Career Thoughts – part one: The “high speed train” through Wall Street.

From this point on, I’ll refer to this theory as “the high speed train“. This is the perfect Wall Street career. Its what you read about and what you see in the movies. As a person in high school or in college, this is the route you would ideally want to be on to be a super successful Wall Street professional.

High Speed Train

THE HIGH SPEED TRAIN:

Sell-side to buy-side route

  1. AGE: 21/22 –> Graduate from an elite university, preferably a top 30. Hopefully you were able to complete at least two great internships  (I actually knew people who began summer internships in high school)
  2. Get a job at a top 30 investment bank, as long as they have formal classes
  3. Spend two years as analyst. Try everything to get promoted to Associate a year early and do everything to become a top rank in your class. You want to gain the attention of the key senior guys and befriend them. They can help you out a lot.
  4. Begin recruiting as soon as you get to the investment bank. If you want to go to hedge funds, get stock ideas perfected, practice pitching and get into value investors club, sumzero, etc. For private equity, practice your case studies and network.
  5. AGE: 24 –> Get a great analyst / associate role at a private equity fund or a hedge fund; work really hard to get recognized from the top people — chug and plug
  6. AGE: 26 –> Get promoted to sr. analyst, vice president … whatever the mid-tier position is. Get known as a top performer and future partner material. If at a hedge fund, people you know should be wanting to give you money to invest or if in PE / distressed hedge funds, they should be calling you to do deal work for you. The people above you should be inviting you into the funds “inner circle” (more to come)
  7. AGE 28 / 29 –> You should be pulled up to the next level. If in PE or a more formally structured HF, you should be pulled up to director level position. You should have more autonomy with your time and the money should be pouring in. You should be given some “test” capital to control.  If in PE or distressed funds, the sell-side should be all over you, especially the partners from your old group. You may only want to deal with only the head of your former group now.
  8. AGE 30 – 33 –> You should be hitting your full stride here. The head of the fund you work for are worried to lose you and the olive branches are landing at your feet. You feel you can confidently walk into the head guys office, put your feet on his desk in front of him and tell him what you need to keep making you happy. Outsiders should be coming to you to present you with ideas and opportunities to raise your own capital in order to create an even better fund than you work for. You should be generating alpha hand over fist. You should begin getting known in the fund circles. Perhaps you get mentioned favorably in the popular press.
  9. AGE 35 –> You should be made partner at the fund because they really want to keep you. You need to make a hard decision whether you want to start your own thing or to stick with the less risky route of becoming one of the top guys at the fund you are currently at. You are unstoppable — nothing you can do is wrong. You limit who you speak to because your most precious resource is time. You don’t have any patience to bother with people who are not crazy smart and super successful. You don’t respond to most emails and voice mails unless the person “offers you something”.
  10. AGE 39 – 40 –> You should be made Director of Research at a hedge fund or a group head at the PE fund. You’re focused on CIO or on running the PE shop as soon as the pesky founder finally retires. You’re probably needing to balance some administrative duties and capital raising with your full time role. You travel first class a lot speaking to L.P.’s and other sources of capital. You get interviews with the press. Others under you are making the less significant investment decisions and presenting everything to you. You want them to walk in your office with results perfectly laid out on a silver tray. The thought of forming your own fund sits in your head as an alternative. You wouldn’t do it though unless it was at least a $1B fund.
  11. AGE 45 –> You could easily retire but your just having fun running the show. Philanthropy takes up a lot of your time now. Your such a good person, you’re giving back to the “little guys”. You mentor. You begin writing your memoir(s).

Straight to buy-side route

Same as below except subtract two years off steps 5 – 11. This is the true Tres Grande Vitesse. The only issue I find with this route vs. the one above is that the extra two years of banking give you (1) good sell-side relationships and (2) the ability to date a bunch of funds before deciding which suites your needs the best. La di da

Rocket Ships

Now, for arguments sake, there is actually one route that is a ‘rocket ship’ … the guy who begins his own fund out of his dorm room. The guys like Ken Griffen and Ray Dalio, Seth Klarman (during law school at Harvard, same thing). These are rare but, just saying.

High Speed Wall Street Routes in General

The one thing in common with anyone who has achieved the high speed routes above IS THAT THEY MAKE NO MISTAKES.

On paper, they go through school with 4.0’s. They leave a mark on the universities where they were students at. At work, their reviews are immaculate. Under ‘Negatives’, people either say ‘None’ or if forced, they just bring up something harmless like ‘impatient with slower co-workers’. Their work product is error-free. Their thought process is perfect. They think three or four moves ahead of everyone, including the senior partners. They are highly competitive but always win. When things don’t go perfect, they just get even more motivated. Their lives seem perfect. Also, they are very insightful … they open their mouth and insight just flows out. But, overall, they make no mistakes. Its that simple.

My only humble advice for people on this path is: NEVER GET OFF THE TRAIN!!!

I was blessed to work directly with some people who have been on these fast tracks. I have remained in touch with them through the years. Most of them worked as analysts at the investment bank I was at. Most never got off the train and are unbelievably successful for their age. Their careers are working right on the timeline above. Unfortunately, a few have, “gotten off the train”. In some circumstances, they made the choice. In other circumstances, the choice was made for them. In the long-term, it’ll work out for them but it did shove them off of the high speed train track.

Common voluntary stops “off the train” include (1) starting their own thing (too early), (2) going back to get their MBA’s. For those who get shoved off, its usually because of some form of eventually under-performance.

Starting Your Own Thing

Many people on the fast track feel invincible. They believe they are they are the smartest people on earth. People blow up their own ego, they become impatient and they want to “cash in” early. They are infatuated by the less-smart entrepreneur who got richer, quicker. Their hubris leads them to jump off the train thinking they can do anything better than anyone and they embark upon their own thing. In many cases, this hubris ridden approach teaches them a valuable lesson: life just isn’t that easy.

Steve Schwartzman from Blackstone does a great job hitting on this point in interviews. He has obviously seen many younger employers make this error. Below are his thoughts which are much better than mine. So, I’ll just let him explain:

https://www.businessinsider.com/steven-schwarzmans-advice-to-young-entrepreneurs-2015-11

https://www.bloomberg.com/features/2017-blackstone-steve-schwarzman-interview/

Going Back to Get MBA’s

This is a tricky one. If done correctly, you simply add a couple years to steps 6 – 8 above. I’d say, ~50% of the time, I’ve seen this happen. So, not a bad route. It usually involves people who were doing well on the high speed train anyway, but wanted a break or whatever. However, for the other 50%, I’ve witnessed people end up wishing they had their pre-MBA jobs back. They ended up needing to take steps backwards and/or went to firms that did not hold as much potential as the one they left.

There are several truths that I learned about receiving an MBA:

  1. Never go back unless its a top 10 MBA program. (only exception is people who need to stay in a certain region and really need an MBA to advance in a clear-defined path). But, for the traditional Wall Street analyst… you must go to a top school, preferably a top five. There are lots of different rankings out there but everyone knows that Harvard, Wharton and Stanford are Tier 1 and that Kellogg, Chicago, Columbia, and MIT are Tier 2. Tuck, Johnson, Ross, Fuqua, etc. round out the top schools. After 11 years on Wall Street, including recruiting for at least five years for associates, I’ve found that most people who successfully land on Wall Street are from Tier 1 then Tier 2 schools. Here and there I meet a Tier 3 person.
  2. The decision needs to be looked at in terms of return on capital, just like any investment. For a person at a top private equity firm or hedge fund going back, (1) you probably won’t learn that much and (2) you’ll likely interview to get back to a firm just like you left. Only, you are now two years behind. Also, there is a general perception on Wall Street that the highest caliber people don’t need an MBA. You see lots of Ivy League straight through to managing director bios on Wall Street. MBA programs can provide fantastic returns for career switchers. Also, for people who are stuck in a ring of finance below Wall Street and need to get boosted up, MBA programs are perfect ways to get in. I call these career upgraders. I was one of these.
  3. Its difficult to get on any form of the high speed train route post-MBA. Many career switchers or career upgraders think that they can get a top MBA and just jump on-board the train described above. Ya, there are some rare exceptions to this rule but, in general, it is (1) very difficult to get into hedge funds and private equity funds out of MBA programs. You do have a chance in top tier MBA programs but not much for tier 2 and below. The people who usually get these spots already came out of top firms to go back to school. They are just trading spaces. (2) If you are lucky enough to get in as a career switcher or upgrader, you must be super good in order to compete against the talent already there. I’ve seen people pull themselves into associate spots, mainly at PE funds. Most of these people began bouncing around quite a bit after just a few years. Its usually not a stable route. Also, most people who pull themselves into these funds begin with second or third tier funds. The fund may be small <$500M or it is an old fund that fell out of favor and heading down. The typical complaint I have heard from people that have gone this route is that they feel underpaid, overworked and don’t have many exit options.

Eventually Hitting Underperformance

This is exactly the way it sounds. Some analysts do well until they don’t. They go to a fund where they are not superstars or up and comers (more on this in blog to come). They eventually flame out. They believe they have a lot of options so at first it does not seem to bother them. Many end up bouncing back at smaller emerging funds. Most seem to join people leaving the large mega funds going out on their own. I’d say, there is a coin-flip odds on how these situations turn out. Half end up unemployed again within a few years and half do well. Some do great, if they leave with the right team – but this is rare. The ones that chose the wrong team, bounce back a little weaker each time.

Envision a basketball dropping onto a court from the hope. The first time it bounces, it goes up about half the way to the hoop. The second bounce is less. etc. etc. This is similar to the career physics of the careers of people who fall off the train. They go to something that turns out just alright but it usually doesn’t last. They eventually seem to be always looking for something new. Recruiters like them at first because they pretty easy to place. As their resumes get more cluttered with names, they fizzle out. Some just disappear. Some are fortunate to re-invent themselves in other pursuits. Others just hide as they are understandably embarrassed. They watch their former classmates soar ahead while they fall further and further behind. They eventually need to figure out how to reinvent themselves.

Closing Thoughts

Why did I begin my career advice section by focusing on this clean route? Obviously, I was never on the high speed train. Hell, I’m on no train anymore. So, why start with this?

Well, in giving any type of Wall Street career advice, unfortunately you have to compare all career routes against the high speed train. Its not like more common careers where people slowly move up ladders, openings form that get filled by outsiders, etc. On Wall Street, there is a constant flood of resumes. Per the Schwartzman links above, Blackstone receives 15,000 resumes per year for about 100 roles. Those are worse odds than getting into top Ivy League schools.

The pyramids are high and mighty but they are also thin and steep. The entire system is somewhat based on adverse selection process. Heads of firms know that for every 100 people that begin either from universities or from grad schools, only a few will make it to the top. Its hard to pick them out from the start, but eventually the pool gets eliminated down to the golden few.

As I have found, the deadly part of a Wall Street career is that you can easily get on a train ride that is not a high speed train. Its hard to get off but not difficult to get pushed off, especially when recessions hit. As you get older and you find yourself off the train, you realize that there is not much market for your skills out there. You have to take pay decreases, step-downs, etc. to bring your career to some more stable footing. It is very common to see people with great schools and firms on their resumes go unemployed for years. There is just no bid for these people. Too many others are already crammed into these firms working their way up. The firms themselves have enough headache deciding who on their staff to get rid of. Most firms, as scary as it is, keeps a “shit list” of employees who they can cut at any time.

As for bringing in new talent at a higher level, its usually not top of mind for most firms for the reasons spelled out above. However, here and there, it does happen.  There are three common ways to get back in (increasingly hard the higher the level). (1) You have developed some sort of special niche that some other firm really needs. (2) there is a big issue at the firm causing people to leave. They need to plug the holes with employees who will put up with the stink. An example of the later is Deutsche Bank. The bank is obviously going through large problems and some groups are underpaying. There are still plenty of people just looking to get in and must put up with it. (3) Its a new firm or fund or a fund that just received a lot of new capital. This is the rare golden opportunity. Problem is, everyone is trying for these jobs. Word of them gets around very quickly.

When you go to any Wall Street firm, you’ll notice a lot of over-paid twenty somethings. The thirty somethings are running the day-to-day show. The few forty something and older people are the leaders. They’ve survived. So what happens to the rest? Some find their way to more stable careers. Some become entrepreneurs. And, some of them sit unemployed on a Thursday writing blogs posts like this I guess….

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