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
  

Teaching yourself programming for financial modeling

In preparation for my trading (or structuring) job, I have decided to finally learn programming. In case there are people out there also considering to learn programming for financial modeling, I have started a separate blog

C++ for financial modeling

I intend to keep it as a sort of diary to document how to teach oneself programming, and to discuss the roadblocks on the way. I have wanted to learn programming for a long time and have realized that the main reason I never did it was lack of self confidence and doubts about lots of things. I think I have finally overcome these doubts and hope I can encourage others who have been shy or hesitant about learning programming. My main learning from today is that it is really nothing mysterious once you get started, so I cannot believe it has taken me so many years to get started. But I will keep all this in a separate blog, since it is of no interest to most of my readers.

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)

Thoughts for the new year

I have not been writing much recently, but that does not mean I am not thinking :-). I have mentioned before that the key switch in my thinking over the last year has been that I do not see myself as an employee anymore, and I do not care about finding the perfect company or the perfect job that someone gives me to make me happy. It is a combination of thinking more and more like a shareholder or entrepreneur during the MBA and of reading the book "Rich Dad, Poor Dad" several times over the last year, which has influenced me a lot. As a result, I see a job as something I do for a considerable amount of time of my day for different reasons, mainly to acquire skills and experience that will help me become independent in the financial and personal sense. From this perspective, looking for a job is a very different task than how I understood finding the perfect job only one year ago.

Looking back one year, I cannot believe how my thinking has changed. One year ago, I was still unsure if I should quit my consulting job - a job that made me unhappy and miserable 90% of the time I spent there and that today I would not consider going back to even for a week! I was asking myself every day what to do with my life, a question so vague and all encompassing that answering it was beyond my horizon. I was stuck in the belief that I would never be rich, since I hadn't been born rich, and that the world in general and work places in particular were unfair.

Today, I see everything very differently, and I hope that this stays that way - I have a little fear that my free mind does not only stem from the comforts of happy student life - everybody has heard the complaint about MBAs who graduate thinking they should go into companies at least as CEOs and really know nothing, and partly that's true, so I don't want to fall into the trap of being one of thousands of megalomaniac spoilt MBAs. But what I can say is that I absolutely recongnize that I know something between nothing and 5% of what I need to know for future jobs, and I'm very happy about this fact, because work is more interesting when you learn something new, and the less you know about a job the more interesting it is.

With all this in mind, I am very excited about the next year. I have half a year of student life ahead of me, and of intense learning. I have six electives left, all of which are either in finance or related subjects:
- Times Series Analysis for Forecasting
- Fixed Income Securities
- Financing the Entrepreneurial Business
- Credit Risk
- International Finance
- Advanced Financial Analysis

For those who think this is overly technical (I have decided to miss out on courses like Negotiation & Bargaining or Creativity and Personal Mastery or Brand Management...), I must say that I have spent all my undergraduate and postgraduate education in psychology and political sciences, and that as much as I enjoy the literary side of life, if I pursue it I like to pursue it properly, not at an MBA level, which is quite superficial, so for now I have noticed I get much more out of technical subjects. Last term I have done the same, and probably unlike 95% of the class, the course I have enjoyed the most has been Options & Futures. I have enjoyed setting up Excel files to do options pricing and hedging, and being honest about what I enjoy, no matter how geeky it sounds, has been very helpful for me to be happier and clearer about what I want to do. Apart from learning, I will also travel a lot over the next six months and enjoy the freedom of student life.

The second six months I will be trained for my new job - first on classroom training in New York, and then in severla rotations through trading desks in London. I am very excited about this as well, and can't wait to find out which desk I will be working on full-time, but luckily the wait will be easy because student life is sweet.

Obviously then, I am looking forward to the next year, and I wish my readers all the best for the new year, may your dreams come true!

Santa Claus pub crawl in Soho

Leaving our beautiful school on Park Road









Causing surprise at Baker Street tube station









Taking over Piccadilly Circus








Ready to party!!!!