Comments on: Comments / Suggestions / Questions… http://www.ibankingfaq.com/comments-suggestions-questions/80/ Learn about investment banking...become an investment banker Mon, 19 Jul 2010 22:51:14 -0600 http://wordpress.org/?v=2.8.4 hourly 1 By: Andrew http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17852 Andrew Mon, 19 Jul 2010 22:51:14 +0000 http://www.ibankingfaq.com/?p=80#comment-17852 Peter, You've got to remember that Graham published Security Analysis in 1934 and the Intelligent Investor in 1949. The markets were very different then. They were definitely orders of magnitude less efficient back then. I'm not saying that there are no opportunities to outperform in the markets today but those opportunities are likely going to be in the less efficient markets (e.g. small cap stocks with little analyst coverage and limited institutional money). Even those opportunities are hard to spot. Without non-public information it is extraordinarily difficult (I would say impossible) to consistently outperform the market buying large cap stocks. Remember also that Buffett is mostly buying entire companies, not stocks and holding them for a very long time. Since he doesn't really have investors to answer to (the way a hedge fund or mutual fund does) he can do that. Most investors cannot. Peter,
You’ve got to remember that Graham published Security Analysis in 1934 and the Intelligent Investor in 1949. The markets were very different then. They were definitely orders of magnitude less efficient back then. I’m not saying that there are no opportunities to outperform in the markets today but those opportunities are likely going to be in the less efficient markets (e.g. small cap stocks with little analyst coverage and limited institutional money). Even those opportunities are hard to spot. Without non-public information it is extraordinarily difficult (I would say impossible) to consistently outperform the market buying large cap stocks. Remember also that Buffett is mostly buying entire companies, not stocks and holding them for a very long time. Since he doesn’t really have investors to answer to (the way a hedge fund or mutual fund does) he can do that. Most investors cannot.

]]> By: Peter Atkins http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17848 Peter Atkins Sun, 18 Jul 2010 21:58:33 +0000 http://www.ibankingfaq.com/?p=80#comment-17848 Hi Andrew, I'm looking to break into IB straight out of college. This is a great site, really helpful, just curious about your opinion. I've just finished reading Benjamin Grahams 'Security Analysis'as well as the 'intelligent investor' as well as Warren Buffett's 'Biography'. Clearly Buffett and Grahams opinions about the efficiency of the markets, and value investing are at odds with yours, and I respect both views. How would you say that they are wrong? are they just a 3-sigma event? surely there is some grossman-stiglitz paradox where information is costly and therefore it is possible to beat the market by studying an exorbitant amount of information? look forward to hearing from you, Peter Atkins Hi Andrew,

I’m looking to break into IB straight out of college.

This is a great site, really helpful, just curious about your opinion. I’ve just finished reading Benjamin Grahams ‘Security Analysis’as well as the ‘intelligent investor’ as well as Warren Buffett’s ‘Biography’.

Clearly Buffett and Grahams opinions about the efficiency of the markets, and value investing are at odds with yours, and I respect both views.

How would you say that they are wrong? are they just a 3-sigma event? surely there is some grossman-stiglitz paradox where information is costly and therefore it is possible to beat the market by studying an exorbitant amount of information?

look forward to hearing from you,

Peter Atkins

]]> By: Andrew http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17731 Andrew Tue, 15 Jun 2010 19:22:25 +0000 http://www.ibankingfaq.com/?p=80#comment-17731 Good catch, thanks for pointing out the typo! Good catch, thanks for pointing out the typo!

]]> By: Tioo http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17705 Tioo Mon, 07 Jun 2010 23:02:47 +0000 http://www.ibankingfaq.com/?p=80#comment-17705 Hey there, thanks for the good help on the topic! Found a mistake in your brainteaser category: http://www.ibankingfaq.com/category/interviewing-brainteasers/ "Q:You have 100 balls (50 black balls and 50 white balls) and 2 buckets. How do you divide the balls into the two buckets so as to maximize the probability of selecting a black ball if 1 ball is chosen from 1 of the buckets at random? A:Just to be perfectly clear, you are assuming that one of the two buckets is chosen at random and then one of the balls from that bucket is chosen at random. You want to put 1 black ball in 1 of the buckets and all of the other 99 balls in the other bucket. This gives you just slightly less than a 75% change of having a black ball chosen. The math works as follows: There’s a 50% chance of selecting the bucket containing 1 ball with a 100% chance of selecting a black ball from that bucket. And a 50% chance of selecting the bucket containing 99 balls with a ~49.5% (45/99) chance of selecting a black ball from that bucket. Total probability of selecting a black ball is (50% % 100%) + (50% * 49.5%) = 74.7%." In the end its NOT (45/99) but (49/99) - just one black ball is missing, 50-1=49, maths should be clear! :) Cheerio, Tioo Hey there,

thanks for the good help on the topic!

Found a mistake in your brainteaser category:

http://www.ibankingfaq.com/category/interviewing-brainteasers/

“Q:You have 100 balls (50 black balls and 50 white balls) and 2 buckets. How do you divide the balls into the two buckets so as to maximize the probability of selecting a black ball if 1 ball is chosen from 1 of the buckets at random?

A:Just to be perfectly clear, you are assuming that one of the two buckets is chosen at random and then one of the balls from that bucket is chosen at random. You want to put 1 black ball in 1 of the buckets and all of the other 99 balls in the other bucket. This gives you just slightly less than a 75% change of having a black ball chosen. The math works as follows: There’s a 50% chance of selecting the bucket containing 1 ball with a 100% chance of selecting a black ball from that bucket. And a 50% chance of selecting the bucket containing 99 balls with a ~49.5% (45/99) chance of selecting a black ball from that bucket. Total probability of selecting a black ball is (50% % 100%) + (50% * 49.5%) = 74.7%.”

In the end its NOT (45/99) but (49/99) – just one black ball is missing, 50-1=49, maths should be clear! :)

Cheerio,
Tioo

]]> By: Andrew http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17680 Andrew Mon, 10 May 2010 16:00:57 +0000 http://www.ibankingfaq.com/?p=80#comment-17680 Mike, Yes, you're correct, you don't have much of a life as an Associate. Even at the VP level, life is still pretty tough, even if the hours are somewhat better. You tend to travel much more at the VP levels and above. There's no question that current events (financial reform, etc.) may have a big impact on the investment banking industry, including salaries but it's probably impossible to predict in the near term. Right now, banking activity is heating up again as the world's central banks and govts have been successful (so far) at reinflating the bubble. My personal belief is that long-term, this is unsustainable and finance as an industry has to shrink which will likely have a negative impact on compensation. Mike,
Yes, you’re correct, you don’t have much of a life as an Associate. Even at the VP level, life is still pretty tough, even if the hours are somewhat better. You tend to travel much more at the VP levels and above.

There’s no question that current events (financial reform, etc.) may have a big impact on the investment banking industry, including salaries but it’s probably impossible to predict in the near term. Right now, banking activity is heating up again as the world’s central banks and govts have been successful (so far) at reinflating the bubble. My personal belief is that long-term, this is unsustainable and finance as an industry has to shrink which will likely have a negative impact on compensation.

]]> By: Andrew http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17667 Andrew Mon, 03 May 2010 17:17:39 +0000 http://www.ibankingfaq.com/?p=80#comment-17667 Lee, you can apply but it's going to be tough to be included with the same consideration as the folks still in school. That's not to say it's impossible to break into banking a year out of school. But it likely requires networking on your part to get your resume in front of bankers rather than the traditional on campus recruiting process. Lee, you can apply but it’s going to be tough to be included with the same consideration as the folks still in school. That’s not to say it’s impossible to break into banking a year out of school. But it likely requires networking on your part to get your resume in front of bankers rather than the traditional on campus recruiting process.

]]> By: Andrew http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17657 Andrew Wed, 28 Apr 2010 16:10:34 +0000 http://www.ibankingfaq.com/?p=80#comment-17657 Daniel, yes your formula is correct. That was a mistake in the comment above, which I've fixed. Good luck with your interview. Daniel, yes your formula is correct. That was a mistake in the comment above, which I’ve fixed. Good luck with your interview.

]]> By: Daniel http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17656 Daniel Wed, 28 Apr 2010 16:03:42 +0000 http://www.ibankingfaq.com/?p=80#comment-17656 Hey Andrew, Thanks for this website, it is nice to find some good free info out there. Quick Question isn't the perpetuity formula for estimating TV = FCF(1+G)/(WACC - G)since you have to estimate the FCF will grow at your predetermined growth rate for year t into infinity? Just wondering because I have gone through some other interview guides and a financial modeling course and I have a first round Summer Analyst interview in 3 hours from now so seeing this really worried me. Thanks in advance Hey Andrew,

Thanks for this website, it is nice to find some good free info out there. Quick Question isn’t the perpetuity formula for estimating TV = FCF(1+G)/(WACC – G)since you have to estimate the FCF will grow at your predetermined growth rate for year t into infinity? Just wondering because I have gone through some other interview guides and a financial modeling course and I have a first round Summer Analyst interview in 3 hours from now so seeing this really worried me. Thanks in advance

]]> By: Mike http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17654 Mike Mon, 26 Apr 2010 21:21:04 +0000 http://www.ibankingfaq.com/?p=80#comment-17654 Hi Andrew, Thanks so much for your insighful response. You have a great website, and are truly helping people by giving them the perspective on an insider. You're right about the sacrifices being significant - if I am successful in landing an associate position out of the part-time mba program, I'd basically wouldn't see my family or have any semblance of a life until 40 years old, (when I'd probably be at the VP level) correct? Also, I realize that there will always be a need for ibanking services, and thus there will always be a need for ibankers and dealmaking. However, with all of this stuff going on re: financial reform, politics, Goldman Sachs, etc., do you think the outcome might severely affect the salaries that bankers will make in the future? Again, thanks for your help Andrew. Hi Andrew,

Thanks so much for your insighful response. You have a great website, and are truly helping people by giving them the perspective on an insider. You’re right about the sacrifices being significant – if I am successful in landing an associate position out of the part-time mba program, I’d basically wouldn’t see my family or have any semblance of a life until 40 years old, (when I’d probably be at the VP level) correct?

Also, I realize that there will always be a need for ibanking services, and thus there will always be a need for ibankers and dealmaking. However, with all of this stuff going on re: financial reform, politics, Goldman Sachs, etc., do you think the outcome might severely affect the salaries that bankers will make in the future?

Again, thanks for your help Andrew.

]]> By: Lee http://www.ibankingfaq.com/comments-suggestions-questions/80/comment-page-4/#comment-17649 Lee Fri, 23 Apr 2010 16:12:26 +0000 http://www.ibankingfaq.com/?p=80#comment-17649 Andrew, Thank you for your reply. Another quick question. Can I apply to join next years (Sept 2011) cycle as a fresh-grad analyst even though I graduated in 2010? Hopefully with a some what relevant work experience and a degree with actual good grades (as opposed to one with predicted good grades), they would actually bother to interview me this time around. Cheers, Lee Andrew,

Thank you for your reply.

Another quick question. Can I apply to join next years (Sept 2011) cycle as a fresh-grad analyst even though I graduated in 2010? Hopefully with a some what relevant work experience and a degree with actual good grades (as opposed to one with predicted good grades), they would actually bother to interview me this time around.

Cheers,
Lee

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