How to Prepare for Your Investment Banking Job (The Truth)

We have received several requests for a “What to do now” after obtaining a job as an investment banking analyst. A lot of this can be directly transferred for an associate as well, but most associate candidates already have an understanding of the space. With that said we’ll go ahead and lay out the truth.

Introduction

Either by way of interviewing or following a summer internship, your hard work has paid off and you’ve secured a coveted full-time offer from a prestigious investment bank.

Once you’re done celebrating, you need to start thinking about how to prepare for it. You likely have a full school year ahead of you, giving you ample amount of time to take advantage of before you start living in your office. What’s the best way to use it?

It’s important to find balance in what you spend your time doing. Many of incoming analysts will make the mistake of either:

1) Over-preparing: To some it may sound like a good idea to sign up for advanced modeling courses, take a plethora of advanced finance accounting classes, devour a laundry list of finance text books and generally try to understand everything you possibly can about investment banking.

Some amount of financial skills will obviously be helpful, but it should not take over your life and nobody should be shelling out thousands of dollars for modeling courses (the bank does that for you during training). Many of the skills you develop will come on the job, and it’s rare that corporate finance will necessitate anything more than basic algebra and statistics, so investing too much time in trying to be the best analyst in the world is not going to be worthwhile.

or:

2) Under-preparing:  The flip side is the student who get the offer and then assumes that they can coast and enjoy their year-long vacation. You’ve got the job offer and you’re set – no need to worry about things you’ll learn in training anyway, so why not enjoy life?.

Again, it’s certainly important to take advantage of your last year in college before entering the real world, but don’t waste it all on mismanagement of alcohol, hooking up on tinder, and a bad drug habit.

The reason you wanted a banking job in the first place was not because you wanted a career in investment banking. The analyst gig is a stepping stone to the buy-side, so you need to think about how to maximize your chances of landing there. Now that you’ve broken into banking, it’s time to start thinking about how you’re going to get out of it.

You need to find a balance between these two extremes and focus on developing what’s important, while ignoring wasting time and resources on unnecessary preparation. Simply put, if you’re the guy who is constantly talking about the last M&A deal that was closed last week, you’re probably on the over-prepared side. Alternatively, if you’re unable to understand the importance of excel short cuts… You’re on the under-prepared side.  So lets take a high level look at how you should think about your future.

Career Goals

Your first step is to think about what you want to do after banking and then work backwards from there in order to determine what you can do today that will benefit you the most based on that.

Exit opportunities for IBD analysts fall into three broad categories:

1)       Buyside (PE / HF)

2)       Sellside (Staying in IBD, Equity Research, Capital Markets, etc.)

3)       Other Finance (Corporate Finance, Startup, MBA, etc.)

We’re going to assume you want to skip the MBA and going straight for tier one or two, so once you’ve decided which path you are going to pursue you will need to familiarize yourself with the process towards following it.

First is timeframe.

Buyside hiring, particularly for private equity positions, can move very quickly, very early. Some funds begin recruiting for their next year’s associate class as much as 18 months in advance (i.e., six months into the start of your banking gig). Once the first fund to start their process begins interviewing, all of the others will follow suit so as not to miss out on the talent grab. This means that once recruiting starts, everything will move very quickly so it’s important not to be caught off guard. Once you start working, you will have a limited amount of time outside of work, so important to do your diligence now in order to hit the ground desk running.

Second is knowing and understanding how the space you are targeting does their hiring. It’s likely that headhunters will play a significant role for any buy-side exits, so it can be helpful to understand the headhunter landscape (Dynamics is well known for its focus on hedge funds, for instance). If headhunters are less of a factor then familiarize yourself with what the typical hiring process is for your chosen path.

That said, you will likely get a spreadsheet detailing each HH and what they are good for from current analysts once you start, so while its important to keep in mind this is not something to spend too much time on now.

Third, and most importantly (besides, obviously, the reputation of bank you are working at), is the industry group you end up working in. Yes, M&A is the best group if you want to break into PE, but different exits exist for different groups based on what kind of work you will be doing while in IBD and what kind of work you want to do afterwards.

Positioning for Placement

Most of the time, the offer you get will be a “generalist” offer (even if you worked in a specific group over the summer at the same bank), so you will need to be able to navigate the group placement process in order to maximize your chances of getting the best exit.

Selection

The best group(s) for you to target are dependent on:

1. The people working in the group

2. The kind of work the group does (i.e., M&A, equity, debt, restructuring, etc.)

3. The groups reputation / prestige

The most significant factor influencing your choice should be the culture of the group and the people you are potentially going to be working with.  While some prestigious groups may look good on paper, you don’t want to end up working in one in which every MD is a psycho MD and none of the analysts or associates ever see the light of day.

Additionally, the senior members of your group are going to be one of the most valuable avenues you have to the buy-side, so you want to avoid groups where they will treat you as a resource and won’t give a second thought to helping you out.

Based on what kind of exit you want to pursue, you should target industry or product groups in which you will gain the most amount of relevant experience and the most transferable skillset. Broadly speaking, here is how you should think about it:

Private Equity

PE involves a lot of transactional work (LBOs), so you want to target groups where you will get a lot of exposure to M&A, whether it be in an advisory capacity or in structuring LBOs

For industry groups that means TMT, Healthcare, FIG and Energy

For product groups, that means M&A, LevFin, and Sponsors

Avoid groups which focus heavily on capital raising, in particular those where most of the deals that come in are on the equity side (this should be obvious – private equity)

Hedge Funds

As we’ve mentioned before, hedge funds care less about specific transactional experience than they do about your thought process and ability to analyze an investment. If you want to work at a hedge fund then the networking opportunities and group reputation are should be weighted more heavily in your decision. That said, if you know you want to target a specific type of hedge fund then there are some asset classes for which it can be helpful to work in a related group.

For generalist and equity-oriented strategies such as L/S or global macro, some amount of equity market exposure is likely helpful, but again the focus for them will be on how you think about investments, not how many IPOs you’ve worked on

For event-driven and merger-arb funds, more M&A understanding is likely to be helpful, along with restructuring

For credit, the focus should be on debt raising, with some amount of LBO exposure being helpful, so LevFin and DCM

For Venture Capital

Healthcare or tech. Period.

Other Factors to consider

Certain industry groups will allow you to develop additional skillsets on top of the “basic IBD” framework. The caveat is that while you will arguably have a broader range of skills to market, you also run the risk of getting “pegged” in that particular silo. Therefore, if you consider groups such as FIG, Real Estate, or Power and Utilities then be aware that it may be trickier to find exits outside of those industry groups than it would be in others

Your interest in sectors themselves should obviously be a determinant of which groups you want to target

Please note, it’s also important to pick a group with a good reputation, which will differ for each group based the bank that you end up at. Yes, M&A is great, but if you’re at a bank with a large balance sheet then groups with more focus on capital raising are more likely to get deal flow and better reputations. Similarly, if you are at bank with more of an advisory focus then you should consider which areas they are strongest in.

All that taken into account, you should narrow down your selection to 2-3 that you feel most comfortable with. Do not focus on just one group. It is never safe to put all of your eggs in one basket – if you are dead set on TMT and go around spouting that to everyone you talk to at your bank, then when all of the TMT spots have already been taken and you end up in Industrials you will appear overzealous and unrealistic, and it will be known that they are your “2^nd choice”.

Official Placement

The “official” group placement process at most banks is often akin to herding cats, so don’t think the world is going to end if you don’t end up with your first choice. That said, there are some strategies you can adopt in order to maximize your chances of getting one of the ones you want.

Group selection is broadly going to be based on three things, only the third of which you can control now:

1. The performance and reputation you developed during your summer

Assuming your offer was the result of a successful summer internship, your options will be almost entirely dependent on your performance there. Even if you decide not to return to the same group as you interned in, HR is going to have detailed feedback that anyone in the bank can look at. People in different groups will also talk to each other about who the best incoming analysts are, so if you performed well enough then you should develop some amount of reputation across multiple groups.

For those that had internships elsewhere (either at another bank or in a different industry, such as consulting), your summer performance will obviously still matter insofar as recommendations go, but positioning yourself for your full-time spot will require more political/networking skills.

2. The number of open spots in the group

While you may be a perfect fit for XYZ group, it will not matter if all of their full-time slots have already been filled. Many groups will attempt to fill up as much of their full-time class as possible from their returning summers, so do not be surprised if your dream group does not have any room for you. Similarly, it will be easier to land a spot at a group that has more open positions to fill in the case that they didn’t give out as many summer offers or have people accept them.

3. Networking / Group Selection Process

You can do little to change the past or affect the hiring needs of a specific group, so the steps you can take now in order to get the group you want are going to revolve around networking.

Banks typically have some form of selection process to determine group placement. This is similar to a super-day and typically takes place early in the calendar year of your start date. While you should know how to navigate the selection process, most of the decisions for the open spots that are available will be determined long before that based on networking.

Ultimately, selection will come down to whether or not you have anyone in the group willing to go to bat for you. In order to get the placement you want

Either way, will need someone to put you in touch with someone in the group – same thing, more senior better. Get them to like you. Demonstrate interest. Ask good questions. Ask how to get into group.

Again, for those that are returning to the same bank but trying to change groups this will be easier (assuming changing groups is okay) because they will likely know or have met someone in the group they want during their internship. From there it’s about making interest known and leveraging your internal reputation to get someone on your side. If navigating out of a group then it will be helpful to have someone to help you out politically.

For those who interned at a separate bank or had another internship, you can use the people there as references, but that is going to hold much less weight than someone at the bank itself. For these, HR will usually give you the opportunity to speak to some current analysts or associate, so use that informational interview to sell yourself to the group.

Once you have people in the group on your side advocating for you, the official selection process should be more of a formality.

Always. Be. Networking

A consistent theme here is that the most important thing for you future career is networking. While you’re still in school, this means make friends with the other kids who are going into banking and finance (if you haven’t already). They will be valuable contacts down the line.

If you are at a target school, join the alumni network sooner rather than later and start getting involved in alumni groups and activities. You can find alumni in finance to talk to who, while they may not be working with you, can provide valuable career advice and potentially help you out down the line

Work on your people skills. It is incredibly important to know how to socialize (without alcohol). Use the time you have to have fun, work on other aspects of your life, develop interesting hobbies and interests and generally become a more well-rounded and interesting person. We have alluded to this several times but it bears repeating. No one in the world enjoys hanging out with the guy who can only talk about finance/work/school/prestige. Over the long term, you will always lose to the person who has the exact same skills but has interesting points on topics such as sports, travel, music etc.

Analytical Skills

As we have said, developing a technical skillset is important, but past a certain point it is not something worth spending too much time on, and it is absolutely not something you should thousands of dollars for, if you want to spend a few dollars to learn excel shortcuts then feel free. However. Practicing at home should suffice. The time spent trying to learn anything too advanced or complex is going to hurt rather than help you.

Every firm has their own templates, formatting conventions, models, and macros. While doing something like learning VBA now might be useful as part of your overall skillset, your knowledge of it is going to be somewhat moot once you start working. To draw a line on what is too much preparation, VBA would be going over the top as macros are pre-made, but not knowing Alt E + S +T and not knowing that F4 repeats a movement would be poor preparation.

To further complicate things, within each firm every group is going to have their own conventions and way of doing things, which you will only pickup on the job. No matter what your previous reputation or experience, the assumption from day 1 will be that you will learn most of your modeling skills on the job and in training.

It is important not to invest too much time learning skills where the marginal utility is questionable. That said, there is a certain amount of preparation you can do so that you can pick things up quickly once you do start. Additionally, since you can also use the time you have to better prepare for whichever exit opportunity you have decided to target. Below is a list of things you can do for thirty minutes per day and be well ahead of the pack.

– Learn excel keyboard shortcuts (Alt E + S, use of shift and control, F4, Alt I+E, Shift + Space + DGG, etc.)

– Teach yourself basic modeling techniques (nothing too complex). We have a three statement model for Apple. This should take you a day to complete and you can do this once or twice for two different companies from scratch to improve your speed.

– Ask current analysts in your group for training materials and what recommendations they have

– For groups such as RE and FIG where the type of work is slightly different, spend some time reading up on how those groups approach modeling, but again keep in mind that most of the specialized knowledge you will need to pickup will come on the job

– Generally, keep up with the news and trends in your sector… but don’t go overboard. If there is a multi-billion dollar deal or IPO you should be aware, if the S&P is at 2,000 or 1,800 you should be aware and if your group closes a large deal… You should be aware. Keeping track of league tables for every bank on the street, however, would be overkill.

– If you want to work at a hedge fund, if you have not already then you should start developing a thought process for analyzing investments and learning how to apply it to any given transaction. Notably, you should also work to apply this process to the speculative portion of your PA or a paper trading account

– If you want to work in private equity, it would not hurt to learn some basic LBO modeling and understand what kind of factors are going to be important for different PE shops (i.e., cash flow, potential operational improvements, IRR, etc.). Instead of trying to build complex LBOs, understand the high level assumptions of improving Free Cash Flow, why a company would be purchased by a PE firm, exit opportunities etc.

Other Things You Can Do

The moment you are assigned your group, begin updating your resume with your summer internship and future job, which you can fill in with basic / template information that can be easily alternated as needed later. This way you will be able to easily have it ready to go once buy-side recruiting starts.

Take accounting and corporate finance classes if your university offers them. Anything more advanced, however, may not be worth the amount of time and effort that you will put into them. Advanced financial mathematics classes are great if you are interested in them, but they are not necessary for investment banking. IBD doesn’t use anything past basic algebra and statistics. As we have said numerous times, the belief that high paid employees on Wall Street are all math nerds is entirely false. It is called the “sell-side” for a reason. If you want to run numbers all day long, the only position worth obtaining would be a Quant role on the Street.

Take the time to catch up on some reading. Additionally, there are many books which both provide insight into broader Wall Street culture and are entertaining to read if you have the time. This list is by no means exhaustive, and you should only read them if you have the time, but some may include Liar’s Poker, Monkey Business, The Accidental Investment Banker, Barbarians at the Gate, When Genius Failed, The Big Short and Too Big To Fail

Again if you have the time, plan take the first level of the CFA and potentially also the GMAT (scores last for five years). The CFA is a better bet here if you’re looking for market centric positions (long-only funds as an example), but the GMAT is something that is helpful to have in your back pocket.

A Note on Training

As said, many of the analytical skills you will develop will come on the job. This does not mean training.

By way of design it is catered to the lowest common denominator – i.e., kids who come in with zero skills. Assuming you have some amount of basic modeling skills and are able to easily pickup whatever firm-specific macros, you should not risk taking training too seriously.

Yes, your training program will likely have “modeling tests”. No, they will not have any influence over your bonus You just need to pass them. Your bonus will not be determined for at least another 6-9 months (18 if your bank issues a stub), by which time anything you did during training will be long forgotten. No need to raise the bar to the top by getting a 99% on the test. This would be equivalent to getting 100% on the Series 7 exam, a test a monkey could pass even when drunk.

Instead, you should view your time in training primarily as a networking and as a socializing opportunity. Use it to get to know the other members of your analyst class and a build a social circle. Establishing friendships and connections during training will be much more valuable down the line when you need to ask someone in LevFin for an LBO model template or your friend who ended up at KKR after banking hears about an opening there that you’d be well suited for.

You should obviously show up and complete any required exercises, but any breaks should be spent talking to people as opposed to trying to cram and study for the upcoming module / quiz.

The training itself pass / fail and nothing more. Treat it as such.

Personal Life

Finally, while the focus here was more on preparation specific to investment banking, the time you have during your senior year should also be spent optimizing and setting up your lifestyle, diet, wardrobe, and personal investment strategy. Once you start working the amount of time you have for yourself is going to be extremely limited, so if you can put those things in place now then you will be much better for it.

Oh, and you should also try to have some fun and be a college student while you still can. You only get to go to college once, after all.

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Addendum*: For the TL;DR type you can look at the below to decide if you’re correctly balancing your last shot at freedom before chasing that F-you money.

1) Can you build the AAPL model within a day? If not you’re probably a bit slow (note, any major company will do)

2) Can you go into a bar/club and strike up a conversation without feeling uncomfortable? If not you’re probably not social enough and should improve here

3) Are you in great physical shape? If not you’ve underestimated the horrors of working in Wall Street for your first 2-3 years. Get in shape.

4) Can you comfortably use the major short cuts? Alt + E + S (know the box of short cuts), F4, Shift/CTRL and Space bar functions… If not you should spend 10-15 minute practicing a few formatting drills. Note this is only 10-15 minutes not 3+ hours

5) Do you get invited out by friends constantly? If not you should spend more time building out your network

6) Do you know the basic valuation metrics for your sector? If not you’re not prepared.

7) Do you know what the S&P is trading at, roughly? If not you’re not interested in finance

8) Do you know at least 2-3 major deals your group has closed? If not you’re not prepared to position yourself correctly

9) Did you update your resume to reflect the formatting changes from a student to an experienced hire? It takes 20-30 minutes so simply make the changes

10) Are you trying to compare your group/bank placement to all of your peers? Chill out this is not how you make friends!