The crashes, the rises, the colorful fund managers, the rags to riches stories and the riches to rags stories make Wall Street one of the most interesting and colorful places in the world to work in. Ask any aspiring investment manager his dream destination and it has to be Wall Street. The stories of infamy and sheer wanton wastage do not seem to deter most in pursuing a Wall Street career. In this article we outline some of the more gritty details of being part of the Wall Street machine.
Long work hours. Junior bankers are Wall Street’s work horses. On an average they need to put in between 80 to 120 hours a week. A week day is usually 14-18 work hours long. Overnights at the office working are quite often the norm.
High departmentalization, low accountability. Investment bank jobs are quite clearly segregated into separate departments with little accountability along the chain. If you are in an investment advisory role, you will be marketing the investment products in your set. There will be monthly or weekly targets even. Chances are you may not know all the details of the products and will ‘push’ some products over others without keeping customer priorities in mind. After all when it is time for the customer to claim or should the product not yield desired results it will be the banks customer service department and not you handling the customer.
Not everyone starts with a high salary. Average salary of an investment banker would be about $300,000 to $400,000 a year. That salary is for the senior manager not the drones at the bank. People employed in back office and support staff jobs do not earn these salaries. An analyst could start with $70k in the first year before moving to the range of $120 to $350k in the third year. Associates in the first year could be looking at salaries in the range of $150 to $350. Vice-presidents could be raking in earnings in the range of $350k to $1.1million. Managing directors earn in the range of $500k to 20 million.
Win or lose investment bankers win. Traders get big bonuses for wins and get to blame the market when losses are made. There is no individual loss or pay cut when a bet goes wrong. Attrition rates in investment banking are very high, which means traders move jobs fast and quick; they are usually not around when a bet goes wrong. Even if they are they usually blame it on a variety of extraneous reasons. They will also point to inherent risk in such bets. The general attitude among traders is that the money is not their own but ‘other people’s money’ which they have been given permission to bet on, on account of their superior knowledge on where to invest.
Closest to making the trade. An interesting practice exists in Wall Street where traders compete with each other as to who is the closest to the exchange. This is because they believe those closer to the exchange physically have an advantage however small to make the bet faster. As a result traders compete for spaces within the co-location facilities that exchanges have started offering. Strange but true.
Leveraging bubbles. Traders leverage on the current bubble the most recent being the sub-prime mortgage in the housing sector. The dotcom bubble is a classic bubble when the traders made hay while it lasted. Despite no clear understanding of the dotcom stories, investors were lured in by stories of big returns by online ideas, many of whom were not sustainable and no clear revenue model. Investment bankers can moderate investor exuberance but usually tend to capitalize on it handsomely.
Too big to fail. Big investment banks make big mistakes losing billions and trillions of investor money in a period. If they close they are rarely taken to trial and made to pay back the money they lost. Quite often the government steps in with funds to bail out these banks with the taxpayers’ money.
The magic of compounding. An advisor who seeks your funds will point out how investing in a portfolio will yield the highest return as compared to say a fixed deposit or any other mode of saving. They will quote examples of successful investors like Warren Buffet whose investment has compounded a little over 20% since 1956. Realistically though investor money compounds at far lower rates.
Zero Sum Game. The stock market does not add value. When someone bets short, another bets long, making the net game zero sum.