This blog post is part of a series on things I learnt as a junior Investment Banker. If you're interested to follow the next blog post, you can go here.
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Hello world,
As I complete two years in my journey as an Investment Banker, I want to take this opportunity to pen down a few thoughts about things I have learnt as I celebrate yet another anniversary in this profession.
Over a series of blog posts, I’d like to offer my thoughts and observations about what it is like working in Investment Banking (IB) from the perspective of a fresher- having started as an Intern myself, to being an Associate today. Having observed the entropy in my journey so far, I suspect that at least some of my current opinions and observations will be grossly inaccurate over time.
Nonetheless, taking inspiration from Albert Goldman’s Lindy effect (later popularised by Dr. Nassim Taleb), I want to see how many of my current ideas stand the test of time. So here goes:
Learning #0: Setting expectations:
Investment Banking (and to a larger extent- a career in Finance) is a selective profession. It isn't easy to get into a good role without the right connections and credentials.
Moreover, the decision to quit after putting in a few years in the business also requires considerable thought- given the attractive monetary rewards and lifestyle associated with being so close to “power”; political and social capital that you also tend to accumulate along with financial capital.
I have also come to realise that IB and the larger ecosystem of Private Equity/ Venture Capital (PE/VC), Consulting, Corporate Finance and Strategy professionals is a small world. You tend to know and meet everyone and you should assume everyone has heard about you sometime as you rise in seniority within the industry.
To give you a sense of just how small this world could get, I’m sharing below a mind map of a select group of firms and PE funds actively investing/invested in the healthcare delivery space in India. By no means is this information exhaustive but it gives you an idea of the complex interconnections you could find once you dig deep enough.
A close-knit community comes with its own upsides and downsides, and is a topic that is best left for discussing another time.
But there’s one thing I would highly recommend everyone do on an ongoing basis:
Learning # 1: Know thyself and thy place
It is imperative that you identify you and your firm’s role and hierarchy in the grand scheme of things, aka the ecosystem that is built around this business.
As with any competitive endeavour involving humans, this industry operates like a inverted funnel-there are few at the top and many at the bottom. Conversely, deal flow works like a funnel- the few get to pick the best harvest in terms of deals, while the many compete for the less interesting picks left over by the former. The race to get to the top is real and perennial; and the system is unlikely to change soon. Best to accept facts as is.
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Perhaps you’re wondering why bother engaging in this fact-finding exercise- here’s why. If by the end of the process you find that you are among the top- good for you; now manage sticking at the top. But if you aren't at the top, you have to decide if you want to get to the top and choose your next steps accordingly.
The earlier you complete the process, the better it is. Moreover, the marginal effort required to update your knowledge about your relative position requires only that you keep abreast of the latest market developments.
Which brings me to my next suggestion:
Learning #2: Market intel compounds with time:
This idea is still a work in progress in my head but the structure is good enough to understand what I’m trying to convey.
I suspect that market intelligence is a tool in one’s arsenal that only gets stronger and more lethal with time. And it is your prerogative to ensure you have the most relevant intel at all times.
You might be wondering perhaps what market intel is. Vaguely put, it is what I call General Knowldge+ (GK+). The plus “+” signifier is key here, in the sense that it confers qualities to GK that is over and above the inherent information that GK contains- akin to what Disney+ is to Disney or what ESPN+ is to ESPN. The only caveat to my analogy is that while one could acquire GK through the investment of money, GK+ is often derived through the investment of time. Market intel isn’t handed to you on a platter- it requires dedicated effort to develop and grow with time.
As an Analyst, it is your ability to distill disorganised pieces of data, often from diverse sources, into one coherent picture that yields market intel. It is like building your inner Spidey Sense, one which when built with consistent effort, puts you ahead of competition and often leaves them bewildered wondering what your secret-sauce is.
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The sources of such data are of various kinds- from the seemingly mundane to market-moving information, often covering disciplines unrelated to Business at all. The following is an inexhaustive list of data sources that could yield market intel:
nuances about Business Models- pricing, costing, processes, best practices;
a Rolodex of key decision makers and the right kinds of people;
History of deal making and the politics surrounding deals;
Valuation multiples and its trend over business cycles;
Consensus macroeconomic sentiment and market psychology;
Market chatter/gossip about people or any funky business (sometimes very relevant), including recent job changes;
Tax Agency/Government raids, Regulator fines, penalties, lawsuits, and offences pronounced; and
Familiarity with Legal grey-areas (even loopholes) and laws of the land/industry, including any new laws.
Each of the aforementioned sources may have greater importance over the others depending on which part of the business you work in. But they are all important nonetheless.
It should be obvious but I want to be clear- you don't need to be an expert in every non-business field mentioned above. You depend on specialist professionals with specific expertise for those. But you need to know who to get in touch with in order to source that data that you require. Most investment bankers would safely claim to be a jack of many trades, but they are also masters of one- analysis.
Why is market intel important to your firm?
Being in the sell-side often means you’re ‘pushing’ services instead of pulling clients inward. In a dynamic market, it pays to build your market intel because it gives you the ability to sense the winds of change and sniff deals in the making before they happen. Time often brews events and serendipity in unimaginable ways to make deals happen which were hitherto unviable. Timing is often a more critical element to deals than the valuation methods used and any transaction structures you can concoct.
Any informational advantage you have gives you an edge over your competitors because it is directly related to your ability to bring inward business in future as you grow up the ranks within the firm.
Information asymmetry is real and prevalent. Best to accept facts as is.
Although one is expected to be more focused on executing mandates as a junior in the team, I suspect that good banks encourage juniors to gather market intel as early as possible in order to groom future leaders and managers of the firm.
Why should market intel be important to you? Few reasons:
a) Piecing together market intel from various sources is fun
b) It shows your boss that you are competent and you have a network of people (friends, ex-colleagues, favour-bound confidantes, etc.) outside of work. This comes in handy more often than you'd expect.
c) Forcing yourself to source market intel prevents you from missing the forest for the trees. More on why this is important later.
How do you gather market intel? Two ridiculously simple things to write but super hard to implement consistently.
Start reading with the goal of retaining information
Build your network with the intent to allow your network to prosper from you
I would encourage anyone interested to look up Mosaic Theory under CFA Institute curriculum to learn more about the topic.
That’s it for this blog post. More to follow soon.
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