A thoughtful weekend read and a timely reminder for reflecting on all bad decisions made this year and in the last four years...
"Life is tricky. It is never clear when you are at your peak (and about to head downwards into a death spiral) or at your bottom (and about to skyrocket upwards to your greatest heights). Right now, you could be sitting at the very peak of your life (or you could be sitting at the very bottom of your life), and there is no way to tell which is which. It is the scary truth for all of us. This truth applies to people, companies, and countries. Change can happen gradually over time or it can happen instantly. For me, success is the greatest imposter. In life, business, or martial arts, winning is a falsehood. It seduces smart people into thinking that they are invincible. It tricks good people into believing that they are infallible. And it robs all people of reality and truth. Don’t believe the hype. And don’t eat your own bullshit. Or you will lose everything. The only antidote to the poison of success is humility, hunger, and gratitude. Stay humble. Stay hungry. Stay grateful. And outwork everyone. Always." - Chatri Sityodtong
August is shaping up to be one of my busiest months.
On top of three webinars every weekend, I have a couple of two-day on-campus classes. I think Zoom fatigue is real and the offline classes provide a huge reprieve. The valuation and financial modelling classes always made me think about how I could enhance my existing content and in-class experience in each successive session. I am not the most experienced and best modeller on the street. But I guess where I am different is my perspective of looking at financial modelling and business valuation. Perhaps that perspective is the value-add I bring to the table.
I thoroughly enjoyed the 2-hour talking session last night on Zoom. I was possibly the youngest panellist. We spoke and shared our views on what to expect in the next 6-12 months, personal experiences and opinions on valuation and investing, amongst others. We talked about the situation around the pandemic and how people and companies should remain flexible and adaptable for the uncertainties that lie ahead.
Going through motion.
I used to be a extremely 'agreeable' person. During my corporate finance days, I’m the junior 'play-maker', I don’t crave to be in the limelight. I'm happy to just sit in and meetings and watch the show. Occasionally, I get the ball, I pass, someone scores a goal, sometimes I score. Everyone gets paid at the end of the day. Everyone wins. I'm happy. Tired, yes - but happy. So I had spent most of the early chapters of my career being the nice guy, helping out where-ever I can, whenever I can.
On one occasion during my analyst days, a VP had requested some help for work to be done for an RFP due on Monday. An email was sent out to the analyst pool on a Friday and I was the only sucker that said yes. Sounds like a common Friday evening horror story?
I burned my weekend doing up the presentation deck. In fact, many weekends were like that. Sacrificial rites of passage. But someone put this in perspective for me: You're basically trading time for money.
I did not regret doing what I did. I disliked the mundane work, but I just wanted to show up and be a team player.
As time passed, I increasingly became the go-to guy for a lot of what we knew as JIT (just-in-time) projects. A comps table that needed refreshing an hour before a client meeting. A model that needed updating before a meeting. A pitch-book that required assembly in 24 hours.
I had been one of the most efficient and effective analyst in the team. Sure, I took pride in what I did, and I still do today. But in the frenzy and rush of producing all the work, I had unwittingly lost sight of the investment banking business model. I just did what I was told and had very little bandwidth to develop myself more professionally in other aspects. As the days passed into years, my professional growth became increasingly stunted and fuelled by the mindless monotony of 'spreadsheeting' and churning pitch books.
So, if you blindly follow the corporate 'rulebook' set out by your bosses and let the insecurity of losing your high paying job get to you, you stand to lose out a lot more in the longer term.
Small gears. Large gears.
In negotiating any compensation, one must first ask the difficult question: What value do I bring to the table?
When you graduate from school and someone hands you a $10k paycheck, you are expected to be the most powerful sponge on earth. Your job is to soak up anything and everything as fast as possible. You are the "smallest gear" in the entire system required to produce the highest torque - that’s your leverage. That leverage has a premium and that is what companies are paying for.
When you eventually evolve into middle and senior management, you become the large gear. You are measured based on your ability to drive as many smaller gears as possible. A large and heavy gear which does not drive anything is both costly and redundant, and will inevitably be scrapped.
Therefore in starting up any business or pursuing any career, one needs to first understand your role within the firm - are you the small gear or the large gear? Regardless of which one you are, if you can't make a difference to the organization you work for and its clients, there is really very little that you can ask for commercially. Don’t get me wrong and under-price yourself. Shoot for the sky if you can. But remember that if you ask for high fees or draw a high salary, you must deliver. And don’t get cocky. More importantly, don’t ever be complacent.
Know that once you stop being an effective gear in the system, you become irrelevant very quickly.
It was much later in my investment banking years, and after starting a business, that I truly appreciated what revenue model and cost structure really means.
As an employee, your salary is a cost to the organization. And your main job is to bring revenue to the firm. Everything else that you do in the process is contributory to that main task. Beyond salaries, the firm incurs other ancillary expenses such as rent, administrative expenses, etc, all of which are important in supporting the infrastructure of the business. The firm's only focus is to grow revenues as much as possible, and it depends on the best salesmen to achieve that goal.
Usually, the people who are most instrumental to that growth will be rewarded, but in larger organizations, there is always bound to be some dislocation of credit. So don't get disgruntled when you get paid a lesser bonus than expected.
Unless you run your own enterprise, your remuneration is never perfectly correlated or proportional to the firm's profits. You are just an employee, a cost center, and not a shareholder.
Understanding this cost structure early on in your career makes you more sensitive to not only the firm’s P&L, but also the need to strategically and smartly source for sales.
Over the years, when I started my own business and spoke with more people outside the banking industry, I increasingly appreciated the costs of relationship building and customer acquisition. All of your work experience is worthless if you choose to sit behind a desk doing endless powerpoint pitches and spreadsheets.
In banking, the one thing that many junior analysts (and even associates) fail to realise is the importance of doing small talk with professional parties, engaging colleagues from other departments within the bank and even client interaction. And every client is different. Some like to go deep into numbers, others like to hear the big picture. Some like bragging about their achievements while others just want to complain and vent their frustrations to an external party.
Regardless of the shapes and sizes that clients come in, they are ultimately the ones who bring home the beef that pays the salaries and bonuses. You can systematically and independently acquire technical skills from a corporate finance manual, but there are no handbooks for learning the ropes of business from the "School of Hard Knocks". So don't get too frustrated if you aren't hitting home runs by showing off your beautiful presentation or financial model to your bosses or clients.
Sometimes, your greatest value is in just showing up or being a small cog in a big system.
From a statistical point of view, not every one will make managing director in an investment bank. This is not abnormal.
In an ideal world, the funnel is straight, and 100% of all analysts would make associate, 100% of all associates would make VP and VPs to MDs. But the reality is that attrition happens at every rung. Making Partner or MD isn’t the pinnacle of your career. I used to think that MDs were the creme de la creme in the investment banking world. But the truth is, many of them are just successful in navigating corporate politics and hierarchy within the firm.
Managing Directors are really just highly paid salesmen within the bank. They exist only because the banks believe that their relationships with senior industry people and clients can be monetized at some point of time. Their KPIs are based on the bank's revenues and not on whether they get along well with their co-workers. It is also because of this that most cultures in investment banks are toxic. Don't take it personally, it's just sales.
If you focus too much on pleasing your bosses and co-workers as part of climbing the corporate ladder, you'll find yourself rudely awakened ten years later into a miserable job.
Everyone - junior or senior - needs to be commercial, and that means understanding how the business works and who the real customers are. Above all, be smart, be a good listener and nurture good analytical skills. Learn more to solve problems rather than pleasing people.
For the want of money
The world was a very different place in 2006. We were about 2 years out from the SARS crisis, and it wasn't even considered a pandemic. I had completed my final exam papers, presented my engineering thesis and was comfortably placed in a French IT consulting firm, which at that point of time, was being subcontracted by Philips TV to develop a software prototype. The product was meant to be used for all of Philips' clients in the hospitality and healthcare sectors.
But I left within 6 months into my role. My motivation for making that leap was driven by
The fear of being stuck in an engineering job, working from 9am to 5pm everyday for the rest of my life, and:
Perhaps more importantly: The want of earning more money by being in banking.
That was primarily how the world of corporate finance appealed to me - fresh graduates bringing home $8,000 a month. No other career could offer that kind of salary, certainly not in the engineering world.
But I was not lucky.
My grades were less than mediocre and I had been in the 'wrong' field of study. I didn't even know what a Bloomberg terminal was, how to calculate a series of discounted cash flows, or the definition of enterprise value. I wasn't cut out for an investment banking ("IB") role. I didn’t get my $8,000 per month dream job but I eventually managed to join the valuations team of an accounting firm.
Trial by fire
I distinctly remembered my first day of work at KPMG. All eyes were on me as I walked to my desk. It was only much later in my career that one of my colleagues told me with a giggle: "We were all wondering why you - trained as an engineer - came here to steal our jobs."
So, it was with a bit of dumb luck, a vacant analyst position created by the timely departures of a few junior staff, and sheer persistence that landed me into a corporate finance role.
I had graduated a year later than all my engineering classmates, which made me two years older than the guys who graduated from accountancy and four years older than their female peers. In short, I was the uncle of all analysts in the team. For the longest time, no one could understand why I had taken a 33% pay cut from my job in Philips to venture into the unknown from a zone of comfort and familiarity.
Many times, I even found myself having to clarify where I worked at previously:
"Not Phillip Capital the securities house - Philips, the TV company..."
I was incredibly scared during my first 6 months in my IB role. I came from a working culture that involved going to a techno-park five days a week and sitting in front of my desk coding for long hours. Banking was nearly entirely different - the closest I would ever get to writing code was the Bloomberg functions on excel and perhaps some Visual Basic. Other than that, I was a fish out of water. I was so afraid that my line managers would deem me unsuitable for the job and ask me to leave. However, what they did do was make a bet that I would voluntarily leave within those six months.
This incident was later unwittingly and awkwardly revealed by a stranger who crashed one of our team drinks. I remembered him saying:
"Hey! You lost your bet. He's still here!!"
It is just one of those things people in IB like to do. It might have sounded condescending and insensitive, but you pretty much got to have thick skin in order to survive. IB isn't just about getting through the gruelling late nights and delivering on the number crunching. It was also about the harsh and toxic environment that one has to be prepared to put up with for many years to come.
"Compendiaria res improbitas, virtusque tarda"
which translates to: evil takes the shorter road, virtue the longer.
Today, I get a lot of questions on how to break into a corporate finance career whenever I teach at the Singapore Management University.
"I don't have any accounting or finance background, how do I get in?"
Ironically, most of the people asking me these questions have better credentials and working knowledge about the field of investment banking than I had during my time. I had tried learning about financial markets and their workings by punting in stocks during the bull market, which peaked shortly in 2007 and went bust later towards the end of 2008.
I'd watched the markets not to make money, but to experience first-hand how it was like to invest (or trade). It sounds unusual given younger people today are more investment savvy and have even more access to investment and trading platforms.
All in all, I don't have a straight answer for how to get into an IB role. The willingness to work hard beyond the stipulated 8 or 9 hours a day was definitely a plus, but beyond that it was challenging to also prove how you could get the job done eventually or what value you brought to the team. For most of my peers it was mostly due to the fact that they knew the culture, having done internships before. In my case, it was probably my positioning as the go-to-coffee-boy for all the work that no one wanted to do.
All in all, I attribute most of this to being at the right place, right time and meeting with the right people (天时地利人和). That said, everyone has a different trajectory.
Back in 2006, I had found myself then in a somewhat employees' market whereby banks were poaching talents from the accounting firms often enough to create a vortex of hiring, and I was lucky to get dragged into the process.
Revisiting "for the want of money"
Bankers during those hey-days were also raking in deals (most notably from the many S-chip listings) and taking home multi-year bonuses. I remembered hearing someone from one of the local banks earning thirty six months of bonuses. Even if his base pay was mediocre, the absolute quantum still sounded crazy. There was even word that bankers who got less than a year's pay in bonuses would jump ship just because they weren't compensated enough.
To put this into an average working person's context, imagine:
In just 12 months, bankers would have earned the equivalent of what everyone else outside of IB makes in 3-4 years.
To extrapolate this even further out - working for 7 to 10 years in IB implies that you could easily retire for the rest of your life. It makes everyone else's job look like a joke. And some folks in IB were still complaining.
More than 10 years on, the frenzy of hiring and huge bonus payouts have significantly subsided. But the toxic work environment probably hasn't. Many graduates today continue to worship the 'altar' of corporate finance and chase the prestige of being accepted into the bulge brackets. I don't blame them.
To paraphrase the words from a scene in Mission Impossible III said by Theodore Brassel:
It is obscene that bankers are paid so much for the work they do compared to most other careers. Easy for me to say "do whatever makes you happy" or "be open to other well deserving jobs as well" when I have personally gone through and benefited from the system.
Investment banking offers no guarantees
Ultimately, everyone has to make peace with whatever career you have landed into. Many of my engineering-schooled friends are doing very well today, even having not gone into banking roles. Some are in sales, business development, entrepreneurs, etc.
Not everyone who lands an investment banking career is guaranteed to make lots of money and the promise of working on exciting deals. Most of the day-to-day work is iterative (and sometimes mundane): Research, spreading numbers and window-dressing a company's profile. As a junior or mid-level banker, you'd be lucky to get involved in and be a spectator in deal negotiations. Be realistic, you won't get to be portrayed a hero or a rockstar deal-maker. This is not the moves. However, you will be paid well and most likely be a target of envy for most of your peers earning a fraction of your salary.
More important than the prestige that comes with it, you really have to love what you do. The dots really do connect backwards. It is not so much about being "fast and furious", but whether you appreciate the dynamics of the job that you have chosen to be in and sustain yourself in that industry for a long time.
As I look back on my cover letter dated in 2006, I recall of how starry-eyed I was when I applied for a role in investment banking. I had been lucky, yet, at the same time, it also reminds me of how far along I had come: I applied for the money, saved some, spent some, invested some and lost most of it. I'd gained knowledge of the subject matter, technical skills and the experience, including the network of people, intangible resources built over the years, and spat out by the system.
But. No regrets.