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!
Great posts! Your advice is very practical!
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