Learn about different ways to enter the finance industry, how to understand the basic lingo, and figuring out whether it’s the right path for you!
When we first started chatting with college students and recent grads about their dream companies to work for, we expected Facebook, Google and Snapchat to dominate their lists. We’re in the age of tech startups, aren’t we? Mark Zuckerberg, Sergey Brin, those 26-yr olds who somehow realized that disappearing photos would be worth $100B….those are the giants we strive to be, right?
Wrong. Well, sorta — to be fair, lots of you guys are excited about the tech unicorns of the world. But want to know what our candidates are more excited about?
Finance. Banks, Hedge Funds, Private Equity firms – oh my!
Nothing brings more engagement and interest than jobs plucked from the world of Wolf of Wall Street, The Big Short and American Psycho. (Ironically, life didn’t work out too well for the main characters in any of those stories, but maybe no one watches movies until the end anymore?)
The unusual thing about the finance hysteria is this: we’ve found that many of our candidates don’t have a great understanding of what it actually means to work in finance. Often, the general knowledge that (1) you can make lots of money and (2) you’ll look better in a sharp suit than your fraternity sweatshirt are pretty major factors in the decision to join the industry. While both of those facts might be true, and honestly, no judgment on either (I spent a decade plus at Bridgewater starting right out of Dartmouth), it generally helps to leave a more robust impression when you are asking for a job!
So, welcome to Finance 101. It’s a big world out there, with a huge variety of roles – from research, to trading to client services and beyond – i.e. jobs that require an ability to do in-depth reading, to those that need quick quantitative thinking or a smooth handshake and silver tongue.
Read on to learn the broad strokes of what “finance” means and hopefully get a sense of whether it’s the right place for you – and if so, where you fit in.
What is finance all about?
Broadly, finance encompasses money management, investing, assets and liabilities, and all those good things. It also spans from personal money, to government, corporate and non-profit finances. Every entity deals with getting and using funds, and the risk associated with it – even you. (Example: How to wrangle the funds for your first apartment’s security deposit!).
What are the sectors and roles within finance where I might work?
You can be in finance and work in commercial banking, financial planning, investment banking, money management, insurance and real-estate. You can work in investor relations or marketing, or you can be an analyst at an investment bank, hedge fund, or mutual fund. It can mean working in sales & trading, research or as a treasurer. You can focus on due diligence and other areas of risk management, or even be a software developer. These roles can be in the front office, middle office or back office; they can be on the buy side or the sell side. You can even work in finance within a company, as a CFO, treasurer, or in billing. You can deal with bonds, stocks, equities, derivatives….it’s a long list!
We know most of our candidates are interested in a particular subset of the list above. In particular: the activities covered by (1) investment banks and (2) money managers (VC, PE, hedge funds, mutual funds, etc) in front office roles.
Woo, investment banks! Tell me more about that.
Let’s start here, with a crucial distinction: Investment banking and commercial banking are VERY different beasts.
- Commercial banks manage deposits (checking/savings) for individuals and businesses. Once upon a time they may have been called savings and loans and featured prominently in famous Christmas movies (It’s a Wonderful Life).
- Investment banks deal with investments! I know right, how would you guess. But seriously, they help in the process of issuing, buying and selling of equity (stocks, etc), credit (bonds, etc), and other investments as well as help companies go public.
K, got it. What about money management? That sounds cool.
Money Management: aka investment management, portfolio management, or just dealing with your funds. You do this, governments do this and so do institutions like colleges, endowments, foundations, and even pension funds – budgeting, saving, investing, spending and generally knowing what is happening with your cash. What most of you guys mean when you say money management is being a professional that makes investment decisions for large pools of funds. But just to give you a taste of the complexity, being a money manager can include:
- Portfolio construction and risk management
- Structuring and implementing transactions
- Delegating and oversight of professional investment managers
Money managers can be mutual funds, hedge funds, funds of funds and they can be on the client side – the CIO of a pension fund or endowment, etc.
I hear a lot about working on the buy side vs sell side. ‘Splain, please.
Well, the good news is that we’ve already explained it and you didn’t even realize it! The sell side refers to the “street” aka Wall Street – the folks that issue securities like investment banks, brokers, commercial banks, etc. “Buy side” just means money managers, asset managers, hedge funds, mutual funds, etc. Or in other words, the sell side is focused on issuing and selling securities (they create the market), and the buy side are the folks that invest.
15 Finance Books We Think Are Must Reads
In the meantime, if you want to get smarter now, here are our 15 Finance Books We Think Are Must Reads based on our personal experience and recommendations from Bridgewater, Harvard Business School and Stern School of Business. So, peeps who know what’s up.
- “Against the Gods” by Peter Bernstein
- “Barbarians at the Gate” by Bryan Burrough and John Helyar
- “Common Sense on Mutual Funds” by John Bogle
- “Common Stocks and Uncommon Profits” by Philip Fisher
- “Liar’s Poker” by Michael Lewis
- “Margin of Safety“, Seth Klarman
- “Reminiscences of a Stock Operator” by Edwin Lefevre
- “The Essays of Warren Buffett” by Warren Buffett
- “The Intelligent Investor” by Benjamin Graham
- “Too Big to Fail” by Andrew Ross Sorkin
- “When Genius Failed” by Roger Lowenstein
- “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” by Nassim Nicholas Taleb
- “The Handbook of Fixed Income Securities” by Frank J. Fabozzi
- “You Can Be A Stock Market Genius” by Joel Greenblatt: event/catalyst based investing
- Not quite a book, but since we worked for him and think it’s pretty brilliant: Post Modern Portfolio Theory by Ray Dalio
That’s all for today! We’ll be back soon to dive into other topics in the financial services sector – and if you have topic requests, send them along!