Why is now a good time to go into investment banking

Posted by askivy on January 30, 2010 under Uncategorized |

As you start thinking about your career options, you may be asking yourself whether now a really a good time to go into investment banking. People often tell me that the good days are gone, and with the new taxes and regulations, banking will not be attractive as a career option anymore.

Well, in my opinion, there has never been a better time to go into the industry. My logic is as follows:

1) Investment banking remains and will still remain one of the best training platform for young graduates.

There is no other place that can provide you with such level of technical and financial training at such a junior level. The high-pressure high-responsability environment will give you a unique exposure that is almost impossible to get at any other job. In fact, it is very common to see analysts spending some time learning the ropes in the M&A department of a big investment banking before going back to the family business. In the US, Investment Bank Goldman Sachs is so influencial and sends so many of its alumni into high government jobs that the bank if often called “Government Sachs”

2) Investment banking is cyclical!.

People tend to forget that good times come and go, but bad times also come and go. People also tend to be over-optimistic in good times, and over-pessimistic in bad times. I believe that there is now over-pessimism in the industry, and that now is the perfect time to ride the next economic expansion wave. The graph below is quite interesting and shows how cyclicality the industry is: it plots the number of Wharton students going into Investment Banking against the S&P500 index. Nothing new you might say, economy is bad so they hire less. But the number of Wharton students is fixed (at about 800) so more people in investment banking means less entrepreneurs, consultants or people in the industry. That means that at the peak times, banking becomes really popular. I actually have a theory on this - if the porportion of the MBA class going to Banking is over 25%, sell your stocks, find another career, the economy is about to crash!! If it is less than 20%, BUY, go for a banking job! What was it last year? 17.5%, an all time low.

3) Finally, competition is now less intense.

People got fired, left the industry, went back to their home countries, graduates have chosen to study other disciplines than business or finance, and banking jobs are becoming less popular due to the current “negative perception” that surrounds the industry. This means that the industry will quickly be short of junior people, which will translate in higher demand, more opportunties, and ultimately higher bonuses.