully rebuilding countries’ infrastructure throughout the world. The more complex problem is building Haiti’s garment industry. In my latest paper I seek to breakdown the conditions necessary for international garment companies to see Haiti as a competitive option. Here is my latest draft.

Find a topic for my papers is often the most difficult part. My past post on my reaction to Freakonomics (the movie), actually helped quite a bit. “Looking for causation not correlated variables” and “putting myself in the subjects position” lead me to research the Investment Climate in Haiti: The Case of the Garment Industry.  

The Gamificaiton of Education

I have always been very interested in my concentration, game theory. However, I recently got introduced to the concept of gamification though TED talks online. Since then I have been trying to identify ways to make almost everything into a game.

Having spent over 20 years in the US educational system myself, I always thought there could be significant improvements made in the teaching methods. The link posted is to an article I that breaks down the key parts of gamificaiton and realistically applies each of them to our current education system.

Bonus: If you want a peek into gamefication and education in action, check out Khan Academy. This is a great resource to learn a wide array of school subjects.

For a similar concept, but with coding, check out Code Academy.

My Reaction to Freakonomics (The Movie)

I recently saw Freakonomics the documentary. I heard great things about the best selling book and have been meaning to read it for a while. In fact, the book was the subject of one of my presentations in 7th grade; but I only read Sparknotes to complete it. Finally, after seeing the movie, I can speak about the book more knowledgeably. Alright, enough personal information, let’s jump into the key takeaways Steven Levitt and Stephen Dunbar formulated.

Firstly, statistics can be mathematically correct, but their interpretations are still subjective. As my Biology teacher says, “Correlation doesn’t mean causation”. This topic is commonly explained in lower level economics and political science classes. The premise of research in these subjects is to differentiate the two and find true causation. A good example illustrated in the movie examined the causes of the decreased crime rates in the 1990s. A prominent newspaper claimed the causes could have been politicians (e.g. Rudy Giuliani, Bill Clinton,…), increasingly effective policing tactics, and better family values. However, Levitt pointed to abortion being the main cause of decreased crime. By eliminating unwanted pregnancies, children who weren’t wanted didn’t grow older.

Similarly, this principle also hold true when valuing a company. As many practicing accountants will tell you, the dollar value of a company is a subjective number. That is why companies hire investment bankers to come up with a valuation range and negotiate for the best price.

Secondly, incentives matter. By studying human incentives, we can create games in which to manipulate them in beneficial ways. For example, Steven used his daughter’s potty training as an example. A piece of candy used to reward her for correctly using the toilet. This method was very effect for the first week. However, the problem with incentives is that people exploit them in two ways: through free riding and adapting to the game. The Levitt’s daughter got so good at using the toilet that she could control her pee to maximize the amount of candy she received. Nevertheless, the lesson still holds true. Mapping successful game processes out can allow researchers to find incentives that do work and apply them to other games. This process is commonly known as gamification.

Another way the game developer can understand the process more intricately is to get involved when conducting research- “put yourself in the subjects shoes”. This is the third point I took away from the film. Researchers can define incentives in more details if they experience or “think like” the subject.

There were a few other cases I thought were worth noting. SPOILERS: For example, how a person’s name dictates their success (it doesn’t), whether or not to trust your real estate agent’s offer (keep your house on the market longer), and corruption in the world of sumo (the competition process matters). Even with all of the terrible acting, the movie was thought provoking. Personally, I found the information on research methods useful in picking my next paper topic. Moreover, I enjoyed the authors’ insight into several gamificaiton cases.

In the future, I plan on reading Super Freakonomics and checking out the NY Times Freakonomics Blog. Maybe they will come out with another movie and save me the trouble.

Just kidding. I’ve changed.