Comments / Suggestions / Questions…
In the spirit of adding some interactivity to this site, please post your comments and suggestions. Also, feel free to post your questions about investment banking and I will try my best to answer them.
-Andrew
In the spirit of adding some interactivity to this site, please post your comments and suggestions. Also, feel free to post your questions about investment banking and I will try my best to answer them.
-Andrew
November 2nd, 2007 at 12:21 pm
Andrew,
I must say this is an extremely positive start. I guess a logical next step would be to help former students connect with the relevant recuiters. Probably create a little awareness about this program amongst the recuiters.
Nonetheless, this is a very positive step in the right direction.
Thank you and all the best
Fardeen
November 27th, 2007 at 4:26 pm
Great site! I found your comments on ibankingoasis.com and entered your site and must say it’s perfect! Very value adding info (esp. that I’m not ibanker and don’t have many friends there).
I’d appreciate even more technical questions & answers. I found this part extremely useful (and very well explained).
November 29th, 2007 at 8:43 am
Hi Andrew,
How do top tier hedge funds and private equity firms view analysts from top restructuring groups like lazard or blackstone. Are they still given the opportunity to join l/s, activist funds (not just distressed debt or credit)? How are they viewed relative to M&A and lev fin analysts? These groups are not as talked about on these forums because there aren’t very many analysts coming out of these two groups each year, but id still like to know the types of places to which they go.
November 29th, 2007 at 12:43 pm
Tom,
Analysts from top restructuring groups (Lazard and Blackstone) tend to be viewed very favorably. Having done both restructuring and M&A, I can tell you that restructuring (specifically debtor side restructuring - which is advising the distressed/bankrupt company) is far more interesting than most M&A. From a junior banker perspective, there’s more to learn, more financial analysis and you tend to be more involved with your client. You tend to develop a better understanding of valuation and capital structure. Also, in a bankruptcy, because a lot of your work is automatically subject to review by the court and by the creditors, the quality of work tends to be higher than in M&A. All of these factors make you very desirable to analytically oriented HFs.
The downside of restructuring is its very cyclical nature. In order to show well interviewing for top PEs and HFs, you need good deal flow and good modeling experience. Over the past 3 years, you would likely have gotten much better deal and modeling experience doing lev fin or M&A at a top bank than in restructuring because there were so few bankruptcies. My view is that the next few years will be the opposite (but that’s just a guess).
December 4th, 2007 at 8:14 am
Thank you for that !
Its a real gold mine
December 5th, 2007 at 5:07 pm
This is an incredible site! Comprehensive, detailed, and gets to the core of the issue. I must say, this is a far better product than anything which Vault Guide has put out.
December 6th, 2007 at 3:08 am
Andrew,
Congratulations ! Your website is great. Throughout this website you talk about how most tasks people will learn on the job. So who would you recommend to take the classes you teach? who are they aimed for? Would you recomend them for sophomores and juniors in college? Is it worth it to spend over a thousand dollars in something you’ll be teached on the job for free?
December 6th, 2007 at 7:11 am
Although I have a job lined up for next year, I wish this site was around earlier. Like the people who posted before me, this is definitely a huge value-add. I am curious why you decided to exit when you were already at such a high level position and things should be getting smoother. My best guess is because of a lifestyle or family decision. One of my professors did something similar, leaving the industry to teach students like myself and spend more time with his kids. Best to you and your new ventures.
December 6th, 2007 at 1:43 pm
Alf,
Thanks for your kind words. The classes that I teach are geared mostly towards people trying to get jobs in banking. We do get a fair amount of people that are still in college as well as some currently in MBA programs. The classes really serve 4 purposes for the students that are currently in school (undergrad or MBA):
1. By taking the class, you will get a feel for what banking is really like, which may affect (positively or negatively) whether or not you want to pursue it. Better to figure that out sooner rather than later!
2. You will learn things (e.g. valuation and modeling) that you can put as bullet points on a resume. These bullets have helped people get interviews.
3. Assuming you pay attention in class, you will be able to talk about these topics in an interview. This helps you differentiate yourself in interviews from your peers who likely have no similar experience. I have gotten a lot of positive feedback from students who have taken my classes who have said that the knowledge that they learned in class helped them in interviews. Taking such a class is also a sign that you are really serious about banking. I do think that differentiating yourself will be even more important over the coming recruiting cycles if the job market continues to worsen.
4. When you do get a job in banking, you will be one small step ahead of your peers who have never done a model or done a valuation. And you may have a better feel for what to expect on the job. We do spend time in class talking about life as an analyst/associate, what makes a good analyst/associate, etc.
As you correctly wrote, classes such as the one that I teach are not inexpensive. It’s obviously up to each individual to decide if they think they will get enough value out of it. Where I think they help most, is for people who or on the border-line of being able to get a job or internship (say, at a good but non-target school, or at a target school with good but not great GPA). Second, for people who have a great shot at a banking job/internship, I think a class like this can be the difference between say, a top-tier bulge bracket/boutique and a lower-tier one.
December 10th, 2007 at 1:47 am
Hi Andrew,
I was just wondering how the questions asked for Full-time interviews be different if one has prior internships. Also how would you advise I handle a situation wherein I have a top tier BB internship but no offer. Great website by the way. Cheers
December 10th, 2007 at 4:14 pm
Ovim,
Having done an internship(s), you’re likely to get asked about your experiences in those internships during your full-time interviews. Specifically, they’ll want to know what you learned, what you did, if you worked on any transactions, etc. An interviewer will expect you to know more than a candidate without internship experience, which should obviously help you assuming you can talk intelligibly about it.
I’m assuming you’re asking how to you answer the question, “Why didn’t you get a full-time offer from the bank with which you did the internship?” when you interview for full-time positions with other banks. If I misunderstood your question, let me know. Without knowing any specifics, it’s a little bit difficult to give advice. If you were the only one of your internship class not to get a F-T offer then the question is obviously tougher to answer than if only half of your class got offers. If they gave out only a few offers because it’s a tough market right now, you can say that. If you didn’t get as good an experience as others because you got unlucky with staffing, or if you didn’t get along with folks or if there were other personal reasons, then it’s trickier. If you want a better answer, feel free to email me with more specifics of your situation.
January 11th, 2008 at 8:05 pm
Hi Andrew- Can you tell me more about opportunities at boutique investment banks? I just joined one this year and it is very VERY small, specializing in SPACs and I am worried exit opportunities may be marginalized because of this. Also, if you had majored in Finance at a reputable undergrad business school, is an MBA thus unnecessary?
January 14th, 2008 at 8:29 pm
Alice,
It’s really tough to generalize about boutiques because there are so many of them and so many different types. If you have specific questions about boutiques let me know I will try my best to answer you. As far as maximizing your exit opportunities from banking, you will need to have good deal flow experience and to develop your hard skills such as valuation and modeling (I’m assuming you are an Analyst?). I’m not sure how much of that experience you will get if your bank focuses on SPACs. You probably will develop a good understanding of the equity markets and IPO process but I don’t know if you will learn the type of skills you would get at an investment bank that focuses on more traditional products.
For other readers, SPACs (Special Purpose Acquisition Corporations) are shell companies with no operations that go public with the intent of using the money raised to aquire businesses with operations.
With regards to your question regarding the MBA, most people get an MBA not for the knowledge but primarily for the job opportunities. If, for example, you are an Analyst at a bank and you get promoted to Associate and want a career in investment banking then there is really little reason to go back and get an MBA. If, on the other hand, you want to switch industries or the degree will otherwise help you further your career, then it may likely be worth it.
January 30th, 2008 at 11:14 am
What are EOP assets? In the document I am reading, which does not explain the term, they are compared to RAP assets. Only the latter term was I able to find a definition for on the web.
Thank you.
January 30th, 2008 at 3:37 pm
Jeremy,
The only acronyms I know of that might apply to assets are: RAP = “Regulatory Accounting Principles” and EOP = “End of Period.”
February 17th, 2008 at 3:21 am
Hi Andrew,
Wonderful site. Thanks for your work!
Just another question:
In practice, how investment bank choose valuation method among P/E, EV/EBITDA and P/B? for example, I heard that P/B is always used to valuate banks. and for companies with different capex, EV/EBITDA is preferred than P/E. but could you explain the ground rules for those 3 methods or recommend some articals/books? Thank you!
Oliver
February 18th, 2008 at 1:39 am
Andrew, I found the contents on your site to be quite helpful throughout the recruiting process. Your explanations of technicals were easy to understand for even a career switcher like me. I am thankful to have landed a summer associate position with one of the hottest IB shops in Los Angeles. I have just ordered the Scoopbooks IB text and am considering WSP’s self study course to prepare for the summer. any thoughts?
February 18th, 2008 at 6:18 pm
Oliver,
Different valuation metrics are used in different industries. For example, EV/EBITDA is most important for valuing industrial, consumer and other manufacturing companies. Retailers tend to be valued on an Adjusted EV/EBITDAR basis (R=Rent). As you correctly point out, banks are valued primarily on a Price/Book Value basis. Looking at EBITDA makes no sense for valuing banks because for banks, interest is their operations, while for for other types of companies, interest only reflects capital structure. Similarly, P/BV is a poor metric for a consumer or technology company that has a lot of intangible assets (trademarks, patents, etc.) that are not reflected in book value.
The bottom line is as an investment banker, you tend to look at a variety of multiples when doing valuation but you rely on the ones that are most used in the industry for which you are analyzing. Unfortunately, I don’t know of any books that go into detail about which multiples to use in which industry. Most of the well known valuation books out there focus more on DCF valuation than on relative valuation (using multiples). If you have access to equity research reports, that would be a good source as they will often contain valuations.
February 18th, 2008 at 6:25 pm
EC,
Congrats on your offer. I haven’t read the Scoopbooks text yet. I have been meaning to take a look at it but it seems to be backordered right now. While I haven’t seen the WSP materials either, I have heard good things about it. I wouldn’t make yourself too crazy trying to be prepared for your summer internship. Most banks will give you some training and you should learn what you need to learn on the job once you get there.
May 14th, 2008 at 9:41 am
Andrew,
Excellent site! Very comprehensive information. The insightful details in Banking Lifestyle definitely will filter out anyone with unrealistic expectations about an ibanking career.
How quickly do these ibanking analysts or bankers burnout? Do they usually switch to another finance field before that happens?
May 15th, 2008 at 9:15 pm
Corinne,
Thanks for your kind words about the site. With regards to people burning out, it really varies by person. Some analysts burn out before a year is up and others never burn out, get promoted to associate and stay for a career in banking. Some do burnout and quit without another job because they just can’t take it anymore, but most switch before they reach that point. It’s tough to generalize, other than to say that the lifestyle of an analyst is pretty tough.
May 25th, 2008 at 1:18 am
I love your blog. It’s given me some valuable insight into investment banking. I had one question though. I am a sophomore who is doing a summer analyst program at a bulge bracket in wealth management this summer. How easy, if at all, is it to switch into investment banking/research/trading in a bulge bracket from wealth management?
May 27th, 2008 at 5:45 am
Hi, I have got a question related to Diluted Shares Outstanding. Why should we include the diluted figures when calculating Market Equity Value for Trading Multiples analysis? Because my interpretation is that when these options or covertibles were excercised the market will automatically adjust the stock price (due to the dilution effect caused) , so, by multiplying the stock price by the # of fully diluted shares outstanding wouldn’t result in overestimating the value of a company?
Tks.
Robert
May 30th, 2008 at 5:47 pm
David,
Thanks. If your question is if you do an internship in wealth management this summer, will you be able to switch into IB/ER/Trading for next summer’s internship or full-time when you graduate, then the answer should be yes. If your question is if you go into wealth management full-time, will you be able to switch, then the answer is it will be much more difficult (though not impossible). Get as much out of your internship this summer as you can, but definitely target the field you really want to go after for next year’s (junior year) internship.
May 30th, 2008 at 5:57 pm
Robert,
The best answer I can give you is that the “market” already prices in the future effect of dilution. This is why equity research analysts publish EPS estimates based on fully diluted shares. In theory at least, there should not be an impact on stock price when options or other dilutive securities are exercised exactly because the market has already accounted for the dilutive effects. This would seem to fall under the paradigm of all public information being already priced into the stock. If it worked the way you described, I would think there would be an arbitrage opportunity to short the stock in advance of options being exercised.
May 31st, 2008 at 3:38 am
Andrew, thanks! One more quick question: so why when we grab the Market Cap of a company (from bloomberg, Thomson, etc) they just consider the basic shares outstanding x price per share?
June 5th, 2008 at 5:02 pm
Robert,
You’ll have to ask Bloomberg or Thomson that question. It is obviously a slightly easier (and more common) calculation. What we typically do in investment banking is use the Treasury Stock method of calculating dilution but there are methods one could use to account for potential dilution. Keep in mind, we are just approximating the potential dilutive effect because we don’t know how many options will actually be exercised until they are exercised sometime in the future. If you want to understand this better, I would suggest a valuation book such as Damodaran which does dicuss this topic.
June 8th, 2008 at 10:55 am
What is the IRR formula? Generally speaking?
June 15th, 2008 at 11:37 pm
Why did you leave the IBanking profession?
June 18th, 2008 at 3:28 pm
Rebecca,
There is no formula for IRR (unlike NPV). We need to use Excel or a calculator to figure out IRR. IRR is calculated by solving for “r” in the equation: CF1/(1+r)^1+CF2/(1+r)^2+CF3/(1+r)^3+…+CFt/(1+r)t. This assumes periodic cash flows but it gets more complicated for non-periodic cash flows. Luckily Excel can handle this using the XIRR function.