Going to the street
Investment banking encompasses three main areas of finance and investments: equity underwriting (issuing and valuing stock), global markets (interest rates and currencies), and mergers and acquisitions. My interests cover all three, but like many, the world of dealmaking has captured my imagination.
My older brother went into big league consulting; it was thus natural for me to wish to go into investment banking. While frenzy in the New Economy abruptly swerved my career in the opposite direction of investment banking, I still wonder to this day what would have happened had my pager not beeped on that fateful January 13th.
Was it the business side that drew my attention? Partially. Ask any MBA grad where he wishes to go upon graduation, and chances are that he will say to a white-shoe investment bank or big league consulting firm. But ask any confident and driven student, and they will tell you why, unlike law, medicine, politics, and even showbiz, investment banking is amongst the sexiest fields.
First, you get the power…
Many readers ask us about the relationship between respect, power and wealth. While each author has their own opinion on the matter, allow me to offer mine:
First, you need to command people’s respect. Some get it for physical purposes (athletes, strong men, thugs), others for psychological reasons (political and business leaders, professionals), and others for both (Alexander the Great — he commanded respect and instilled fear in the hearts of many men).
Respected men are rewarded by being confided in, trusted, given control, and permitted to have decision-making privileges; these encompass what one needs to have power. Once you have earned the respect of peers and competitors, and have the power required to execute your plans, then you can accumulate your wealth.
Then, you get the money…
Is this the only way to do it? Of course not. Wealthy men have bought their way into powerful positions. Powerful men sometimes have the respect of others (but a careful examination will show that it is more fear than respect).
My chain reaction is how I would prefer to do it because only then will I know that I am respected, with or without the almighty dollar.
And perhaps this is why I don’t regret opting out of investment banking. This may just be an impression, but I would guess that in such a sector, power and respect come to those that create wealth. And although there is nothing wrong with that, it wasn’t the way I wanted to play the game.
Is it really all glitz and glam on Wall Street?
Shake your moneymaker
Why is investment banking so different than all other professions? In other high profile careers, people have a clear chain of command and respect that is always a function of seniority, favoritism, luck, and several other factors that are out of the hands of the individual. As a result, you will see lawyers rise to the top for the wrong reasons, consultants get clients they should never be in the same room with, and doctors perform in situations they otherwise wouldn’t.
What is common with these professions is that wealth creation is important, but it is not the only determinant of success.
Investment banking, on the other hand, is rather different. Time after time, investment houses turn a blind eye to various factors and go with what is best for their bottom line. You will see party animals given carte blanche because they deliver topnotch numbers. You will see arrogance practically rewarded so long as the numbers are met. Star players are not those who earn the respect of others, but rather those with the biggest year-end bonuses.
Too fast for life
Another reality of investment banking is that capital markets are now functional around the clock. While corporate bankers may wish to take some time to rest and relax, they know that there is some hot shot young professional who is just itching to steal their thunder if they fall asleep at the wheel.
Lawyers work at a pace that is dictated by judges; doctors work crazy hours, but even they can say enough is enough; and consultants are notorious for working around the clock and charging an arm and a leg. Still, none of these professionals have the fast-paced routine of a topnotch global banker.
Finance and investments attract some of the best and brightest minds because they offer great rewards. But these rewards are only half of the equation. Nowhere else do stars turn into goats and virtual unknowns into stars.
John Merriwether, a star bond trader who made billions for Salomon Brothers (now under the Citigroup umbrella), left to start Long-Term Capital Management, a hedge fund that took leveraged (use of debt) positions that went sour after the Russian default of 1998. The fund’s debt to capital ratio of 125 to 1 sunk its capital base and almost sideswiped the economy to the point that Greenspan had to bail the fund out. Practically overnight, Merriwether (along with Nobel Prize winners) went from genius to goof.
Conversely, a fairly unknown credit analyst at Lehman Brothers named Ravi Suria, came out of obscurity with his critical review of Amazon’s creditworthiness… all this, mind you, while Lehman’s Stock analyst was raving about the firm.
Why were these opinions changed on a dime? Because everyone is out to protect and grow their investments, and investment bankers seldom care about reputation. But what is finance lesson #1? Past performance does not guarantee future performance.
In other words, if you want to make a name for yourself without having to lick arse for an eternity, then investment banking may be right up your alley. Still, like any other career, it is obvious that those who lick arse will move up faster, but only if they have the results to back it up.
Ash Karbasfrooshan is also the author of Course To Success, available at www.CourseToSuccess.com. His new book, The Confessions of Alexander The Great: 33 Lessons in Greatness, is available at www.AlexanderTheBook.com.