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Getting into the investment industry


Shane
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For those members on here who are involved in the investment industry, what are the prospects of landing a job as a junior analyst out of a master's degree?

 

What would be needed for someone from the sciences to move into an entry level job at a value investing firm?  I have a B.S. in Environmental Horticulture and am currently getting an M.S. in Environmental Science.  I applied to business school (M.S. Management) and was accepted, my currenty major advisor told me I must make a decision whether I go into business school or science.  I am seriously considering business school, because I would like to analyze equities and manage my own money one day.

 

An MSF I understand would probably be ideal, but I did not have the pre-requisites for this (Quantitative), I am confident that I would have excelled in the program though.  The M.S.M was designed for non-business majors to provide a fundamental business background.  I plan to take the CFA exam level 1 after graduation, and am starting to study now.

 

Are there any weaknesses you see in my plan of study that I should address?

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Difficult, but doable if you have a good GPA and attended a good school, especially for only a junior analyst position. Helps if you know a few people in the industry already. Would likely improve your chances greatly after you have received your MBA, or have completed at least a year into it.  In your cover letter, explain the strengths your diverse background would bring to the firm, but that your really interest is in applying it to a business career.

 

The trend lately, in the investment world, is that it is better to have a different undergraduate degree (say in engineering or programming) combined with either an MBA or CFA. The job outlook is not too great at the moment for investment professionals, though it has been ever so slowly improving as the firms begin to make money again.

 

For a junior analyst, in particular, it is very beneficial if you have passed at least level 1 of the CFA as it shows your new dedication to the business aspect, as opposed to the horticulture aspect of your education. Something that i always looked for before hiring a fresh undergrad as a research associate/junior analyst is if they have passed level 1 of the CFA, as a kind of gauge to show how seriously they might take the job once hired.

 

There is a lot of competition right now given all the layoffs in the financial world, so not having any current business background may hurt your chances at even an entry level position. Get 1 level of the CFA under your belt (doable by this summer) and that will help you immensely since you lack any business background right now. But truth is that it will be a bit tough in this economy until you get at least some business background.

 

Edit: Another tip for you is to provide a writing sample with your Resume. It will show that you know your accounting and investing, and are able to communicate it in a clear fashion. This, combined with 1 CFA level, will likely be enough to at least land you an interview.

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Does the CFA really help? Does an MBA really help?

 

Also if you have a CPA and an Accounting background what would be the next most useful thing to focus on? Connections, MBA, CFA?

 

Yes. Both would help immensely. In fact, some firms require you to get one or the other to move into an analyst role, from the associate role. One firm i worked at required you to take the exams as long as you were an associate. Of course, they paid for the material and exams.

 

CPA would also most definitely help, though perhaps not as much as the other two for an analyst position. If you want to break into corporate finance (not I-Banking), but working for a corporation's finance department, then CPA would be more useful perhaps than a CFA for entry level positions. Connections are obviously very important in this field as well.

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It's where my passion lies.  I was doing natural science because it's a family business, I do have interest in it but as a career I don't think I would be stimulated.  For the past 2 years I have, with the help of a local investor, began to pick my own stocks and find that I really enjoy the learning process.  My parent's do not care for investing and do whatever their financial advisor suggests, I never really had exposure until meeting some of my friends parents who run hedge funds.  I would much rather do this for a living, if I said the pay wasn't attractive I would be lying... but ultimately I want the independence of knowing that I can successfully pick stocks.

 

An MBA isn't really an option now because I do not have work experience other than summer jobs and part-time, am I wasting my time with the M.S.M.?  should I just take a semester to grind out the CFA lvl 1?

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A few years ago,

Sanjeev posted a job offer on this board (well on the old msn board).  A guy he knew was looking for a financial analyst.

Looking to land a job in the investment industry I sent him my resume.

Sanjeev then told me that the guy was looking for someone with a CFA.

 

At that time, even if I had a bachelor degree in electrical engineering and no work experience in the investment industry, I tought I had everything I needed to succeed in the investment business.

After all, I was a value investor, and I had read everything about Berkshire and WEB. (I remember someone saying that reading all of Berkshire's annual reports was as good as having an MBA)

 

But I have to admit that what I learned since then, especially going through the financial crisis while simultaneously doing the CFA's reading  was ,what I believe to be, a pretty good understanding of the big picture of the financial market.

 

What I said to myself at that time was something like 'ah yeah, alright, you want it, you're gonna get it'

So here it goes, about 3 years later, currently studying for CFA level III.

 

 

 

 

 

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You don't need to work in the business to successfully pick stocks.  As a matter of fact, the constraints on many in the business (investment committees, large size and benchmarking) make it a much more difficult task than for an unconstrained individual.  Although I don't work directly in the investment business (I perform business valuations), I am exposed to the same concepts and use the same tools everyday. 

 

I initially was interested in becoming an asset manager but had a hard time breaking in with an MBA from UCLA in the mid 1990s.  The business appraisal field provided me with enough money to support my family in expensive LA but I was not doing direct asset management.  However over time with my personal portfolio I have invested in ways an asset manager would probably never allow (small cap stocks, high concentration, buying LEAPs) and am now helping the rest of my family with the same.  These areas are where I think the inefficiencies are today.  If you have an entrepreneurial bent, some on this board have started funds which may be the best way to test your skill and interest.  If your family has some money and you have compiled a track record with your own portfolio maybe you can convince them to let you manage a portion of their portfolio.  What I am saying is there are other ways to engage your investment interest outside of working in the industry.   

 

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Thanks for the Insights Packer and I agree. For me it just beats accounting lol. Honestly LUK is very interesting to me and if I had my choice, I would prefer to do what they do. I just need to find a small BS company to take over, and need the right amount of capital. Hopefully 2011 is decent.

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Yes thank you for your advice.  My main motivation for working as an analyst was to better myself by working with someone I hopefully thought was an exceptional manager.  One local hedge fund manager told me he thought a few years as an analyst taught him some things that he thought he would not learn without that experience.  Similarly he is friends with some unbelievable people through association, his vacation home in canada is adjacent to John Griffin for christ-sake!

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A very interesting topic, thank you all for your insights everyone.

I don't want to hijack this topic, but I myself was wondering about something myself concerning CFA. I hope you don't mind me asking it here Shane Smith?  :)

 

I am currently in my last year of a bachelor in "business management - finance & insurance" in Belgium, Europe. Like many here, I am strongly considering aiming for a job as an analyst, fund manager, ... in the future.

 

Even though I consider myself a curious and determined person who has a passion for finance and equities in specific, I feel that my chances against masters in Economics will be limited. Therefore I am considering CFA to improve my chances.

 

I am not sure about my chances to complete this program tho... I am afraid I will lack knowledge in mathematics for example and the fact that it is in English in combination with self-tuition (Which shouldn't be the main problem. But the fact remains that you are on your own if you have any problems with the subjects.) could mean an extra challenge.

 

To what degree are the studying materials clear and comprehensible? Does it require a great deal of foreknowledge in finance in general and mathematics?

Is the program focused on theory, mathematics, implementation/practice or is it just one big mix? I have also read that some people felt that there was to much focus on "complicated, far-fetched bs topics" that turned out to be useless. To what extent is this true?

What is the percent of "drop-outs" for the program? Would it be wise to start with the program as soon as possible or would a couple of years of pratical experience (in finance in general) be a better choice for a bachelor like myself before even starting studying?

What actual value does an employer give to a CFA in comparison with an MBA focused on this specific subject? Of course, in Europe this might be valued differently but I would like to hear more insights about this if possible.

 

I had more questions but these are the ones that pop to mind after reading the topic. Would be great if someone could clarify some of the above issues, thanks in advance!

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To what degree are the studying materials clear and comprehensible? Does it require a great deal of foreknowledge in finance in general and mathematics?

 

Clear and comprehensible, yes. Not a great deal, but a math and/or business background will certainly help you learn concepts quicker. The majority of the math is basic math, until you get into the Quantitative Methods section of the studies. There it gets a bit more complicated discussing concepts and  formulas involving stuff like covariance, correlation, sample correlation coefficients, outliers, hypothesis testing within confidence levels, linear regression, R2 and adjusted R2 in multiple regression, etc.. But all the Quant stuff makes up a small portion of the overall curriculum, so don't let it scare you if you aren't great at math. The majority is basic math stuff. Much of the Quant stuff i don't subscribe to anyway, but i learned it out of necessity (lots of greek symbol stuff in the quant section).

 

Is the program focused on theory, mathematics, implementation/practice or is it just one big mix? I have also read that some people felt that there was to much focus on "complicated, far-fetched bs topics" that turned out to be useless. To what extent is this true?

 

It is one big mix. The program is very, very broad too.  It covers nearly every aspect of investing you could think of (discusses nearly everything from fixed income, to derivatives, to economics, accounting, corporate finance, Equities, alternative asset valuation, portfolio mgmt, ethics, etc). In my opinion, about 15% of the program teaches "BS" methods, formulas, or theories, that while i am glad i know them, i know i will never ever consider using them, b/c while they look good on paper, they make little practical sense in the real world. It doesn't tell you they are the right theories it just teaches you them, and teaches you others that might contradict them as well. The other 85% of the stuff you learn i think is very valuable and comprehensive. I have both an MBA and CFA, but i feel i learned 5 times more from the CFA curriculum.

 

What is the percent of "drop-outs" for the program? Would it be wise to start with the program as soon as possible or would a couple of years of pratical experience (in finance in general) be a better choice for a bachelor like myself before even starting studying?

 

It changes every year. Exams are challenging, with only 42% passing the Level I, 39% passing Level II, and 46% passing Level III exam in June 2010. Many just give up after passing 1 or 2 levels, so it tends to have a high drop out rate. I would start as early as possible, but it think you have to have a bachelors degree to even begin taking the test now, but i could be mistaken. It'll take up a fair amount of your time. I think most spend around 300 hours of study preparing for each level, and given the pass rates, it may not be enough time. It takes up a lot of your free time.

 

What actual value does an employer give to a CFA in comparison with an MBA focused on this specific subject? Of course, in Europe this might be valued differently but I would like to hear more insights about this if possible.

 

The major advantage of the MBA is that it is highly desired for nearly all career fields, whereas the CFA is a more narrow focused career path. Most people outside of the finance world have never even heard of it. I don't know how accurate they are, but they often do surveys every year comparing compensation levels. If i remember correctly, CFA vs MBA usually makes about 20% more, and CFA vs no CFA the difference was around 50%. Combined obviously makes the most. But who knows how accurate these surveys are.

 

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Here is my take on breaking into the investment biz:

 

First off, there are a ton of different ways to do it. There are traditional paths and then some very non-traditional paths. I would suggest that first, you look at local hedge fund managers and see what their career path was like, every country is kind of different.

 

Here in the US though, the most common way is to get your start in ibanking/trading at a bank/or sell side research, do that for a couple of years, and then make the jump. Most funds (particularly value shops) like to get people who already have a good deal of modeling experience so this is an easy filter. Or, if you're already working, getting into a top MBA program where there is good recruiting can be another avenue.

 

Are there people who join funds straight out of school? Definitely. But it's usually pretty tough. Most of the time it requires just a lot of luck on your part. If you're in school and can intern for a fund, that helps because you can build real analytical experience.

 

Some people look at graduating and then just trying to manage money for friends/family. I've spoken to some of these young fund managers and quite a few of them have regrets about going this route. Unless your friends/family are well connected and wealthy, capital raising is going to be difficult and probably not a quick process. Moreover, you just might not know enough. Unless you've got a great multi-year track record to back it up, you might want to wait.

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Wow, thank you very much valuecfa (and TariqAli of course), I réally appreciate your lengthy replies. Definitely gives me a better view on my options and CFA on itself.  :)

 

 

For CFA, I am considering starting this after I went through the training program of any large bank I will start working at which on average takes six months.  I have also read that you need at least a bachelor in the field of economics/finance or 4 years of experience in the sector, so I can't start just yet anyway.

 

 

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Investment analysts are a dime a dozen, & it is generally better if they come with significant Indian or Far Eastern background (lived/born there, culture, language, business ethics, etc.). That is where the business is, it is where analysis is outsourced to (same intermediate level CFA costs less there than in the US), & it is often where there is greater committment (CFA's write at 1AM, to comply with EST).

 

It is highly likely that the long term growth of Environmental Science will greatly exceed that of the investment industry (lower starting base). It is also likely that as resource substitution occurrs (gas to electric/nuclear) & pollution levels rise, earning power will increase. ie: Environment Science is the faster growing, & stronger, business.

 

An Investment Analyst can only do investment analysis. A MSc can generally do more things & in more industries (ie: job security). A MSc can also be trained in Investment Analysis a lot quicker than a CFA can be trained in Environmental Science (ie: there will be opportunities).

 

Ignore the glamour, look under the hood, & look up the Sharpe ratio.

 

We would suggest that the return/unit of risk is materially better for the MSc.

 

SD 

 

 

 

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You're welcome.

Your guiding principle should be that it is not too bright to concentrate both your wealth (investment) and your livelihood (salary) in the same basket (industry); unless you can fully hedge at least one of the eggs (ie: investment) - ALL of the time.

 

When the environment slumps, I-Banks will fire their analysts; who are effectively unemployable untill the next I-Bank up cycle - as there is no recent main-street experience in environmental science. If the slump is severe enough, engineering firms will also fire their MSc's; but the CFA/MSc walks away with a gain as their employee share options were hedged, & has stronger job prospects as there is current main street experience, & many more engineering firms than there are I-Banks. The main street CFA/MSc has diversified the total return (investment + salary) & improved the return/unit risk (Sharpe ratio). Hedging the employee stock option simply multiplys the ratio.

 

The smartest guy in the room is usually not the glamorous one with the flashy suit & doting media. Look for the quiet Brooks Brother's somewhere in the backround.

 

SD 

 

 

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I'm not sure I understand what you mean by main street experience, can you please explain that?

 

I see your point, that having my salary in a seperate industry than my investments would give me diversification and allow me to weather harsh times more profitably, but I that isn't necessarily considering pay or portfolio diversification.  Most people coming out of my science program aren't making very much money, right now is especially bad as its largely based on construction in the private sector.  Also wouldn't a properly diversified investment portfolio address the issue of having your eggs all in one basket?

 

My goal is to be independent by 45, to no longer have a boss.  At this point I would hope to be able to manage my own money and live my life as I see fit.  I have no problem with temporarily sacrificing whatever it takes for this, I am extremely frugal and at 24 have a very sizeable amount of savings.  In order to meet this goal I will need to combine frugality with a moderately high income for my goals to be achieved, and I think that prospects in environmental science are weak for this.

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Guest misterstockwell

I went the non-traditional route. I was an equine veterinarian. I passed the first CFA test, and started looking at the second, and tossed it aside. It was a waste as I didn't agree with a single thing they were teaching. I got accepted into the MBA program at the University of Chicago, but a baby-on-the-way shelved those plans(thank goodness). I just started up on my own. I became a RIA, raised a very small amount of money to start, then took off from there. I have had numerous job offers along the way, from traditional investment bank research types, to hedge funds. No way. I have never in my life had a boss, and I wasn't about to start. I am giving money back to clients now, and whittling it down to nothing soon. I am 47. I want out after 15 years. It is no longer the same stock market as it was in 1995 when I started. If I was you, I would pursue another industry, and become a great investor on your own. I firmly believe that if one is an honest, smart, hard-working individual, he can be extremely successfull in any industry. Good luck whatever you decide!

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Ah yes, there is hope for you.

Get your MBA or do something in business/finance and do well.

Then try and land a job as a renewable energy or ESG analyst. That's probably your best bet.

Otherwise, it's hard to see the connection, and people would question your motivation levels if after you've done an undergrad in environmental science, you went and did a masters in the same field.

Usually people do masters levels to either further extend their competence in an existing passion, or are looking for a career change. Maybe drop out of the masters in environment and just do business school or the like ASAP.

 

Note however, that given the current climate, investment and financial careers are sort of looked down upon, because people see it as a waste of space in the economy as financial people are just moving money around and creating risk/volatility. Society is questioning the value of Wall St careers and is wary of the fact that bright people like yourself, who would otherwise go onto more productive endeavors in the fields of engineering and science, are being persuaded to enter the financial services arena and be of less value to society.

 

Read this recent article titled "What Good is Wall St" in the New Yorker:

http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy

 

Food for thought.

Hope this helps.

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Thanks - misterstockwell all these personal experiences help. Honestly I really like what the Cornwall capital guys did in The Big Short. I have just enough capital to began where they started but couldn't put 30% in one single option idea. I have about 10% though in a few ideas. I am hoping things continue to work out. I would love to run a $1 - $10 million dollar portfolio without having to answer to anyone.

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