Studying for Technicals

I admit it: my posts aren't in any particular order; I simply write about what I feel like writing about in that particular moment. Without further ado, here is a quick overview of how to prepare for the technical component of an interview.

Before going into too much detail, I want to mention the importance of being technically sound in interviews. I don't think that knowing technicals has ever gotten anybody a job, however, it's the easiest way to blow your chances. The technical part of an interview serves more as a test of whether you have the analytical aptitude to learn the everyday components of the job, whether you have taken the initiative to learn on your own, and whether you have a genuine interest in the role. As well, these questions test how well you perform under pressure.


No matter how well you know the material, the interviewer always knows more! The more questions you answer correctly, the more questions you will get asked, until you can no longer answer. The correct approach is to answer those questions which you know correctly and efficiently. This means that you shouldn't offer any additional information above and beyond what is asked. For example, if you are asked to describe a DCF, your answer should be no longer than "it is the discounting of the future cash flows of a firm or project to the present in order to obtain a value for that entity". Do not talk about discount rates, growth rates, terminal value, or anything in addition to what was asked. By offering all of the information you know, you almost guarantee that the next question asked will be one you will not know. By keeping extra information in your back pocket, you are able to answer follow-up questions. Be concise and be confident.

Questions which you do not know the answers to are handled in two ways. For those which you think you can make an educated guess, prefix your answer with "I do not know, however, if I had to make a guess it would be...". For questions which you have no clue, be honest and say that you do not know. Sometimes part of the reason the interviewer asked that question is to see how honest you can be when you do not know an answer. If you begin making up an answer which is completely wrong, expect followup questions -- the interviewer knows that you are BSing and wants to see you squirm! I have seen less technically sound individuals ace interviews because they are honest and concise than some people who may know a lot more.

Each candidate should know inside out the role which they are interviewing for. For exmaple, if you are interviewing for an investment banking role, you should be aware of what investment bankers do, how they are structured into industry groups, the hours they work, the salaries they receive, what a first-year associate does, how career progression works, etc. All of this information can be easily obtained from Vault guides which are free to obtain via RWorld and the BIC library. As well, for each company you interview for, you should have an idea of which market that firm specifically focuses on, how their industry groups are structured, who the key individuals at the firm are, and so on. This can be found on CapitalIQ, a tool each student has access to.

Investment banking interviews are generally more rigorous in terms of testing technical skills than other roles. Since the profession requires certain sacrifices of work-life balance, this approach is justifiable. I will leave the behavioral questions for another post and only cover technical questions here. IB questions only ever cover a few topics: Valuation, M&A, LBO, and general accounting questions. I wont go into specific details regarding these topics, I will just say that the Vault guides are not enough to cover these topics. Look to Google, or online guides such as Breaking into Wall Street (BiWS), which is a great $100 investment. As well, do lots and lots of mock interviews with second-year students and your study team. I cannot emphasize this enough.

For sales and trading jobs, having more of a global / macro view is important. Most questions will revolve around where you think the economy is headed and your ability to pitch a stock. Unlike IB interviews, which you can cram for in two weeks time, it takes a few months to form an opinion of the markets and get a sense for what makes them move. This means reading the newspaper every day and sharing your ideas and refining your view months in advance. Start doing this now! It is extremely important to have an opinion. Sure, even the world's top economists are torn as to where the markets will be in six months. It is still important for you to pick a side and be able to defend it. Again, concise answers are key. If you think that markets are going down, simply say it is because you believe that the credit market is still frozen for small and medium sized businesses, which is where all new job creation will come from, and without job creation, the economy is headed downhill. There -- the economy in one sentence! This question is the keystone of your entire interview since it is extremely important that you can construct one contiguous story. For example, if you argue that we will enter another recession, and then insist you want to invest in a cyclical stock, you start to contradict yourself. Conversely, if you say that you want to invest in utilities because they are defensive, and go on to pitch a particular name in the industry, you are signaling to the interviewer that you actually make sense of the economy and are telling one consistent story.

Pitching a stock is an art -- it needs to be done concisely and effectively. I think the best approach is to start with a top-down analysis. Keep it max two minutes and begin by saying where you think the economy is headed, therefore why you feel some industries will perform better than others, which name in that particular industry you think will outperform its peers, why you think that name is undervalued, and use some rudimentary valuation to back up your analysis with numbers. This last part means "it's trading at a [P/E] multiple of 12 compared to an industry average of 18", and not "I spent a week doing my own DCF at home and...". Keep it simple. Have two long pitches and two short pitches on hand and you should be fine. Like all interviews, practice makes perfect, so form a study group and practice pitching stocks to your classmates.

I can answer any specific questions in the comments. Good luck!

More on Networking

I was asked by a student earlier this week whether it was too early to start networking. There is no straightforward answer to this question. It is never too early to begin reaching out to people and developing a network, however, you should at least have some ability to carry on an intelligent conversation before you do. The bar is set low during these meetings as people will not expect you to know about complex finance theory (yet). Still, you should have at least a basic understanding of what that person does (understand their role at their firm), and have a clear idea of what you will focus on during recruiting season. This doesn't mean that you have to specifically know which jobs you will apply for, just that you are interested in finance and in hearing what that industry professional has to say. In short, if you have to ask questions like "What do investment bankers do?", "How much do you make?", or "What are your hours like?", you probably shouldn't be there. This is information you can google, and asking it will not only embarrass you, but will also make the rest of us look bad.

When you do decide that you are comfortable enough to meet with people for coffee or drinks, start considering who exactly to meet with. If you have a clear idea of which job you will focus on, contact people who will recruit for those roles. If you are undecided, consider casting a wider net. Great resources for finding individuals include the online alumni directory (rworld), asking second year students, the CCC, and RFA events. Remember, always ask "who else can I meet with?" as a final question when meeting someone. As well, the best way to attack a role is from all angles -- associates to directors -- so make sure that you target the entire spectrum.

I want to make this post specifically about how to compose an email to ask a person for a meeting. I generally believe in two rules: be specific, and be genuine. The first rule means that you should put something really specific in your email to show evidence that you are serious about meeting and that you have done your research. For example "We had a chance to meet at the RFA Speaker Series event last week and spoke briefly about how high-yield is becoming a big part of the corporate bond issuance business". If you haven't met them, perhaps mention something like "I would like to find out how Firm Z's expanding presence in Latin America affects the xyz department for which you work".

The second rule, be genuine, means that you should keep your communication concise and honest. Do not try to impress the recipient with your credentials or knowledge of the market.  Introduce yourself, say something specific and politely request a meeting. Here is an example of an email:

"Dear Ms. X,
I am a first-year student at Rotman interested in becoming involved in Sales and Trading. We had a chance to speak last week at the RFA speaker series event where we discussed the dynamics of corporate bond yields. I would value the opportunity to continue our discussion over coffee, and perhaps to learn more about Firm Y. I understand that you are busy and am able to work around your schedule over the next few weeks.
Thank you, Me."

Finally, when sending these emails, be cognizant of the time. Do not email a trader at 9:30am or 4:00pm when the markets are abuzz. You wont get an answer.

Super Networking: Information Sessions

I want to thank everyone who came to the RFA and RAMA kick-off meetings. A common question asked at these meetings concerns approaching industry professionals and networking. I'm going to try to describe some tactics which I used and some general guidelines. I want to emphasize the importance of networking. Even if it doesn't translate to a job in the industry immediately, the financial scene in Toronto is small, and starting to develop relationships early will pay immense future dividends. There will be many opportunities to meet industry professionals: information sessions, club industry events, and case competitions. As well, cold-calls and emails are good methods.

At events such as information sessions and industry events, candidates face the challenge of speaking with industry professionals alongside dozens of other students. It's almost impossible to stand out, however, there are a few things I believe can improve your chances. Before I even begin, I want to discuss business cards. Though some people may not agree, it is my belief that one should never ask for a business card and never offer one. I cannot stress this enough. Always have them handy, however, consider it a privilege to be asked for one. You do not need a business card to contact a person. If you cannot glance at a person's name tag and remember it for five minutes until you can write it down, you probably don't deserve to be there in the first place. Once you have a name, it's easy to work backwards and figure out that person's email. More on emailing later. As I wrap up a conversation in this setting, I say something like "Well Joe, it was very informative talking to you, and thank you for answering my questions. I hope it is okay that I reach out to you in the next few weeks if I have any other questions about firm X". At this point, if the professional offers an exchange of contact information, you know that you have made a good impression.

This sort of dialogue should be the tone of the entire conversation. The most common mistake I see people making is that they come on too strong. Professionals do not want to hear a play-by-play of your personal history. They spend 12 hours a day at the office and don't care to discuss what's going on in the economy. Don't try to impress them with what you read in the Globe and Mail that morning; chances are, they know more than you do. Instead, wait for a convenient break in the conversation and ask an educated question. "What is your background, and when did you develop an interest in finance?". "Which industry group are you involved with and what are some of the challenges you face these days?". Or my all-time favorite, when somebody is making an ass out of themselves, ask "I see that your beer is running low, want to walk over to the bar and grab another one?". Your goal is to not stand out in any way. Be reactive to the situation around you, try to make your questions timely and fit into the context of the conversation. Be relaxed, be yourself, and don't be afraid to show that you are human, can make a joke, talk about sports, and become excited by what they are saying. If you can do this successfully, don't be surprised if the professional begins asking you what your interests are, work experience, etc. This is when you know you've made an impression and can begin marketing yourself.

A quick rundown of common-sense things: don't crowd other people out of the conversation, know when to move on, keep things short and sweet, introduce other people to the guest, and be polite. It isn't rocket science.

After one of these sessions, remember the names of a few individuals which you have really had a great conversation with. Wait a few days and email them. I will go into the exact details of what these emails should look like in my following post.