london, the markets, and the second year MBA

Well, life in London is as exciting as ever. The big story in the markets is obviously the alleged $7 bn fraud at Societe Generale, though I am very sceptical about their version of the events. At least, the story solves one mystery I heard about at the end of my hedge fund internship. We, the analysts, would look at investment ideas, while the traders would manage the open positions and talk to sell-side traders to see what's going on in the market. I remember we had running gag for a while, as some traders in the market were telling our head trader that there was a mysterious "DAX man" in the market, that somone was buying up billions of dollars worth of DAX futures, and everybody was wondering who this crazy guy could be, buying billions of DAX futures while the market was so volatile and headed for a strong correction. We would speculate if it could be one of the Middle Eastern investment funds, or if it was someone who knew something. Or we would dismiss the story and think the story about the mysterious DAX man was a big joke. Well, it seems it wasn't a joke. It might be a mere coincidence and it might be that this was an unrelated event, but I somehow feel this new "rogue trader" might just be him.

And if that wasn't exciting enough, summer recruiting is starting off next week and the first years are freaking out. It is very stressful, especially with markets as they are, banks seem to have less slots for the summer and some people are disappointed not to have many interviews lined up. I have done some mock interviews over the last week and am happy that some people are really well prepared, but I still feel that some people are overconfident and should prepare harder, this year it won't be easy to land a, investment banking internship. So please prepare as hard as you can!! You have been warned :-).

In the world of academic finance, I am enjoying my course in Fixed Income Securities immensely. The professor, Suleyman Basak, has set himself a very high standard of making sure we know more "than the average smart guy on Wall Street who has read Fabozzi". In fact, two alumni from my school who work as prop traders now both told me his course was the best course ever preparing them for landing jobs at the most desired trading desks, so I am hoping to get a lot out of the course. I enjoyed the first two lectures so much that I dropped an advanced financial analysis course that I had signed up for for next term, and have signed up for a Financial Engineering course with professor Basak instead.

As a distraction from the world of finance and investment, I am working on a great paid second year consulting project for a tourism venture in the Scottish highlands, which we are very excited about. In a few weeks we will go up to the highlands for a week to check out everything on-site. From hedge fund internships to consulting projects in the Scottish highlands, Diwali parties and making friends from all over the world, I cannot believe how varied my MBA experience has been so far. Luckily it is still not over :-). Next week I'm setting off for a short holiday in South East Asia with three friends, followed by a trip to the Scottish highlands and then spring break! Life is good.

Interview questions to prepare for Sales&Trading

I have written up this list for the MBA2009s from my school but thought I might as well share it with others applying for summer internships in Markets. Writing it up, I realized there is a lot to prepare actually. Lots of questions are easy if you follow the markets and have been in the field before, but for career changers there is actually a lot to prepare! Here it goes:

Technical questions

• How are bond prices and yields related?

• How do you price a bond?

• How do you calculate implied forward rates?

• How do you price an option?

• What is a Credit Default Swap? How does it work?

• What is a CDO? How does it work?

• What happens to bond prices when interest rates rise? What happens to equity markets? What happens to currencies?

• What is an inverted yield curve and how do you interpret it?

• What is a carry trade? How does it work?
  

Market awareness

• Know the price of oil, gold, the level of the FTSE, S&P500, Nikkei, Dax, know FX rates USD/EUR, USD/Yen, EUR/GBP, what have these been doing over the last months?

• Know central bank rates of US, Euro area, UK and Japan, what have they been doing over the last months, what does the term structure look like, why?

• How would you invest $1million?

• Have you ever invested money?

• Tell me a trade idea?

• What stocks do you like and why?

• What do you think the Fed/Japanese Central bank etc. will do at their next meeting?
  (A really good source of commentary on rates and currency markets is Daily FX)
  

• Where do you think interest rates are going?

• What happened in the markets yesterday?

• Draw me the US yield curve. Draw me the UK yield curve. Why is it inverted?
  (check Bloomberg rates for the graphs, much easier than looking up the yields in the Financial Times and drawing it yourself. Wow, the UK yield curve looks funky right now!)
  

• What do you think about the current credit markets?

• What's your view on the US economy?

• What do you think is the next big investment opportunity in the markets that can offer spectacular returns?

• etc. (all questions like that to check if you have an opinion and read the newspaper, answer can be short and concise, there is no right answer as long as it is logical and moderately well informed)

• + questions that you provoke -i.e.
  If you say you are interested in emerging markets, they will ask you about which EM stock you like or what happened in Thailand last year,
  if you say you are interested in oil they might ask what's going on in Venezuela or Kazakhstan,
  if you say you come from financial engineering they might ask something more technical,
  if you say you want to do sales they might say “sell me something now” and so on

Fit

• Why do you want to do this?

• Why do you want to leave your previous job?

• We have invited 15 of your classmates for the final round. Why should we take you and not your classmates?

• How will you decide between different offers?

• What do you like about Deutsche Bank/Lehman Brothers etc.?

• Why Sales & Trading and not Investment Banking?

• Tell me about a time in your work when you really felt the power of a team and what a team can achieve
  

Read the Gloom Boom Doom blog for sales & trading interviews

Interviews for summer jobs are coming up, and I have talked to some MBA2009s concerned that they still don't have an opinion on the market or much overview of how to understand the markets despite reading the FT for the last months. I strongly recommend Marc Faber's blog "The Gloom, Boom, and Doom Report", which gives a very independent and insightful view on the direction of the markets. Journalists can be short sighted and like to regurgitate consensus opinion rather than give insights, so it is good to have an investor with excellent writing skills covering the markets with a monthly column. I like this part of Marc Faber's current column:

But how can a responsible central bank cut interest rates and pursue an expansionary monetary policy when the stock market is close to an all time high and when it is faced with a weak currency and soaring food and commodity prices?

'Only in America' one should say because the US-infected IMF and World Bank would advise any country under these conditions to 'tighten' monetary policies and to raise interest rates. But since the Fed's only objective today is to 'inflate' asset markets further at the expense of totally debasing the currency we need to look at a new currency as a 'unit of account' and as a 'store of value'. (continue reading)

Sales & Trading and Hedge Fund reading list

Even though I should be studying for my Options & Futures exam coming up next week, I am meeting up with lots of first years interested in working on the trading floor or in hedge funds to give them advice on CVs and interview preparation. The question on what to read in preparation keeps coming up, so I will make a post with all the books I find very helpful to get inside into trading and investing, as well as the technical knowledge required. I recommend the following books. Obviously, you don't need to read them to pass interviews. If you are lazy, you can get by with your introductory finance class, the Wall Street Journal, and the Vault Guide to Finance Interviews. Still, I believe that if you are not interested enough to pick up a good book on investing or the markets in your spare time, it is questionable if you will enjoy working in the financial markets, and thus it is unlikely you will be successful or happy if you work in this field. So at the least reading these books will give you an idea if you are really passionate about markets.

Technical knowledge
Inventing Money: The Story of Long Term Capital Management and the Legends behind it


This is the best book on the lives of Fischer, Black, Scholes, and Merton, the fathers of modern derivative pricing. It gives an excellent introduction into how and why derivatives were developed and how the industry grew. It might be a bit heavy if you have no background whatsoever, but even then I think it will familiarize you with the concepts important in trading.

Derivatives

We have had some readings from this book in our Options class, and as an introduction it is much easier to understand than the classic John Hull book on derivatives that everyone recommends but probably not many actually fully understand. So if you want a book on derivatives that is easy to understand and study by yourself, with a very good depth and practical and intuitive explanations, this is really good. It is written by the NYU Stern professor Rangarajan Sundaram. It is more expensive than the Hull book unfortunately.

Now on to lighter things :-). There are a lot of books on investing, the hedge fund world, and trading, but these are my favourites. Depending on where you lean and what you are interested in, you may have other choices, here are my top choices.

Easy reading
Reminiscences of a Stock Operator

This is the autobiography of one of the first speculators in the 20th century, who made his fortunes in the 1929 crash shorting stock prices. He seems to have had a very unusual gift for interpreting stock prices and where they were likely to go, so much so that brokerages would refuse to take his orders, forcing him to operate anonymously even when he was in his teens. His insight on trading and investing are as true today as they were 80 years ago.

How I made $2m in the stock market


Despite the dodgy title, this is actually an excellent book on stock picking. It was written by Nicolas Darvas in the late 50s and follows a very similar investment style to Jesse Livermore, the author of reminiscences of a stock operator. It is a great introduction to technical analysis versus a fundamentals based approach to investing. It is also a very easy read and a great way to get started on investing.

Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets

As stupid as the title sounds, this is actually a great book full of interviews with macro traders, i.e. investors who analyze global economic trends in currencies, interest rates and commodities to take positions on large movements and trends. It is fascinating how they interpret current events and what connections they make. You have to be interested in macro investing to like this book, as it is unrelated to corporate finance or technical aspects of trading.

Market Wizards: Interview with Top Traders

This is something like the original of Inside the House of Money, a collection of interviews with successful traders from the 70s. Lots of their stories are focused on how they made money shorting soybeans or wheat in the Chicago trading pits, but there are lots of characters here that became famous hedge fund managers later. It does get technical when they describe exactly what they sold when and why, so again you need to be interested in investing to read this book.

Hedgehogging

A much lighter read, this is quite an entertaining book on the hedge fund industry and the characters in it (managers, investors, wives, journalists, funds of funds etc.). It is written by Barton Biggs, formerly head of Morgan Stanley investment management. He has a degree in literature, is well-read and has a healthy distance to money and the finance industry. He can be quite sarcastic at times and I laughed a lot reading it.

Beating the Street

Written by Fidelity star Peter Lynch. This is about investing in stocks and quite useful personally. There are a lot of interview questions like "how would you invest $1m" or "which stock do you like and why", so this comes in handy.

I don't like any of the overhyped books such as Liar's Poker or When Genius Failed and think they are quite useless and won't give you a good idea of what trading floors or hedge funds are about. I do think reading the Wall Street Journal and the Economist helps a lot as well. The FT has some advantage in their coverage of political issues, but in terms of finance and business the WSJ goes into greater depth and technical detail, which is very helpful if you want to go beyond the journalist ling

Lots to read over the Xmas holidays!!! ;-). I didn't do it last year but in retrospect I must say I was not well prepared for the interviews, I didn't even know how options were priced, so I really recommend the following class to prepare better than me and know about option pricing and the general idea of hedging trading positions.

Surprising career choices

Many people have been asking me which job I ended up signing, so it is time to talk about it. I made a perhaps unusual choice. I signed with an investment bank instead of taking the offer from an established multi-billion dollar hedge fund. And I did this even though in terms of the internship, I enjoyed the work at the hedge fund more. Where shall I start to explain and justify myself? I myself was wondering once in a while if I am crazy. But I believe I did the right thing. Here's why.

Content and style of work: in terms of the style of working, the hedge fund was fantastic. It is quite creative and independent, and you never have to worry about selling anything or pleasing anyone. You just try to find out what is the right position to take, if there is a trade or not, and if yes, how to structure the trade in an intelligent way, and you are very free in terms of the opportunities you explore. Banking is very client driven, so obviously it will be more rigid and focused on selling products. The advantage of a bank is that one can move around quite easily and explore different areas, as well as switch desks or divisions. In a hedge fund, once you do merger arbitrage with European equities, it is unlikely that you will ever do anything else. The freedom of moving around and seeing different asset classes and regions was one of the reasons the investment bank seemed more attractive to me

Macro versus micro: the specific job I would have been hired for at the hedge fund required going into deep details of the financial reports of companies, finding inefficiencies and mispricings in their assets and liabilities. The trades were then structured in a market neutral way, so as to take a position only on the mispricing, while hedging out all market risk. Unfortunately, market risk is exactly the part I find most interesting, while accounting is what I like the least. Again, I prefer to work in commodities, interest rates, FX or emerging markets, rather than reading annual reports. This was the strongest reason of all.

Continuation of business school: another attractive element of the Associate programme in a bank is the fact that you are part of a group of 40 associates and about 80 analysts, and have the first 2 months together in New York of training, living in Manhattan, enjoying New York, making lots of friends. If you want to make money in the future, it helps to know a lot of people in different areas, and especially as a career changer I felt that so far I have very few contacts and know very little. Judging from last summer, I know I will enjoy having a large peer group of people in the same situation as I am, as it will make the transition from lovely student life to hard work easier.

Let's see how it all works out. I am meeting with lots of first years these days to explain them what Sales & Trading is all about, so I will probably make a post about it soon. At least I will post my reading list on how to prepare. This is a very busy week with lots of assignments, plus the final exams are coming up, so I have no time to get bored!

One day at a hedge fund in London

I told you guys I had some more tricks up my sleeve when I left the investment bank in August, and now I can share it. Actually, I had two offers for summer internships, and I wanted to do both, so I accepted both. The second offer was from a large hedge fund in London in their event driven group (my loyal readers might remember my posts on hedge fund interviews). I started today and cannot believe how much I have learned in a day. Compared to working in a bank it seems much more creative and intellectually challenging, I will really need to work hard and switch my brain on. I am quite intimidated right now by all I have to learn as fast as possible, but I hope in a few weeks I will know much more.

What did I do today? I came in and immediately sat down with the head of the fund who told me what he wants me to work on over the next few weeks. I need to analyse certain aspects of three companies they currently hold live positions in. The tricky part is that being a "market neutral fund", they never hold a naked position, but instead have a position hedged against all kinds of effects they do not want to have exposure to, and therefore might go long on a stock but then short on some currencies, commodities, other stocks in the same industry or sub-industry of some of the business units etc.. So essentially, even when you cover one company, you actually cover 5 companies, some currencies, markets, interest rates etc.. I was instructed to work only on the first company (which given the basket turns out to be four companies and 5 main currencies) over the next days, and then they will add the other two live positions in the middle of the week, as he said I have to learn covering 3-5 live positions at the same time, as they do.

There was not much time today to cover even that position though, because there was a lot going on on the side. Of course I had to fill in lots of forms on compliance, insider trading etc., learn about the policies, the intranet etc.. But the main distraction came from somewhere else. The CEO of a bank was hosting an investor lunch in the City today and a guy who has a position in that bank needed the investment memorandum. He had another meeting though, and they asked me if I could go to the City, attend the lunch and get the booklet. I confirmed that I do not need to know or say anything and agreed to attend, no problem for me getting a 3-course meal with delicious wine and listening to a CEO! Of course, when I arrived there were 15 old men in suits in the room and me in casual clothes, pretty funny. I got all the info and listened attentively, and then went back to Mayfair happily. In the afternoon a CFO of a small company the fund is invested in came to our offices and the head of the fund also asked me to attend, their stock went down 50% over the last weeks and he said it would be interesting for me to see how the meetings with companies whose stocks are down 50% go. So I attended that as well, and then I was talking to the manager afterwards about how they have been affected by the turmoil over the last weeks, and he explained to me why even "market neutral funds" lose money in downturns.

By the time we were finished, it was 7 pm and everybody had left, so I left as well. Tomorrow I really need to advance on my first task though, because on Wednesday they'll throw in additional tasks for me. I'm absolutely thrilled though by how interesting it is and how much I am learning. After a short holiday, angel angie is getting up early again!

Happy ending of my summer internship

It's time to take a rest. After 10 weeks of getting up at 6am in the morning and spending my days on the trading floor, I am officially on my well-deserved holiday!! I got a fantastic full-time offer, which has surprised me quite a bit in terms of the bonuses offered. Definitely very tempting! I do not want to make the same mistake as with McKinsey and sign something because of the money, but when you are in the situation, it is not that easy, especially when the tuition fees are due in October! But let's see, I will go on holiday, think, relax, meditate, and then take a good decision. I have another trick up my sleeve but I will not share it till September. More on that later :-).

The summer has been fantastic. I have learned about leveraged buyouts, infrastructure, commodities, credit markets, and derivatives. I have made friends with my lovely fellow Summer Associates. I have had amazingly friendly, helpful, cheerful, smart, funny and diverse colleagues from all over the world (yes - even one real English person was among them!!!). I have been invited for drinks and dinners over and over again. I have been able to watch the market action live. Especially this week has been amazing. Imagine sitting next to the FX traders in the bank that is the biggest FX house in the world in London, the global centre of the foreign exchange markets, during the week that the carry trades unwind. To see the action among the traders when the ozzie dollar plunged yesterday has been unprecedented. Some people have lost a lot of money, and others have made a lot of money. I don't know if it is true or not - one trader on my floor is supposed to have made $40 million yesterday. At least the whole desk was clapping and cheering (that was when the yen rose and the high yielding currencies plunged), and that was the number I picked up, but I cannot be sure.

But overall people on the trading floor are worried. During the last weeks, nobody was too worried and everybody seemed to be making money happily. But this week has been different. They have seen their clients lose a lot of money, and this eventually comes back to hit you if you are a financial services firm, no matter how good your proprietary traders are. I know the emerging markets and credit people weren't too happy. I guess only the Distressed desk is open for business now. Commodities also seemed to be going well so far. Nobody knows how it's going to evolve, which is exciting but also worrying.

Tonight I will celebrate with my best friends with a dinner and drinks (even though many of them have another week to go in their internships with other banks), and tomorrow I'm off on holiday for two weeks. I just noticed this has been my 100th post. It's nice I kept the 100th post for special news!

Advice for incoming first years

Well, the admits are arriving now and there can be no denying it anymore: yesterday, I had breakfast on Baker Street with a friend, when a girl I knew from admits weekend passed, and I think she introduced herself to my friend saying that she was a first year, and that's when we realized: we are second years now. How fast time passes! How can we be second years already? Now there are other people who are first years who don't care about us, because they know we'll be gone soon :-(. And in our class people will be going on exchange, working part-time and finishing early, so it won't be the same.

The good part is that now that I count as a wise old second year, I can pass on advice :-). There's quite a few things I wish I had known, and I wouldn't be able to call myself an angel if I wasn't there to make other people happy in their lives - while suffering the grave consequences of my mistakes ;-) - just kidding, I'm pretty happy right now, and the only thing that worries me is that somehow I know that one cannot be that happy forever, right now is probably the luckiest period in my life, so I better enjoy it. Okay, back to my advice:

Flathunting/flatmates: First of all, sorry to say that rental prices have skyrocketed this year (and you thought they couldn't go any higher...), so expect to pay a bit more than the '08s who may have quoted you what they pay. Sharing with 2 others is the best if you want to be economical (around 200 GBP per week), while living on your on will cost you around 300 GBP pw if you want to stay close to school, which is what you should in the first year. Even more important than money is happiness (can you feel the wisdom flowing through my words???), and for that I really urge you to choose your flatmates wisely. At the flathunter's pub crawl, you might sometimes think you just want to get it over with, and just agree to live with the first person who asks you, but I can tell you from experience this can turn out to be a nightmare. Make sure your ideas of how to live more or less match, and stay away from people who seem to try and shift all the responsibility of payments, contractual obligations etc. on you. I cannot stress enough how important it is to have a good personality match, otherwise it can turn out to be very nasty, and unfortunately in my case I had to live with one of the nastiest guys in the MBA for a year. Luckily that's over now. But don't expect all people to be decent and honest, just because they are in your MBA programme. Most people are very nice but there are a few outliers, and you don't want to end up sharing the bathroom with them by mistake.

Study Group: don't worry about this, and don't freak out. At Orientation, they will make it sound as if you will see your study group more than you will see you boyfriend or best friends, so you will freak out and look at these new people and think "but I don't want to spend more time with them than with my boyfriend!", and everybody will be tense and unhappy and have very high expectations which are bound to be disappointed. Luckily, it will turn out to be nothing like that after the first one or two months, it's not a big deal, and it has its advantages, in my case all people in my study group happened to be some who I might not have become friends with otherwise, but because we spent time working together on projects, having lunches and dinner together etc., actually these are people I know very well now, people I can trust, and people I am always happy to bump into now that our study group ceases to exist (just last night it happened I was stranded in a club in Shoreditch and bumped into my Egyptian study group mate who was also stranded there, since both our partners have gone on holiday already leaving us to finish the investment banking internships alone, which obviously makes a lot of sense). So, see it as a chance to get to know some people you might otherwise not have known, and try to stay relaxed about the whole thing, people freak out and are very tense at the beginning because of high expectations, and this can create a lot of conflict.

Parties: yes, there will be many parties. All I can advise is to go everywhere almost every day in the first term, particularly if you're single (if you have a partner, just take them along every time, or sometimes spend a quiet evening with them instead, which is also very relaxing), because the first term really is when all the things are going on. I was quite active in September, but then a bit more relaxed thinking "well, this will go on for two years, so I don't have to go to each and every event, I can go next term", but actually you will notice that suddenly starting in January recruiting will start, and cliques will form, and there will be less and less big parties involving the whole class. So my advice is for you to party as much as possible in the first term and meet all your classmates, because later people become absorbed in their own world and it is harder to get through to them.

Jobsearch: I was one to spend months trying to decide what to do - though in the end I decided on Sales & Trading, which had been my plan when I came to London Business School and long before. But all I can say is try to know as fast as possible and get ready. I think I've said this before: most of the people who knew what they wanted got great jobs, but the people who were clueless and didn't know what to do with themselves even in February and randomly applied to McKinsey, Goldman Sachs, Google and everyone else in the universe, usually didn't make it and were less lucky (though they found good things later). But try to be focused early, talk to all the 2nd years who will be a great help, and also, don't confine yourself only to companies that come on campus. Some of my classmates are interning now with really good private equity firms, such as Terra Firma and Actis Capital, and believe me it is not because they came on campus! Some people say "but they don't come on campus" as if that meant you are not allowed to apply, while actually you are. UBS Asset Management also didn't recruit on campus but somehow two of my classmates are interning there. Quite a few of my classmates are working at some hedge funds here in London, and none of them were on campus. So check out alumni and other contacts, go to all the speaker events and conferences, and you will have a much broader view of what you can do.

So much for my advice, I hope it helps! Enjoy the first weeks of your programme!!

2nd part of the summer: commodities

Time is flying by like crazy. less than 4 weeks to go till the end of the summer internship! I have just started with the commodities group, who create investment and hedging products around all kinds of commodities. The people are great and the work is very interesting. I am trying to learn the pricing tools as fast as possible so I can understand more of what they do, but the products are very complex so progress is slow. Also, I have been given a project understanding the fundamentals of lots of regional crude oil grades, for which I am interviewing crude oil traders in Singapore and New York, I am learning a lot!! Never knew that WTI and Brent production are a joke compared to crude grades like Nigerian Bonny Light or Light Louisiana Sweet :-). I love it. The hours are even better than on my last desk, something like 8am to 7pm. Unfortunately that doesn't mean I get much sleep, because we have events every day. Trainings, dinners, lunches, speeches... I don't get to write on my blog much or keep in touch with anyone.

Then on the weekends I try to catch up with everyone and again I don't sleep :-).

back to reality

5 weeks of my summer internship are over, 4 weeks to go! I have learned a lot and met a lot of nice people. In terms of work, the first weeks have been quite interesting. This last week was a bit boring on the desk though because we had so many events outside of the desk that I couldn't really get into any task recently. This week we had a dinner with all the female MDs, which was quite impressive, and tomorrow we're going sailing all day. Not too bad, not too bad. On Saturday our school is hosting a barbecue for all finance Summer Associates in London from all business schools, that should be a lot of fun!

I can't wait for my next rotation in commodities, I have been fascinated by the oil markets since I did a master's in International Security Studies covering Central Asian, Western African and Middle Eastern security politics and economic development, and although I know the reality of investment banking is somehow on a different level than the high level of politics - actually, it is easy to get lost in the details of taxes, accounting, regulations and excel - at least I will have some connection to things I am interested in :-).

I also can't wait for my well-deserved holiday though, it has not been easy going from exams straight to work, and I really need a complete change, to get out of London and the MBA and finance world. This will definitely happen, because I am going to Uzbekistan the day after my internship ends. Believe me, the world of finance, private equity and money is very far away there, it's a great place to switch off and remember what life is all about. Family, dancing, food, children, history, nature, weddings.

Life on the buy-side

These days have been great for appreciating the beauty of working on the buy-side. Believe it or not, only a few days into my internship I got to write a due diligence plan for McKinsey, as they are doing the commercial due diligence on one of the deals we're working on, and I was happy I was the one specifying what they have to do, not the one who has to deliver all that in 4 weeks! Believe it or not, as it turned out I knew the McKinsey partner and Associate Principal of the project, and it is quite ironic they are working for my desk now! They'll be pretty well paid as well though :-).

Other than that, I've also been on a trip to Germany where we met with the management of one potential target one day, and today I came along to another meeting with tax advisors who were pitching a deal to us. The beauty is you don't need to be as well prepared or well-dressed, and they treat you very nicely. As a consultant, you have to be perfect and alert, and they can still be nasty to you if they want to. Today I wasn't even wearing a suit (I decided to go for smart casual today since many people on the trading floor, especially women, seem to do that), and the director asked me to come along to that meeting with PwC, and I said "is it ok? i'm not even wearing a suit today" and he said it wouldn't matter, it would be interesting for me, and I just came along, knew nothing, wasn't dressed to the occasion, but everything went perfectly well. It's much more relaxed.

Right now, I'm helping out on one ongoing deal and also on 3 or 4 opportunities, doing valuations, background checks etc., I'm learning a lot. The legal, fiscal and financial details are very hard to understand though. I'm struggling to understand 100 page documents flodded with words like Opco, Bidco, Rosco, bridge financing, withholding tax, quantum, SPV, ringfencing... you name it. At least I have won a LOT of respect for accountants and lawyers over the last weeks, I always thought those things were pretty straightforward, but it turns out they are not at all.

So much from me, now I will continue working. I just thought I'd take a break to post, because recently I have posted only pictures rather than stories.

Electives for next year - Finance, Finance and more Finance

It's time to choose electives for next year, there are many great ones so the choice is not easy. In the end, it turns out my elective portfolio will be very finance focused, which I didn't necessarily plan, but most of the top teachers here happen to be the finance or economics guys, and I cannot risk taking a class in which I don't learn anything. Based on my background in psychology, there is not much I can learn from Organisational Behaviour or Marketing classes, or even Decision Sciences, so I feel like Finance & Economics is the way to go. These are my preferences as I have submitted them:

Autumn 2007:
- Global Capital Markets and Currencies (Economics)
- Options & Futures (Finance)
- Mergers, LBOs and other Corporate Reorganisations (Finance)
- Managing Corporate Turnarounds (Strategy)

Spring 2008 - University of Chicago GSB
- Entrepreneurial Finance and Private Equity (Entrepreneurship)
- Cases in Financial Management (Finance)
- Cases in Financial Risk Management (Finance)
- Time Series Analysis for Forecasting and Modelling (Statistics)

Summer 2008:
- Credit Risk (Finance)
- Financial Engineering & Risk Management*
- Equity Investment*

I will probably replace the latter two with the Creativity and Personal Mastery (CPM) course, but I'm unsure about it. I'm not sure if I should work on my personality or on my technical skills. If I look at the times I am unhappy (which are the times one might choose to take philosophical courses), it is usually because sometimes I feel like I haven't lived up to my aspirations or worse, that I will not live up to my aspirations. But somehow I feel that if I spend my time working on achieving my aspirations, rather than questioning them or agonizing about them, I will be happier in the end. It is a very weird decision to make, and I wish I could postpone it till next year, which I can't. I should probably go for CPM, because the other two courses won't add that much to what I will learn in other electives, particularly after doing some hardcore finance at Chicago GSB. Let's see.

Yesterday I handed back my laptop and blackberry to McKinsey so I am officially part of the alumni now. It is weird not to have a blackberry after 3 years!!! I did not write a good bye email in the end. I guess I would have done it if I had resigned in a normal fashion, but because I mainly resigned because they wouldn't let me do anything else but work for them over the summer of the MBA, and because that they said if I want to come back after the summer to just call them, I would have found it weird to send an official "I'm leaving"-Email. So I left in silence, though I called some people who were closest. Luckily, the person I got on best and worked with the most during my time with McKinsey was elected partner last week, so I still heard about it before leaving. I really wanted him to become partner of the Firm, so I was happy it happened before I left.

Funnily enough, whenever I thought of writing a good bye email, or whenever I thought of how I feel while working there, all I could think of was this Charles Dickens quote from "A Tale of Two Cities". It would have been wholly inappropriate to write such negative thoughts in my farewell, but in actual fact it sums up quite well the contradictory feelings I had. So if I had written an honest goodbye, it would have been this:

"It was the best of times, it was the worst of times;
it was the age of wisdom, it was the age of foolishness;
it was the epoch of belief, it was the epoch of incredulity;
it was the season of Light, it was the season of Darkness;
it was the spring of hope, it was the winter of despair;
we had everything before us, we had nothing before us;
we were all going directly to Heaven, we were all going the other way."

I resigned from my job today

Obviously, you and I knew what was coming, but now it is official and my company knows, too. I sent in my letter of resignation today. It's about time, because I'm starting my summer job with another company in London in 5 weeks already. Now I'm getting lots of administrative emails (I have to hand back my Blackberry, Laptop, mobile...) and also requests for meetings from some partners. I will go to Germany for a a few days at the beginning of June to sort everything out.

I am relieved now, because I can speak openly to everyone and start saying goodbye to people. Now that I'm thinking about whom I need to call, I realize just how many friends I made over the two years of the analyst program. I think I will dedicate a whole day just calling everyone, catching up and saying good bye. I have also received the invitation to join the alumni network already. The alumni network is big and powerful, the best ever, but it is weird to be "on the other side" now.

Just thought I'd share this with you.

Impressions from the ground: the current job market in investment banking

Following Citigroup's announced layoffs - 1,000 of which are supposed to be in London - I think it is time to comment on the current job market for MBAs interested in joining global investment banks. I do not have any overall numbers and can only comment on what I can conclude based on what is happening with the class of 2008.

First of all, I think the headline of "1,000 bankers in London to lose their jobs", as proclaimed in yesterday's Evening Standard, sounds more threatening to future bankers than it is. Most cuts are made in back office and administrative jobs, obviously. Furthermore, if you talk about the few M&A or Sales & Trading jobs that will be shed, I would assume only those who are losing money would be shed - if you want to cut costs to improve profitability, you will not fire anyone who brings in profitable deals, as your profitability goes down if you fire profitable employees. So I believe, even those MBAs interning at Citigroup this summer should not be worried, though obviously I understand that some who may have rejected Deutsche or Lehman offers to join Citigroup over the summer might wonder if they made the right decision.

But moving on from Citigroup, our summer job recruiting season has given us some good insight into the job market in the finance industry. I remember when we started the year, I was impressed by how well the 2nd years had done last summer, but also concerned - if there were so many summer interns last year and they almost all received offers at the end of the summer or joined other investment banks full time, how many spaces would be left for us? I can now safely say that I believe hiring this year has been even better than last year, so my impression is that we are lucky enough to have entered the MBA and the summer recruiting season at a time when investment banks are competing hard to hire MBAs.

Why do I get this impression?
- First, what usually seems to interest most on the business week forum, what I would call the "Goldman Sachs Index" :-). Basically, their core school is Harvard and I believe if they could they would like to hire as many people as possible from Harvard and fill up the rest with Wharton students. When hiring is down, they will focus on their absolute core schools. But when they want to hire more, they will obviously expand their search and look at "lesser schools" such as Columbia, Chicago, London Business School etc. as well. This year, it seems they have made a record number of offers to our class. I don't actually know the number because I only know of those I know personally, so I only know they minimum number, but I know of at least 9 offers (across M&A, Trading and Private Wealth Management). Taking into account our class size, this would be similar to ~25 offers at INSEAD or Harvard. So it's not a bad start

- Secondly, you may have guessed, I could mention the Morgan Stanley index ;-). Morgan Stanley has always been happy to hire from London Business School, but they are also very prestigious if not to say elitist, so I think they have always been quite picky and only taken a handful of people whom they could not say no to. Well this year it has been quite different, I think they extended at least 10 offers in M&A as well as Sales & Trading that I know of, so again taking into account our class size, this is a considerable number. You can see that around 8-10% of our class will spend the summer at either Goldman or Morgan Stanley, which is not bad considering that only 40% aspire to work in finance

- Regarding the other investment banks, some of them have actually made a record number of offers this year. Deutsche has extended more than 15 offers and Lehman I believe almost 20 offers. Barclays must have extended at least 20 offers, because I know 5 in my stream alone who are joining Barclays Capital, then I know two others with offers from Barclays Global Investors, so my estimate of 20 offers is likely to be conservative. Then you have many other banks, such as Merrill, HSBC, JP Morgan, Credit Suisse, UBS etc. which have probably all extended around 5 offers each if not more

- Low yield: this is another indicator of how well it is going. I know some banks extended a lot of offers but won't actually get that many summer interns from our school because these people had too many other attractive offers. I know of one very good ibank that gave 7 offers for M&A jobs and only one guy took it

- The buy side: this is an area where our school can definitely improve compared to Harvard or Wharton. But I think we did quite well this year, and hopefully we can strengthen this area little by little. The Investment Management Club has definitely done a great job in marketing our class to investment management firms and hedge funds and it seems to have paid off. Fidelity, PIMCO and Capital Group have made several offers, as well as UBS Asset Management, T Rowe Price, and several smaller hedge funds and other buy side firms. There even seem to be quite a decent group of people going to private equity. I know there is someone going to Bridgepoint Capital, and someone else going to Actis Capital, which is big in PE investment in Africa and India. I can't say exactly, but I would think that about 20 of us are going to work in investment on the buy side

So where does this leave us? My impression is that of the 40% of us who came here with the aspiration of going into finance, about 15% are going into actual investment banking, about 10-15% into Sales & Trading/Markets, about 5-10% into Investment Management and about 5% into Private Wealth Management. So my impression is that those who came here with a clear idea of what they wanted to do, we have been lucky to enter an friendly environment, even though as I mentioned earlier the whole recruiting process did turn out to be more competitive than I had expected. At least, things look bright in the world economy, and I think the class of 2009 will encounter equally benign conditions next year.

Looking back on 2 years with McKinsey

I've added tags to almost all of my posts now to make it easier for readers to browse my posts by subject. Just now, I browsed through all my posts about my time at McKinsey before coming to London Business School. It was beautiful to look back and think about what a crazy and enriching experience it has been, and also to think about all the friends I made there. I also think most of the things I am enjoying and looking forward to now are thanks to my time there - the benefits I earned through hard work, the brand name, the trainings, the coaching by Managers and Partners - in a way I can engage on a new path now and the path is much more rosy thanks to the effort I put in there. I was remembering what our global head Ian Davis said at one training:

"Being successful at McKinsey doesn't mean making partner. Being successful means that whenever you look back on your time with McKinsey later in life, you think it was the right thing to do at that moment of my life and I'm glad I did it"

But reading through these posts, you will also understand how different my life is now. I play tennis in the sun almost every day, I play football with the women's team, I go to Richmond Park, Hyde Park, Regent's Park a lot, I am planning lots and lots of holidays around the world, I enjoy trying out new restaurants, I sleep a lot, I have new friends from all over the world ... this definitely beats working 17h days!

Weirdest questions from hedge fund and ibanking interviews

I have one final round interview to go tomorrow morning in the City, but am pretty relaxed since I already have two offers :-), so I feel like the recruiting is over and can safely share some of the funniest interview questions I got.

HEDGE FUND
I already shared my favourite brainteaser from a hedge fund interview. Overall I found the hedge funds much more innovative in asking questions, while the banks ask the typical brainteasers that everybody who has prepared a little bit already knows (can you believe I was asked "why are manhole covers round?"!!!). My next favourite question, also at a hedge fund was:

- "I have to ask you... do you like money?"
I looked the guy straight in the eye and said
- "yes, of course I like money".

He sighed in relief "that's good, because in the end this is all about making money, and if you care more about the details of the company than about the money, this is not the place. You look at a company, you buy, two weeks later you sell, you move on."
The question was tricky because every vault guide says in ibanking interviews you should never admit to being interested in money - you are supposed to care more about client service, industry trends etc.. Luckily I went with my intuition and turned out to be right.

The other interesting question from the hedge fund interviews were
- "okay, I have seen your CV, tell me about yourself but without mentioning anything on your CV, tell me who you are beyond your CV"

BANKING
The banking questions were more mainstream in a way but nevertheless there were quite challenging or at least interesting ones

- "Imagine you have a client who tells you he always only decides based on price. If you quote him the lowest price, he will do business with you, if not, he will take his business somewhere else. What would you do?"

- "We have invited 15 of your classmates for the final round. Why should we take you and not your classmates?"

- "Tell me about a time in your work when you really felt the power of a team and what a team can achieve" (I thought this was a much nicer question than "tell me about a time when you worked in a team...")

- "What do you think is the next big investment opportunity in the markets that can offer spectacular returns?"

All the other questions were pretty standard I believe -
- why do you want to do this?
- why do you want to leave consulting?
- draw me the US yield curve.
- How do you calculate forward rates?
- where do you think interest rates are going?
- where's gold?
- what do you think determines the oil price
- what's happening in Venezuela?
and so on, just checking awareness of the markets

Overall, I enjoyed most of the interviews since they were challenging, but I am very happy it is over we don't need to answer such questions any more :-).

By the way, for those preparing for sales & trading, global markets or hedge fund interviews, I found the following books helpful to get an overview of the industry and also to learn about derivatives - even for the summer positions they do ask a lot about options and it really helps to understand their background:
Inventing Money: Long-term Capital Management and the Search for Risk-free Profits
This is a great book to learn about derivatives and the story of the brains behind the derivatives industry, as well as the pitfalls of relying on formulas to invest billions.

Hedgehogging (Penton Audio)
This is more of a fun read from the founder of hedge fund Traxis Partners, Barton Biggs. It gives a great insight into the more long-term macro-level thinking that characterizes successful investors.

Practical Speculation
Another great book on investing by former George Soros partner, Victor Niederhoffer. He writes about interesting myths and tricks in investing and about market psychology. It's good to read some of these broader books in case you are asked what kind of things you have read on investing or how you would invest your money, as these books give you some creative ideas on how to think about investing money.

First job offer

Yes, it seems like nothing can stand in the way of my transition to the finance world in London any more. After a long detour, it seems like my dream of working in Sales & Trading will come true. More details later. All I can say is that it has been much tougher than I thought. Along the way, I had some rejections based on the fact that the interviewers didn't believe I was really committed to a career change. But finally, somebody saw that I actually do want to work in investment banking rather than in consulting.

Now the challenge will be finding a great desk to work with, which will be exciting. In any case I am so happy this is over. These past weeks were really tough. They shortlist 40 people, and in the end they take 5 and reject some great candidates for reasons such as "you spoke a bit fast in the interview and some of your answers were too long" (true story!!!). Another great one I heard today was someone who was told after M&A interviews that his accounting knowledge was too weak, when the guy had worked as a tax accountant for 6 years prior to the MBA! You choose which explanation is more ridiculous, in any case they came from the same bank :-). It's very hard, and there are less people with offers than I expected, especially in markets. In IBD there are some offers but also less than expected. Probably, I can give a better picture next week when most things are decided, right now is really the first days of offers.

I wish everyone out there good luck! Hang in there and don't be discouraged by weird rejections, in the end it will work out.

One thing I have been impressed by throughout the whole process is how great the second years at London Business School are! They have been incredibly helpful sharing advice about interviewing, conducting mock interviews, calming us down, hosting workshops on brainteasers and excel valuations. I don't know how it is at other schools but I have great gratitude to the 2nd years and I hope I can be of equal help to the class of 2009 next year! Special thanks to fellow blogger King Myles from the Finance Club!

Summer job interviewing craze

The summer job interviewing craze has started! It is a very exciting time, but many people are tired by the end of the week. Juggling 5 interviews, classes, phone calls, preparing, researching the markets, waiting for calls for final rounds, constant questions of "have you heard from Goldman yet?" is not easy!

Today I decided to just sleep till 11am just to get back into form. Then I had 3 interviews. The good part is that at least the investment banks seem crazy about hiring. Some people got offers right on Monday already! They basically walked into their 1st round interviews, and suddenly received offers at the end of the day. I interviewed with one bank on Tuesday which called us for the final round already tomorrow (Friday). It seems each bank wants to be first in extending offers.

In addition, it seems that some companies who are nor corporate partners (i.e. who do not get the privilege of being the first to interview on campus) suddenly realize lots of candidates will sign offers within the next week and start scheduling off-campus interviews. For months I did not get any calls and this week and last week 4 different companies called me to come in for interviews this or next week. You just can't do it, at least if you also want to attend classes like me! Right now I'm focusing on Fixed Income Sales & Trading though and hope that works out for the summer! Things are moving very fast here so next week I'll know more!

In any case it is a very exciting but also very intense time, and you have some exhausted people, some disappointed people and some happy people. I was going to post about interview questions, but the truth is the interviews are 80% fit I would say, all they really want to know is if you've thought about what you want to do.

First week of summer recruiting almost over

What a week. It isn't easy to get up so early anymore. The female MBAs were particularly hard hit since the Women in Business Club organised daily breakfasts with investment banks for us starting at 8:30, while the guys only had to come in by 10. But I'm not complaining, it was very nice to meet the representatives in a relaxed and personal setting, since the mixed recruiting presentations are crazy. There can be up to 200 people trying to speak to 5-10 representatives, and often they don't have any representatives of the departments some are interested in.

Overall I met some very nice people though and think I have formed a very good view of where to apply and where not to apply. I was very positively surprised by Merrill Lynch and Bank of America, they were extremely approachable, down to earth and friendly. Apart from that, the investment bank that made a great impression was Morgan Stanley, they were very friendly and professional. Lehman is tomorrow and knowing them I'm sure they'll bring along many alumni.

But today was consulting day, I skipped all the presentations and enjoyed my time in the gym and in my bed :-), but of course I went to the McKinsey presentation in the evening. Though I may not be the most objective person in the world on this matter, I think they had the best presentation of all companies so far. They brought many consultants from the London Office, the BTO, the Corporate Finance Practice (all of them LBS alumni), and invited all of the students from the classes of 2007 and 2008 who worked or interned there before. Then they even had a director from the London office who heads the Private Equity practice as a speaker. I was watching the event to see how I would like it if I was an uninformed student and I think I would have liked it a lot and I would have thought it is the best company to work for :-). I hope many of my class get to intern there.

I'm also collecting a bit of information about Private Equity and Hedge Funds on the side. I'm not actively looking for anything there, but I thought it makes sense to have good information about it. The funny thing is that here everybody tells you "you can only get into PE through networking", and I have just been told by a Permira guy I know that this is complete bullshit (his words). Maybe it's true for the small funds in London, but he said hiring works almost exclusively through headhunters, but that if they're hiring, direct speculative applications can work as well. So I've made up my mind that it is better to listen to someone who has been working at Permira for 5 years than business school students. I'm not looking into PE though, because I don't think it solves the consulting problem of travel and I think it makes more sense to do it with a lot of business experience, otherwise you just end up being a normal hard working Associate doing the same job one would do in an ibank.

Next week a very high profile speaker is coming to campus - Ana Botin from Banesto/Grupo Santander! I think she was voted Europe's most powerful businesswoman by the FT and I have signed up to go to the event. Things are going to be crazy next week, classes will start again and everybody is busy writing cover letters, preparing interviews or networking. No idea how this will work! But it definitely is an exciting time.

One resource for those preparing for finance interviews that might be helpful:
McKinsey on Finance special M&A issue

Good luck everyone! I think I won't post as much these days as I don't want to talk about what is happening until I know for sure what is happening, but some exciting things are going on and I am slowly but surely seeing how great my decision to come to London Business School was :-).

Good time to get into investment banking?

I'm not sure how to interpret the record bonuses paid out to investment bankers these weeks. Most journalists, and also quite a few investment bankers I've talked to, take the way things are going well now as proof that things will go badly very soon. I don't know if this is a realistic assessment though. What I observe is that most financial journalists are embarassed they didn't see the tech bubble bust coming in 2000, and now they are predicting a crash just in case one happens - this time they will have predicted it! The only indication I have so far from the ground that things might not go so well is that Bear Stearns has decided not to recruit Summer Associates next summer and has canceled their career presentation at London Business School on short notice. I don't know what the reasons are. I know Goldman plans to hire ~40 summer associates for their London office (IBD and FICC) next summer, so those numbers look good.

So I actually think so many people predict a crash right now mainly to insure themselves against embarassment should a crash occur. In fact, I think we might have plateaued a bit but soon things are going to rise even faster. I think the record bonuses may be a symptom of something very different, not a bubble, but a symptom of how the spread between the stars and the "underperformers" is getting bigger. I'm not talking about investment bankers strictly, it is a common phenomenon that the highest earners in most countries see their income growing disproportionately, while the bottom earners are losing purchasing power as time goes by. Capital is getting more and more concentrated in fewer hands. So in essence, if this is true, it is a great time to become an investment banker. If the world is more and more split into the lucky and the unlucky ones, it matters more and more which side you join.

These are just some thoughts I'm going through, I'm still alert that many insiders are telling me this is not a good time to enter, but in the end I notice among all courses at the MBA and in general my strongest interest lies in finance and economics, so I want to go into that field. As I mentioned in my last post, I have to take some serious career decisions right now. Luckily since classes are over I had a lot of time to think and reflect. The funny thing is, after 4 months of going here and there mentally, I am back to where I started: I definitely want to leave consulting, and the only field that excites me is Global Markets/ Sales & Trading. It is funny how you can get confused and end up at square 1 again, but I guess at least now the decision is more thought through than in the beginning. So milkround is coming up and my plan is to focus only one 4 or 5 banks that have a great programme in markets. January will be busy!