Graduation And More

I haven't posted in almost a year.

So since then what has happened to the class of'08?

May was graduation. A wonderful bittersweet experience. For someone who moved to NY for school and subsequently signed with a NY office of a bank, it was kind of a shock to see how much of my social network had become CBS contacts. I kept up with some Mercer people in Asia but not much beyond that. Although, there was a pretty strong defection to AON in Singapore benefit/HR consulting for Mercer so some of my contacts are there.

I headed into the bank for a 6 month rotational program. 1.5 months was classroom training (on swaps, derivatives, securitization, currency) and networking. 4.5 months was leave and on the job rotations in 4 desks one of which I joined. For those familiar with finance, I am in Global Prime Finance.

The placement process for a bank rotational program is worthy of a lot of discussion but is largely bank-specific. I'll just say that its a test in itself. As it should be in a Credit Crisis.

The Credit Crisis has been in full-force during my rotations. I was on an Emerging Markets desk when Argentina decided to nationalize its pension funds. So its been a harrowing experience to say the least and at the same time, incredible learning.

I'll just say from the viewpoint of a Sales and Trading hire that my view on the important skills at b-school may have shifted a little:

Accounting and Corporate Finance: This is more important than you think. Credit was heavily impacted in'08 so there weren't a lot of spots but these skills are core to Credit. Credit is an art not a science, but to get started it doesn't take a lot more (in some cases less) than the corporate finance we do at b-school. The trick is applying it with a degree of focus and specialization (High-yield vs investment grade or industry specialization) and getting the right opportunity when you start.

Networking, Marketing and Sales: This is incredibly important. The crazy networking and self-promotion you learn in b-school and recruiting is in my view a key differentiator for you in your career in an investment bank. Its integral to Sales and client relationships which are a part of almost all banking careers. Its integral to Trading because the initial challenge is to fit into the desk and learn from your peers and superiors.

Quantitative Finance: By this, I mean derivative modelling, gaussian copulas, arbitrage pricing theory, delivery options and all the other fun stuff. I focused a lot on this in school because I liked to know. However I have found in actual working life that this stuff matters less than you think.

The stuff is good for building serious Excel skills and more importantly Visual Basic for Applications. Why VBA as opposed to C++, Python or Matlab? Because its to late for you to acquire anything else if you don't already know it by the time you hit b-school.

A true Quant in wall-street is typically a PhD and usually a financial programmer of some kind with more than the normal communication skills. These are rare so there will always be room for MBA's.

An MBA with structured thinking and who knows at least one coding language is a significantly better communicator with IT and Quant people than anMBA who has never tried the hard stuff. Communicating with technical people is something that you will do a lot of. Whether you are trying to teach them something you've observed from your front-line client contact or learn something from them, this stuff can make or break a career.

Its also useful for preparing your brain for the kind of learning we do in Wall Street. You tend to be a specialized user of quant finance when working. You learn what you need to learn from a seminar by a Quant or some Research dude who is paid to be a full time thinker then apply it to your clients or your trades. Some of the nerdier markets people will read the odd academic paper. No one has the time to do development of pricing theory from first principles and that stuff is often done by published academics on consulting contracts working with PhD's anyway.
So the b-school experience of learning a little of a difficult concept without all the math is quite relevant.

No matter how much math you have, you will at some point have to learn from someone who knows math you don't know. Even if at the start of your career you are up to speed, you will eventually become a manager, salesman or trader and find that the time involved there conflicts with the time needed to be on or beyond the 'cutting edge'. At some point in the careers of financial greats like Soros, Buffett or Lynch - someone else runs the numbers.

Good luck to all current MBA candidates and applicants. As of Feb '09, its rough waters out there. I don't regret any of it.

Securities Analysis

This is a stock pitch I did for an elective called securities analysis. I called a buy on a stock in the same industry as USG, a recent Bershire Hathaway investment. I gave this presentation and made a price target on April 17th. There's a 2nd May earnings call that I expect to be a potential catalyst so I am likely to be proven wrong or right shortly. I don't have page for my full valuation report but it was a 20 pager! As usual, the formatting is compromised by the technology used to publish it. It looks better on powerpoint.

http://docs.google.com/Doc?id=df9wrf5s_40d77fkt

This was a great course and apparently a direct descendent of Securities Analysis as taught by Graham and Dodd. We hit Securities Analysis by Graham & Dodd quite a bit and also the idea of Expectations investing (reverse engineering what the market thinks on some assumptions with a DCF model). The course is though by adjunct professors who are real world stock-pickers. The best aspect is a stock pitch as a group and a second pitch as an individual in place of an exam.

The academic aspect doesn't give you a lot more than you could pick up yourself with access to the books cited in the course and some time on the job as a sell-side analyst during an internship . You can learn a lot from the harsh marking, from the rest of your group (especially if you make sure a guy with pre-MBA buy-side experience is in your team) and watching people's pitches. If you are willing to spend significant numbers of bid points you can take the course with Michael Maubossin at Legg Mason.

Subjects: What I Took, What I Want To Take

So what subjects would someone headed for Global Markets do at Columbia? I am putting my subjects done to date up on the web and listing what I intend to take. I was hoping to achieve some knowledge of Derivatives, Securitization and Fundamental Equity Analysis. Improve on my quantitative skills a little but have at least a few Strategy and Leadership courses.
The system is more flexible than you think and you can overload from the typical 15 credits a semester.

I like the exemption system, it gives you a way to demonstrate your knowledge if you want flexibility. Basically, a day of revision and passing an exam lets you avoid taking CORE subjects if you know 75% of the material before coming to b-school. In some cases I made sure I got copies of the lecture notes for courses I exempted as reference material (Decision models, Statistics, Capital Markets). A CFA in Columbia should take advantage of it.

It seems possible to be going into your internship with a lot done. While sticking with your cluster is great, some electives under your belt going into your internship seemed very valuable to me. Deferring some CORE to second year is also an option to get more electives in year 1.

By End Of Year 1:

CORE
Macroeconomics, Accounting, Corporate Finance (By the end of this course, you can do a Free Cash Flow based valuation of a company under exam conditions. Good course but I didn't get a 'H'. I got the mechanics right but missed the subtleties of the growth assumption under exam conditions). Marketing Strategy, Strategy, Marketing Techniques, Leadership (I'm in trouble for this half semester course. It just seems to be less the "command & control" leadership I am used to. Will learn but big chance of bombing my grade), Accounting II (Management Accounting), Creating Effective Organizations (The best CORE subject around).

EXEMPTED FROM CORE
Capital Markets (Passed exemption , although this course is good enough I got someone in it to send me the lecture ppt's and have read through them), Statistics (Passed exemption, did statistics in undergrad), Decision Models (Passed exemption, I'm a former actuary!), Operations (Passed exemption, I was also in consulting), Microeconomics (Passed exemption).

ELECTIVES
Education Leadership Consulting Lab (Very practical education project with lots of non-MBA students), Venture Seminar (Fun course, great guest speakers, taught by a pair of lawyers), Option Markets, Securities Analysis, Security Pricing (joint with Fin. Eng. people).

My second year plans (hoping I bid well):

ELECTIVES
Advanced Applications of Credit Derivatives, Fixed Income Derivatives, Advanced Derivatives, Financial Markets and the Economy, Seminar in Value Investing, Economics of Strategic Behaviour, High Performance Leadership, Applied Equities Analysis, Advanced Corporate Finance, Decision Models II, Entrepreneurial Selling.

POSSIBLES
Hoping to get permission to take Introduction to Econometrics. If I miss High Performance Leadership, I 'll be picking from Money Markets, Negotiations or Equity Derivatives. If I miss Applied Equities, I'll go for Valuation/Financial Statements.

Looking at my electives the mix, if all goes well is-
Stock picking - 3
Strategic economics - 1
Soft Skills- 2.5
Venture- 1
Derivatives and quant subjects- 6.5
Macro economics- 1
Corporate Finance- 1

Lighter on soft skills than planned but some variety. If I had ducked on the exemptions I would have only 10 electives in total...but had more time to enjoy the first year experience. In hindsight, not a bad call. I'll have to make it a point to attend leadership guest speakers a lot in second year. Possibly take mandarin as an extra-curricular..

So is b-school making a difference? Yes.

Is it worth two years out of the workforce and the loan? I'll know for sure in 5 years time from a financial viewpoint. From a personal achievement point, I was sure in the first 3 months.