What is a career in banking?
When you hear someone say they “work on Wall Street,” they are mainly referencing a financial career in an investment bank and its demanding, fast-paced nature. An investment bank provides financial services to help companies access capital markets to raise equity/debt, issue bonds, or undertake an initial public offering (IPO). We mainly attribute these positions to be in those such as investment banking, sales & trading, and equity/credit research. However, to understand what a banking career entails, we should first break down the broader financial industry…
The financial industry is made up of two indispensable functions: the sell-side vs. the buy-side. The sell-side creates, promotes, and sells financial products in the public market and mostly consists of market makers such as banks, advisories, and corporations. The buy-side buys and invests these financial products and mostly consists of money managers in institutions such as asset managers, pension funds, and hedge funds. Both functions work seamlessly together to enable market mechanics, with many desirable and transferable skill sets utilized on both sides.
There are three primary divisions that aid the larger goals of an investment bank. It is important to note that there are a variety of lucrative front, middle, and back-office positions including compliance, accounting, technology, risk management, etc., and are not limited to the below.
- Investment Banking: Investment bankers help to advise companies in capital markets on mergers and acquisitions (M&A), underwriting, restructuring capabilities, and raising capital. There are various products and industry groups that one can specialize in, enabling access to work on many deal types along with specific industries and companies.
- Sales & Trading: Sales and traders help institutional investor clients buy and sell securities, often maintaining/developing relationships, monitoring quarterly earnings and M&A activity, communicating security information, and serves an important function in selling shares for an IPO. This division is mainly divided into equity and fixed income to handle various orders across asset classes.
- Equity/Credit Research: Equity and credit researchers support investment banking and sales & trading functions by conducting financial analysis to provide investment recommendations. Researchers are divided into industry sectors to conduct greater in-depth analysis reports and coverage. While an equity researcher deals with analyzing growth potential of stocks, a credit researcher focuses on a company’s capital structure and liquidity positioning to repay its debt.
What are the different industry/ product groups? What are the different asset classes?
An industry group covers a group of companies based on common business characteristics, allowing analysts to specialize in industries such as: Technology Media & Telecommunication (TMT), Financial Institutions Group (FIG), Energy & Utilities, Natural Resources, Healthcare, Industrials, Real Estate (REITS), and Consumer & Retail.
A product group spans across transactions, allowing analysts to have more specific product knowledge in: Merger & Acquisition transactions (M&A), Leverage Buyouts (LBO), and Restructuring/Bankruptcies.
Asset classes are groups of financial instruments that are similar in risk and market characteristics mainly divided by equities, fixed income/bonds, currency, commodities, emerging markets, and real estate.
How can I be successful in this industry?
So, what does it take to be successful in the banking industry? No one is all-knowledgeable because the market and economy is such a comprehensive concept to understand, but there are some basic steps we can all take to get there:
- Keeping up with the market: Read the Wall Street Journal, Bloomberg, MarketWatch, Financial Times, Seeking Alpha, etc. to get a feel for current financial events (investor outlooks, fiscal/monetary policy, inflation). If you’re a podcast person instead, listen to The Daily, The Journal, Marketplace – there are so many different options to get started and understand what’s going on in the markets!
- Basic accounting knowledge: Know your in-and-outs of the financial statements, how they’re connected, how one change affects all 3 statements, interpreting financial ratios, EBITDA, and understanding working capital! This will be important in looking into the financial health of a company and making growth projections when creating investment recommendations.
- Conducting investment/company research: Understanding financial statements will also help you in researching specific companies earning reports! It is important to be able to look into specific industries and companies in-depth to identify trends and patterns that may help with your quantitative and qualitative analysis.
- Financial modeling: With all the above, you are one-step closer to creating more accurate financial models for analyzing companies. Assumptions are the most critical part of models as they are based on business and market conditions and drive the output of the model! The three main ways to value a company include discounted cash flow, comparable company analysis (multiples method), and the precedent transactions analysis. Each method has its own flaws and benefits under different market conditions, company cash flows, and assumptions.
What does Investment Fund at TAMID look like?
Are you interested in finance and potentially pursuing a career in banking and/or investments? TAMID at Northeastern offers the perfect opportunity to explore this field through our Investment Fund track. Through our actively managed, student run investment portfolio, you can conduct real investment research, equity analysis, and valuation to create tailored recommendations to help meet portfolio objectives. With sector-specific teams overseen by lead analysts, analysts can interact with multiple industries and companies throughout the semester to build comprehensive stock pitches.
If you’re just starting out in your finance career or looking to learn more about finance, you can also choose to participate in our Investment Fund Concepts educational course that introduces basic concepts in accounting, equity analysis, financial modeling and portfolio management. This will help prepare you for the Investment Fund track, equipping you with the basic finance knowledge to be successful throughout your experience in the fund. Members will also have the opportunity to compete in a cohort-specific trading simulation on MarketWatch to refine their investment techniques and maintain a personal portfolio. In partnership with the national TAMID organization, groups will also have the chance to participate in a national stock pitch competition.
TAMID recruits in both the fall and spring semesters, and provides the ability to partake in the Investment Fund Concepts course all-year round. Whether through Investment Fund or Investment Fund Concepts, you can explore a variety of industries, gain knowledge of the financial markets, and hone your technical skills while giving you greater exposure to the world of capital markets. By conducting quantitative and qualitative analysis, you will build skill sets transferrable to your classes, investment techniques, and co-op to pave your future career path. Not only will you emerge with a greater understanding of finance, but as a growing professional and investor equipped with the skills necessary to jumpstart your career in finance. As an interdisciplinary community, we welcome a diversity of experiences and knowledge to help craft innovative business strategies and learn more about TAMID!