So far, we’ve talked a lot about multiples: You’ve mentioned EBITDA
multiples in your discussion of the analysis you did at Morgan Stanley,
you’ve talked about P/E multiples in your analysis of a common stock. I
wondered if you could tell me what a multiple really is—to say that a
company is trading at “8x.” How would I make sense of that? How is that
meaningful to you? What does it tell you about the company?
One surefire way to separate the recruiting wheat from the chaff is to ask a candidate to take a
step back and translate technical lingo into good old-fashioned English. Our recruiting insiders
report that they’re often staggered by the number of candidates who expect that their deft use of
financial terminology will itself win them the job. Particularly among MBA candidates,
questions often enable interviewers to distinguish those who simply interview well from those who
are intellectually challenged by (and interested in) financial analysis.
Bad Answer
Candidate: Well, EBITDA multiples are more widely used in some industries,
and P/E multiples are more prevalent in others. They’re both pretty subjective,
and sometimes it just comes down to whether the research analysts who cover
the sector use one or the other as their primary metric. But if someone’s trading
at “8x,” it just means the total enterprise value of the company is eight
times its EBITDA, obviously. I think in general, 8x EBITDA is pretty cheap.
There are plenty of companies with P/Es of 20x or 30x or more—think about
the valuations during the Internet boom.
This answer misses the point. Valuation is all relative, and you need to understand what information
is being conveyed by a given multiple. Again, this is a quantitative question—don’t answer
with a qualitative allusion to research analysts and their ability to move markets with their
insight. The notion that some industries focus on EBITDA multiples and others on P/E is also
naïve—theoretically, the markets have good reasons for focusing on one metric or the other. If
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anything, you should look at both the EBITDA multiple and the P/E multiple together when
comparing the valuations of two businesses. This process will tell you more than either one in
isolation. In any case, there is no way you can make a blanket statement that “8x” represents a
low valuation. It may or may not, depending on the company and industry in question.
Mediocre Answer
Candidate: Well, if a company is trading at 8x EBITDA (for example), you
would want to look at where other similar companies trade to figure out which
companies are better-liked by the markets. Also, you might figure out whether
8x constitutes a higher or lower multiple than where this company has traded
over time. It might be that at 8x EBITDA, a company is undervalued because it
normally trades at over 10x EBITDA, which would represent a buying opportunity.
In terms of EBITDA versus P/E multiples, P/E tends to be used more
for companies that actually have net income. In some industries, particularly
younger or growing sectors like technology, companies are still losing money
and so P/E multiples aren’t relevant or meaningful. In that case, you’d want to
look at cash flow and thus EBITDA multiples would be the best metric.
This is a better answer, in that it points out that multiples only provide information on a
relative basis. Where is a company trading today versus yesterday? Where does it trade
relative to its peers? Multiples are useful in assessing relative—as opposed to absolute—value.
The candidate’s point about P/E multiples, however, leaves a little bit to be desired. It’s all
well and good to point out that if you have no earnings (the “E” in P/E), then it’s no use
looking at P/E multiples. However, there are some critical distinctions between EBITDA
and P/E multiples for those companies who do have positive earnings. Most importantly, two
businesses in an industry with the same EBITDA might have different earnings because one
has more debt and thus pays more interest expense. Taking on more debt is a financing
decision, not an operating decision, and so the fact that the companies’ bottom-line earnings
differ doesn’t necessarily imply that one business is performing better or generating more real
operating profit than the other.
Finding Your Way
Good Answer
Candidate: Fundamentally, a multiple is an indication of how an investor (or a
market) values the earning potential of a given enterprise. Mathematically, it’s a
ratio of a valuation metric (such as market capitalization or the purchase price
in an acquisition) divided by financial performance, whether measured by sales,
EBITDA, free cash flow, or net income. So breaking it down even further, the
ratio tells you that for every dollar of, say, earnings, an investor (or the public
markets) has assigned a particular value to that dollar of earnings.
Interviewer: That’s a good starting point, but what does that number tell you?
How do I make sense of that?
Candidate: In isolation, the multiple tells you very little. The multiple is most
useful when you are comparing the value of the company in question with the
value of similar businesses. As I mentioned earlier, a multiple gives you the
number of dollars an investor (or a public market, which is just a collection of
investors) would pay for a given unit of financial performance, however you’ve
chosen to define it. So when you compare two similar businesses in the same
industry, and one—we’ll call it Company A—trades for 10x earnings and the
other—Company B— trades for only 8x earnings, this tells you that the market
for whatever reason values each dollar of Company A’s earnings more than
Company B’s.
Interviewer: Okay, this is a good start, but to make it easier, why don’t we
discuss two specific companies rather than two hypothetical enterprises? Let’s
compare Lowe’s and Home Depot. These are both public companies, and they
operate in the same competitive space. However, Home Depot trades at 9x
EBITDA, and Lowe’s trades at 11x EBITDA. What does this tell you about
Lowe’s versus Home Depot?
Candidate: It tells you that the market values each dollar of Lowe’s earnings
more than Home Depot’s.
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Interviewer: Right—but we covered that when we talked about Company A
versus Company B. My question is why? Why might the market assign two
different values for these specific companies’ earnings, when they’re in the same
exact industry?
Candidate: Well, it should tell you something about the quality of those
earnings. The market may believe that Lowe’s is better positioned to grow its
earnings than Home Depot, or perhaps it believes that Lowe’s earnings are
likely to be less volatile or more predictable for some reason. In general, the
market will be willing to pay more for each dollar of a company’s earnings if it
believes that those earnings have either more growth potential or more stability
than those of its competitors.
Interviewer: So given that the markets value Lowe’s more highly today, which
stock represents the better buy? In other words, which would you choose if you
could buy either one?
Candidate: Wow, that’s a tough one. After all, if you believe in efficient
markets, then you would say both companies are valued fairly. In other words,
Lowe’s may be more expensive today, valued at 11x last year’s EBITDA, vs.
Home Depot at 9x last year’s EBITDA, but if both businesses grow as expected,
then today’s valuation might be exactly the same for both companies—as a
multiple of future EBITDA. So I don’t think the multiple differential today
necessarily tells you which company is a better value today.
But, if I had to answer your question, given that both companies are in the
same business fundamentally, I would question whether Lowe’s really will grow
measurably faster than Home Depot. In any event, that growth is completely
“on the come,” whereas last year’s (trailing) EBITDA is in the bag. I think
Home Depot is the market leader, and is a better value on actual trailing
EBITDA today, so I would probably go with them.
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The conclusion above is thoughtful and defensible, but the candidate could just have easily
defended selecting Lowe’s. You might conclude that Lowe’s is still building new stores and
expanding nationwide, and that you’d rather back a growing business, whereas a more mature
number-one player like Home Depot that already has stores everywhere might have a tougher
time finding ways to increase profits. If you really believe in efficient markets, there’s no right
answer to the question of which company is the better buy. The point is, have good reasons for
your point of view, and at a minimum, make sure to have a point of view!
Interviewer: But why EBITDA multiples? Is that the right metric for this
industry?
Candidate: Well, in this case I think it’s a safe bet that both businesses have
similar capital expenditure and working capital requirements, so EBITDA is
probably a fair back-of-the-envelope metric for comparing operating cash flow.
I don’t know whether one company has more debt (and thus more interest
expense) than the other, so I don’t know whether the P/E multiples are truly
comparable.
Interviewer: Can you think of a hypothetical scenario where EBITDA
wouldn’t be a good valuation metric for comparing two businesses in the same
industry?
Candidate: One example comes to mind. When I worked at Morgan Stanley, I
completed a comparable transaction analysis involving acquisitions in the food
industry. Two similarly sized companies that were equally profitable had been
purchased for 5x EBITDA. If you relied only on the EBITDA multiples, you’d
conclude that the two buyers paid similar purchase prices: after all, same
EBITDA, same purchase price multiple, same industry. But in this case, EBITDA
was misleading and not at all equivalent to cash flow. These were both food
companies, but one manufactured chilled dairy products—primarily milk and
ice cream—while the other company manufactured shelf-stable, canned foods.
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The first company required much higher annual capital expenditures because
chilled dairy products require more expensive equipment for their storage and
transportation. The canned food company had much lower capex because its
products could sit on a truck or in a warehouse for an eternity without spoiling.
The significant difference in capex wasn’t reflected in the EBITDA multiple.
Therefore, the buyer of the chilled dairy business paid a significantly higher
price than the buyer of the ambient food business, even though the EBITDA
multiples were the same.
It should be clear that this candidate clearly gets it. Multiples can be deceptive, and should not
be viewed in isolation, but they can provide a wealth of information about how the markets
value a business, and why. The key in the interview is to keep it quantitative—after all, a
multiple is a fraction!
Showing posts with label job interview. Show all posts
Showing posts with label job interview. Show all posts
Saturday, June 23, 2007
If you had $10,000 to invest ? Which stock ?
If you had $10,000 to invest—but you had to invest the money in a single
common stock—which company’s stock would you choose, and why?
While equity research analysts and equity sales professionals recommend specific stocks on a
daily basis, professionals in other areas of the bank—including corporate finance and
M&A—do not. Nonetheless, recruiters report that this question helps them evaluate
candidates on a number of criteria: the candidate’s general level of interest in the financial
markets, grasp of basic valuation concepts, and ability to speak intelligently on fundamental
investing principles. MBA associate candidates in particular will be expected to have a pretty
good answer for this question.
Bad Answers
Candidate 1: Probably Microsoft—they’re just completely dominant. Can you
seriously imagine every business in the country switching to a new operating
system? Bill Gates is the richest man in the world for a reason: huge barriers to
entry. The company has a complete monopoly on software that no one could
ever hope to replicate. They totally don’t seem to be hurt by all of the lawsuits
either, and in any case they have something like $100 billion in cash on the
books for a rainy day. I wish I had gotten in on that company from the
beginning.
It’s not necessarily the company you choose, but the rationale and detail that substantiate your
answer. In this case, Microsoft may be a perfectly legitimate investment choice, but the
candidate’s reasoning is almost wholly qualitative, and general and anecdotal at that. This
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candidate doesn’t know the first thing about how Microsoft is valued today, and this will be
painfully obvious to the interviewer.
Candidate 2: I would never invest $10,000 in a single common stock today.
Maybe someday, when I’m a managing director at this firm and I have $10,000
to just throw around, maybe then I would. The key to successful investing is
diversification! I would take the $10,000 and invest in a collection of mutual
funds—you can’t put all of your eggs in one basket. Right now, I don’t have the
time to do the research necessary to get comfortable with just one stock.
This candidate takes the approach of candor. She demonstrates that she understands a bit
about personal investing and isn’t a gambler. While diversification is an important investing
principle, this candidate has chosen the wrong opportunity to demonstrate her mastery of the
concept. Though you may certainly acknowledge that single-stock investing may not be your
preferred strategy, don’t evade the question that the interviewer asks. You can always lead with
this, but then answer the question.
Good Answer
Candidate: Well, I must admit that I don’t have a lot of practice choosing
single stocks to invest in. I’m still a novice investor, and so far, I’ve stuck with a
diversified portfolio of mutual funds that limit my risk exposure and provide a
decent return. But if I were fortunate enough to have $10,000 to invest in one
company, I would choose Target Corporation.
Here, the candidate takes a moment to acknowledge that single-stock investing is not an area
of expertise for the everyday investor. But by mentioning his own investing experience, he
demonstrates a basic level of interest in (and experience with) the fundamentals of investing
and the tradeoff between risk and return. He also offers an answer at the very beginning,
providing the interviewer an opportunity to shape the dialogue.
Interviewer: Fine. Why Target?
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Candidate: Well, you hear a lot about Wal-Mart, and it is a great company. But
as I see it, Target has largely the same business model but comes at a lower
valuation. But let’s start at the beginning: First thing’s first, I like the business. I
believe Wal-Mart and Target will continue to succeed because they offer the
customer a significant price savings on both everyday goods and smaller-ticket
consumer luxuries. I think specialty, niche retailers may be able to succeed selling
at a higher price point, but for the basics, I think the customer will continue to
gravitate toward the savings. Wal-Mart and Target have a sustainable competitive
advantage over smaller retailers and grocers through sheer scale; they’re able to
procure their inventory at a significant discount to competitors and can pass
much of this directly onto the consumer. This will translate into earnings growth
potential; I see the existing stores gaining market share and new stores opening
up across the country—and perhaps internationally, although I’m not that close to
their business model.
Interviewer: Let’s say that your assumptions about growth prospects are fairly
accurate. You mentioned valuation—how do you put a value on that growth?
Candidate: Well, first I would look at where Target trades today, relative to
Wal-Mart as well as the market as a whole. Target’s trading at 20x trailing
earnings today versus Wal-Mart at 24x. So on actual, “in the bag” earnings,
Target trades at more than a 15 percent discount to Wal-Mart today. But getting
back to growth, and looking forward, Target’s trading at 16x forward earnings,
versus Wal-Mart at 19x to 20x forward earnings—again, at a 20 percent
discount. Moreover, Target is actually projected to grow faster than Wal-Mart: 15
percent annual growth over the next 5 years, versus 14 percent for Wal-Mart
and 10 to 11 percent for the S&P 500. So when you asked about valuing
growth, you can look at the P/E multiples relative to the growth rate—the
PEG ratio—and see that Target’s trading at just over 1x its expected growth
rate, versus Wal-Mart at 1.4x and the S&P at 1.6x. So, for that money, you’re
getting growth at a good price.
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Interviewer: Warren Buffett has made a career of that. What else would you
consider before investing your money, other than the price/earnings multiple
and the growth rate, and the basic company strategy?
Candidate: Well, I would look at the company’s management.
Interviewer: What about management? As a small investor, how can you
accurately assess whether Target’s management is effective?
Candidate: Well, one measure would be the extent to which the company has
consistently hit its earnings estimates. I imagine Wall Street research analysts
base their earnings estimates on their discussions with top management at the
companies they cover; if management isn’t realistic about the sustainability of its
business plan or its future growth prospects, or if management doesn’t make
effective decisions, it’s not likely to meet its quarterly earnings. If there had been
a lot of change in the executive ranks recently, or if the company announced
that significant leadership changes were imminent, I might be concerned about
management’s ability to meet estimates. To be totally honest, I don’t know how
Target’s done relative to its earnings projections. If they’ve underperformed, I
guess that could be one reason they’re trading at a discount to Wal-Mart. If I
actually had $10,000 to invest, I’d probably want to look into that!
This candidate has clearly taken the time to develop a well-researched, well-articulated investment
thesis for a single stock. Our guess is that you may never have thought in any great
detail about PEG ratios, or where any one company traded versus the S&P 500. But as you
consider how to prepare for interviews, keep in mind that after all, this is Wall Street. Think
about how much better this candidate sounds (if a bit too bookish) than the loosey-goosey
would-be Microsoft buyer above. There are numerous free financial and investing websites out
there offering all the quantitative and qualitative information you’d need to develop a viewpoint
on any publicly traded stock. Regardless of your background, you can certainly learn
enough to be dangerous in an interview (and by dangerous, we mean armed with actual
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valuation metrics and numbers to back up your great stock picking idea). As a general rule,
when confronted with quantitative questions, try to ground your response in numbers and
analysis, and let the qualitative data add in color around the edges.
common stock—which company’s stock would you choose, and why?
While equity research analysts and equity sales professionals recommend specific stocks on a
daily basis, professionals in other areas of the bank—including corporate finance and
M&A—do not. Nonetheless, recruiters report that this question helps them evaluate
candidates on a number of criteria: the candidate’s general level of interest in the financial
markets, grasp of basic valuation concepts, and ability to speak intelligently on fundamental
investing principles. MBA associate candidates in particular will be expected to have a pretty
good answer for this question.
Bad Answers
Candidate 1: Probably Microsoft—they’re just completely dominant. Can you
seriously imagine every business in the country switching to a new operating
system? Bill Gates is the richest man in the world for a reason: huge barriers to
entry. The company has a complete monopoly on software that no one could
ever hope to replicate. They totally don’t seem to be hurt by all of the lawsuits
either, and in any case they have something like $100 billion in cash on the
books for a rainy day. I wish I had gotten in on that company from the
beginning.
It’s not necessarily the company you choose, but the rationale and detail that substantiate your
answer. In this case, Microsoft may be a perfectly legitimate investment choice, but the
candidate’s reasoning is almost wholly qualitative, and general and anecdotal at that. This
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candidate doesn’t know the first thing about how Microsoft is valued today, and this will be
painfully obvious to the interviewer.
Candidate 2: I would never invest $10,000 in a single common stock today.
Maybe someday, when I’m a managing director at this firm and I have $10,000
to just throw around, maybe then I would. The key to successful investing is
diversification! I would take the $10,000 and invest in a collection of mutual
funds—you can’t put all of your eggs in one basket. Right now, I don’t have the
time to do the research necessary to get comfortable with just one stock.
This candidate takes the approach of candor. She demonstrates that she understands a bit
about personal investing and isn’t a gambler. While diversification is an important investing
principle, this candidate has chosen the wrong opportunity to demonstrate her mastery of the
concept. Though you may certainly acknowledge that single-stock investing may not be your
preferred strategy, don’t evade the question that the interviewer asks. You can always lead with
this, but then answer the question.
Good Answer
Candidate: Well, I must admit that I don’t have a lot of practice choosing
single stocks to invest in. I’m still a novice investor, and so far, I’ve stuck with a
diversified portfolio of mutual funds that limit my risk exposure and provide a
decent return. But if I were fortunate enough to have $10,000 to invest in one
company, I would choose Target Corporation.
Here, the candidate takes a moment to acknowledge that single-stock investing is not an area
of expertise for the everyday investor. But by mentioning his own investing experience, he
demonstrates a basic level of interest in (and experience with) the fundamentals of investing
and the tradeoff between risk and return. He also offers an answer at the very beginning,
providing the interviewer an opportunity to shape the dialogue.
Interviewer: Fine. Why Target?
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Candidate: Well, you hear a lot about Wal-Mart, and it is a great company. But
as I see it, Target has largely the same business model but comes at a lower
valuation. But let’s start at the beginning: First thing’s first, I like the business. I
believe Wal-Mart and Target will continue to succeed because they offer the
customer a significant price savings on both everyday goods and smaller-ticket
consumer luxuries. I think specialty, niche retailers may be able to succeed selling
at a higher price point, but for the basics, I think the customer will continue to
gravitate toward the savings. Wal-Mart and Target have a sustainable competitive
advantage over smaller retailers and grocers through sheer scale; they’re able to
procure their inventory at a significant discount to competitors and can pass
much of this directly onto the consumer. This will translate into earnings growth
potential; I see the existing stores gaining market share and new stores opening
up across the country—and perhaps internationally, although I’m not that close to
their business model.
Interviewer: Let’s say that your assumptions about growth prospects are fairly
accurate. You mentioned valuation—how do you put a value on that growth?
Candidate: Well, first I would look at where Target trades today, relative to
Wal-Mart as well as the market as a whole. Target’s trading at 20x trailing
earnings today versus Wal-Mart at 24x. So on actual, “in the bag” earnings,
Target trades at more than a 15 percent discount to Wal-Mart today. But getting
back to growth, and looking forward, Target’s trading at 16x forward earnings,
versus Wal-Mart at 19x to 20x forward earnings—again, at a 20 percent
discount. Moreover, Target is actually projected to grow faster than Wal-Mart: 15
percent annual growth over the next 5 years, versus 14 percent for Wal-Mart
and 10 to 11 percent for the S&P 500. So when you asked about valuing
growth, you can look at the P/E multiples relative to the growth rate—the
PEG ratio—and see that Target’s trading at just over 1x its expected growth
rate, versus Wal-Mart at 1.4x and the S&P at 1.6x. So, for that money, you’re
getting growth at a good price.
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Interviewer: Warren Buffett has made a career of that. What else would you
consider before investing your money, other than the price/earnings multiple
and the growth rate, and the basic company strategy?
Candidate: Well, I would look at the company’s management.
Interviewer: What about management? As a small investor, how can you
accurately assess whether Target’s management is effective?
Candidate: Well, one measure would be the extent to which the company has
consistently hit its earnings estimates. I imagine Wall Street research analysts
base their earnings estimates on their discussions with top management at the
companies they cover; if management isn’t realistic about the sustainability of its
business plan or its future growth prospects, or if management doesn’t make
effective decisions, it’s not likely to meet its quarterly earnings. If there had been
a lot of change in the executive ranks recently, or if the company announced
that significant leadership changes were imminent, I might be concerned about
management’s ability to meet estimates. To be totally honest, I don’t know how
Target’s done relative to its earnings projections. If they’ve underperformed, I
guess that could be one reason they’re trading at a discount to Wal-Mart. If I
actually had $10,000 to invest, I’d probably want to look into that!
This candidate has clearly taken the time to develop a well-researched, well-articulated investment
thesis for a single stock. Our guess is that you may never have thought in any great
detail about PEG ratios, or where any one company traded versus the S&P 500. But as you
consider how to prepare for interviews, keep in mind that after all, this is Wall Street. Think
about how much better this candidate sounds (if a bit too bookish) than the loosey-goosey
would-be Microsoft buyer above. There are numerous free financial and investing websites out
there offering all the quantitative and qualitative information you’d need to develop a viewpoint
on any publicly traded stock. Regardless of your background, you can certainly learn
enough to be dangerous in an interview (and by dangerous, we mean armed with actual
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Finding Your Way
valuation metrics and numbers to back up your great stock picking idea). As a general rule,
when confronted with quantitative questions, try to ground your response in numbers and
analysis, and let the qualitative data add in color around the edges.
Why do you want to be an investment banker?
Why do you want to be an investment banker? Explain how you arrived
at the decision to pursue an analyst position in investment banking.
If you only have enough time to prepare your response to one question outlined in this entire
guide, please make sure it’s this one. We’d be very surprised if you didn’t hear it in just about
every interview (in fact, we’d be inclined to think that you showed up at the wrong place if
you didn’t). One of the most popular variations of this question is, “Why don’t you take a
moment to briefly walk me through your resume and tell me how you arrived at the decision to
pursue an investment banking career.” As always, be sure to answer the question asked. If
you’re not asked to walk your interviewer through your resume, then you probably should dive
right into your reasons for pursuing an analyst or associate spot.
Bad Answers
Candidate 1: You know, I’ve always been interested in learning more about
the business world, and what better place to learn about business than on Wall
Street? I’ve always been fascinated by the world of finance, and I think that my
dynamic personality would really serve me well in such a fast-paced, highpressure
environment. I decided to pursue investment banking jobs because
I’m looking for a career where the learning curve is steep, with lots of opportunities
for personal and professional growth. Also, I’m hoping to start my
own business one day, and I really want to learn about how the world’s leading
companies run their businesses. In particular, I’m really interested in learning
about mergers, acquisitions, and the international aspects of business.
Here’s the problem: This answer is honest, enthusiastic, and well-intentioned, but it’s so incredibly
general. Remember: This question is one of the most important litmus tests of how serious
you really are. Use it as an opportunity to demonstrate that you genuinely understand the role of
an investment bank, the interrelationships among its various functions, and the specific requirements
of the particular job for which you are interviewing. Your answer should demonstrate not
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only that you’ve given some serious thought to why you want to be a banker, but also how your
past experiences—professional, personal, and academic—have prepared you to thrive in this
unique professional environment.
Candidate 2: Well, throughout most of my college career, I figured I would go
to law school after graduation. But after I talked to a lot of my college friends
who were in law school (or who had just graduated), I realized that while a lot of
them loved law school, few of them actually enjoyed practicing law. I didn’t want
to spend 3 years in law school only to enter one of the most overpopulated
professions—not to mention a profession with one of the highest rates of career
dissatisfaction—unless I was really sure that I wanted to go. So I decided that I’d
postpone the application decision for 2 years or so. That way, I can gain a few
years of work experience and decide during that time whether law school is for
me. Or maybe I’ll decide to go to business school instead. In either event, I’ll
have the opportunity to save a little bit of money in the process and figure out
what I want to do next. I figure that if I had gone to law school, I would have
worked really long hours as a law school student. In fact, I know that I’m going
to work hard at whatever job I decide to take for the next 2 years, so I might as
well work hard at a firm where I’ll be assured a top-notch learning experience.
If this answer actually is swirling around in your head, we need to level with you: You’re not
alone. Every single investment bank will hire analysts with exactly this career path in mind:
2 years as an analyst, back to law school, and on with an exciting career in law armed with a
prestigious first job on Wall Street, more than a little business acumen and some cold hard
cash picked up along the way. But this is the interview stage, and you’d be better off keeping
this little agenda to yourself until after you get the job.
Let’s take a step back and review our advice from the first half of this guide. While there
are many solid, credible reasons for pursuing investment banking analyst positions, that
doesn’t mean that there aren’t just as many illegitimate reasons for doing so. Untenable
responses to this question include those suggesting that you somehow stumbled across banking
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and thought you’d give it a shot, responses that frame the analyst experience as a steppingstone
to bigger and better things, and answers that reference the amount of money that you’re
likely to make if you land a banking job. This candidate mentions all three. Additionally,
his response is vague and noncommittal, so he won’t win any points for being enthusiastic,
interested, or focused on the industry. He doesn’t seem to have a clear idea of what he’d hope
to get out of an analyst program. And believe it or not, there’s more: It’s never a good idea to
advertise that you see the analyst program as a 2-year commitment only. Although it’s true
that banks expect a fair amount of attrition after analysts’ second year, you never want to
make it sound as though you’ve checked out before you’ve even checked in! The interviewer has
probably given him a mental “ding” already and has now turned his attention to what he’d
like for lunch.
Good Answer
Candidate: Well, I think there are a lot of desirable things about this job, but
I’ve focused primarily on three things. First, and perhaps most important, I
want a job where I’m going to learn a ton. Everyone I know in this profession
has emphasized that the learning curve is essentially vertical and that after 2
years analysts have earned a fantastic education on corporate finance, valuation,
the capital markets, and business strategy. Whether I am fortunate enough to
have the opportunity to make my entire career in banking, or even if I eventually
pursue a career elsewhere in industry, I know that 2 years as an analyst
will provide an outstanding foundation. Second, I want a job where I’m going
to work with extremely bright, motivated people. I have always thrived in
situations where my co-workers, classmates or friends have challenged me to
perform at my highest level, and I expect that I’ll learn as much from my
colleagues at an investment bank as I will from the day-to-day analytical
demands of the job. Finally, I want a job where I’ll be able to take a great deal
of responsibility right off the bat. I don’t mind working extremely hard if I
know that I’m making a significant, valuable contribution to a project that is of
critical importance to one of our clients. From everything I’ve heard about
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Finding Your Way
banking, analysts are part of two- or three-person teams who essentially run the
deal from start to finish. With that few people handling that much responsibility,
I know I’ll be in a position where I’ll be given as much responsibility as I
demonstrate I can handle, and that really excites me.
In the course of this answer, this analyst has identified not only three great reasons to join
this profession, but also a number of personal qualities likely to endear himself to the
interviewer and to his future senior colleagues at the bank. He demonstrates true humility in
his desire to learn and his recognition that his colleagues will be smarter and more experienced
than he. Yet he also demonstrates the ambition and hunger that characterize the very best
analysts.
On his fourth consecutive all-nighter, Red Bull and Mountain Dew coursing through his
veins, this analyst will be thinking not only about his desperate need for some sleep but also
about the importance of this upcoming presentation and about the potential payoff of
working on a live transaction of critical importance to the client. We’re not kidding—all of
that is conveyed in the answer above.
That said, a number of recruiting professionals shared with us that while there are right and
wrong answers to this famous question, it isn’t just about spitting out a robotic “right answer”
that you’ve memorized and rehearsed. At its core, you need passion, hunger, and determination
to be a good analyst; these should all come out in your interview, and particularly when
you answer this question. So whatever you say in response to this question, this is one
situation where you will be expected to look your interviewer in the eye and speak from the
heart. Even if your response is completely different (e.g., “I am absolutely passionate about
learning how the markets value companies,” or “I want to spend the rest of my career helping
companies execute transactions that will improve shareholder value”), it needs to be an honest
assessment of why you’re ready to jump into this demanding, challenging, and often-rewarding
profession.
Now, just in case you gave the exact answer above, it would also behoove you to prepare for
this little curveball . . .
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Finding Your Way
Interviewer: Those are all good reasons, but you can get all of those things
from a management consulting position, or even a career within a company.
What is it about banking specifically that appeals to you?
Candidate: Hmm . . . well, let me take those separately. I imagine you can get
many of the same experiences above in consulting, but I understand that
consultants tend to be more generalists in their interactions with clients, analyzing
big-picture strategic questions or very specific operational or IT-related
challenges. While I’m interested in business strategy, fundamentally, I do want
to work in finance, and I want to acquire a serious toolkit for financial analysis.
I don’t want to emerge from 2 years as a consultant with only a cursory understanding
of how to analyze financial statements, or how companies are valued.
And while I suppose a career in the finance arm of a company in industry
could provide such skills, my understanding is that the learning curve is just
much steeper in banking.
Good answer. Remember our point earlier that bankers (bless their hearts) tend to have big
egos. Ergo, finance = good, while consulting = bad. Also note the things this analyst didn’t
mention, such as the money you can make on Wall Street, the desire not to travel as much as
consultants, and so on. This follow-up answer dovetails perfectly with the initial response to
the question.
Interviewer: So in addition to that analytical toolkit, what specific things do
you think you’ll take away from the program?
Candidate: I think the next 2 or 3 years will allow me to fulfill very specific
personal and professional goals. While in the process of learning how to
analyze and value companies, I think a great side-benefit would be a unique and
first-hand exposure to the capital markets. My understanding is that when
bankers work on debt or equity offerings, they learn a great deal about what
drives the financial markets, and that’s something of real interest to me. In
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Finding Your Way
addition, I imagine the group I end up joining within the investment banking
division will shape my learning experience. If I were in an industry group, I
would probably learn a lot about different strategies and business models within
that sector. Or, if I end up in a product group like mergers and acquisitions, I
would probably get a first-hand education in some of the negotiating and deal
structuring skills involved in completing a deal. Finally, while I have no grand
expectations of flying on jets with CEOs, I do think it would be personally
rewarding and fascinating to work closely with the senior management of your
clients on occasion. I think it would contribute to my own professional maturity
and development to have to speak intelligently with a senior executive on the
technical aspects of the deal we’re working on together. I imagine that once
you’ve done that, it would be big boost to your self-confidence—nothing much
would scare you after that!
Again, remember that it’s about more than just the candidate’s particular reasons for pursuing
this career that make him stand out: the specificity, sincerity, and the well-informed job
expectations driving his response collectively make this an A+ answer.
We probably don’t have to tell you this, but we don’t recommend that you simply memorize
the “good” answer outlined here. There should be more than a kernel of truth and sincerity
behind your answer; the bigger the kernel, the more convincing you’ll be. If you can bolster the
credibility of your answer by personalizing it with the specific experiences that sparked your
interest in the first place, so much the better. There are lots of good reasons for wanting a
career in the industry; don’t feel compelled to limit your response to the ideas we’ve included in
our sample answer.
at the decision to pursue an analyst position in investment banking.
If you only have enough time to prepare your response to one question outlined in this entire
guide, please make sure it’s this one. We’d be very surprised if you didn’t hear it in just about
every interview (in fact, we’d be inclined to think that you showed up at the wrong place if
you didn’t). One of the most popular variations of this question is, “Why don’t you take a
moment to briefly walk me through your resume and tell me how you arrived at the decision to
pursue an investment banking career.” As always, be sure to answer the question asked. If
you’re not asked to walk your interviewer through your resume, then you probably should dive
right into your reasons for pursuing an analyst or associate spot.
Bad Answers
Candidate 1: You know, I’ve always been interested in learning more about
the business world, and what better place to learn about business than on Wall
Street? I’ve always been fascinated by the world of finance, and I think that my
dynamic personality would really serve me well in such a fast-paced, highpressure
environment. I decided to pursue investment banking jobs because
I’m looking for a career where the learning curve is steep, with lots of opportunities
for personal and professional growth. Also, I’m hoping to start my
own business one day, and I really want to learn about how the world’s leading
companies run their businesses. In particular, I’m really interested in learning
about mergers, acquisitions, and the international aspects of business.
Here’s the problem: This answer is honest, enthusiastic, and well-intentioned, but it’s so incredibly
general. Remember: This question is one of the most important litmus tests of how serious
you really are. Use it as an opportunity to demonstrate that you genuinely understand the role of
an investment bank, the interrelationships among its various functions, and the specific requirements
of the particular job for which you are interviewing. Your answer should demonstrate not
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Finding Your Way
only that you’ve given some serious thought to why you want to be a banker, but also how your
past experiences—professional, personal, and academic—have prepared you to thrive in this
unique professional environment.
Candidate 2: Well, throughout most of my college career, I figured I would go
to law school after graduation. But after I talked to a lot of my college friends
who were in law school (or who had just graduated), I realized that while a lot of
them loved law school, few of them actually enjoyed practicing law. I didn’t want
to spend 3 years in law school only to enter one of the most overpopulated
professions—not to mention a profession with one of the highest rates of career
dissatisfaction—unless I was really sure that I wanted to go. So I decided that I’d
postpone the application decision for 2 years or so. That way, I can gain a few
years of work experience and decide during that time whether law school is for
me. Or maybe I’ll decide to go to business school instead. In either event, I’ll
have the opportunity to save a little bit of money in the process and figure out
what I want to do next. I figure that if I had gone to law school, I would have
worked really long hours as a law school student. In fact, I know that I’m going
to work hard at whatever job I decide to take for the next 2 years, so I might as
well work hard at a firm where I’ll be assured a top-notch learning experience.
If this answer actually is swirling around in your head, we need to level with you: You’re not
alone. Every single investment bank will hire analysts with exactly this career path in mind:
2 years as an analyst, back to law school, and on with an exciting career in law armed with a
prestigious first job on Wall Street, more than a little business acumen and some cold hard
cash picked up along the way. But this is the interview stage, and you’d be better off keeping
this little agenda to yourself until after you get the job.
Let’s take a step back and review our advice from the first half of this guide. While there
are many solid, credible reasons for pursuing investment banking analyst positions, that
doesn’t mean that there aren’t just as many illegitimate reasons for doing so. Untenable
responses to this question include those suggesting that you somehow stumbled across banking
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Finding Your Way
and thought you’d give it a shot, responses that frame the analyst experience as a steppingstone
to bigger and better things, and answers that reference the amount of money that you’re
likely to make if you land a banking job. This candidate mentions all three. Additionally,
his response is vague and noncommittal, so he won’t win any points for being enthusiastic,
interested, or focused on the industry. He doesn’t seem to have a clear idea of what he’d hope
to get out of an analyst program. And believe it or not, there’s more: It’s never a good idea to
advertise that you see the analyst program as a 2-year commitment only. Although it’s true
that banks expect a fair amount of attrition after analysts’ second year, you never want to
make it sound as though you’ve checked out before you’ve even checked in! The interviewer has
probably given him a mental “ding” already and has now turned his attention to what he’d
like for lunch.
Good Answer
Candidate: Well, I think there are a lot of desirable things about this job, but
I’ve focused primarily on three things. First, and perhaps most important, I
want a job where I’m going to learn a ton. Everyone I know in this profession
has emphasized that the learning curve is essentially vertical and that after 2
years analysts have earned a fantastic education on corporate finance, valuation,
the capital markets, and business strategy. Whether I am fortunate enough to
have the opportunity to make my entire career in banking, or even if I eventually
pursue a career elsewhere in industry, I know that 2 years as an analyst
will provide an outstanding foundation. Second, I want a job where I’m going
to work with extremely bright, motivated people. I have always thrived in
situations where my co-workers, classmates or friends have challenged me to
perform at my highest level, and I expect that I’ll learn as much from my
colleagues at an investment bank as I will from the day-to-day analytical
demands of the job. Finally, I want a job where I’ll be able to take a great deal
of responsibility right off the bat. I don’t mind working extremely hard if I
know that I’m making a significant, valuable contribution to a project that is of
critical importance to one of our clients. From everything I’ve heard about
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Finding Your Way
banking, analysts are part of two- or three-person teams who essentially run the
deal from start to finish. With that few people handling that much responsibility,
I know I’ll be in a position where I’ll be given as much responsibility as I
demonstrate I can handle, and that really excites me.
In the course of this answer, this analyst has identified not only three great reasons to join
this profession, but also a number of personal qualities likely to endear himself to the
interviewer and to his future senior colleagues at the bank. He demonstrates true humility in
his desire to learn and his recognition that his colleagues will be smarter and more experienced
than he. Yet he also demonstrates the ambition and hunger that characterize the very best
analysts.
On his fourth consecutive all-nighter, Red Bull and Mountain Dew coursing through his
veins, this analyst will be thinking not only about his desperate need for some sleep but also
about the importance of this upcoming presentation and about the potential payoff of
working on a live transaction of critical importance to the client. We’re not kidding—all of
that is conveyed in the answer above.
That said, a number of recruiting professionals shared with us that while there are right and
wrong answers to this famous question, it isn’t just about spitting out a robotic “right answer”
that you’ve memorized and rehearsed. At its core, you need passion, hunger, and determination
to be a good analyst; these should all come out in your interview, and particularly when
you answer this question. So whatever you say in response to this question, this is one
situation where you will be expected to look your interviewer in the eye and speak from the
heart. Even if your response is completely different (e.g., “I am absolutely passionate about
learning how the markets value companies,” or “I want to spend the rest of my career helping
companies execute transactions that will improve shareholder value”), it needs to be an honest
assessment of why you’re ready to jump into this demanding, challenging, and often-rewarding
profession.
Now, just in case you gave the exact answer above, it would also behoove you to prepare for
this little curveball . . .
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Finding Your Way
Interviewer: Those are all good reasons, but you can get all of those things
from a management consulting position, or even a career within a company.
What is it about banking specifically that appeals to you?
Candidate: Hmm . . . well, let me take those separately. I imagine you can get
many of the same experiences above in consulting, but I understand that
consultants tend to be more generalists in their interactions with clients, analyzing
big-picture strategic questions or very specific operational or IT-related
challenges. While I’m interested in business strategy, fundamentally, I do want
to work in finance, and I want to acquire a serious toolkit for financial analysis.
I don’t want to emerge from 2 years as a consultant with only a cursory understanding
of how to analyze financial statements, or how companies are valued.
And while I suppose a career in the finance arm of a company in industry
could provide such skills, my understanding is that the learning curve is just
much steeper in banking.
Good answer. Remember our point earlier that bankers (bless their hearts) tend to have big
egos. Ergo, finance = good, while consulting = bad. Also note the things this analyst didn’t
mention, such as the money you can make on Wall Street, the desire not to travel as much as
consultants, and so on. This follow-up answer dovetails perfectly with the initial response to
the question.
Interviewer: So in addition to that analytical toolkit, what specific things do
you think you’ll take away from the program?
Candidate: I think the next 2 or 3 years will allow me to fulfill very specific
personal and professional goals. While in the process of learning how to
analyze and value companies, I think a great side-benefit would be a unique and
first-hand exposure to the capital markets. My understanding is that when
bankers work on debt or equity offerings, they learn a great deal about what
drives the financial markets, and that’s something of real interest to me. In
123
Finding Your Way
addition, I imagine the group I end up joining within the investment banking
division will shape my learning experience. If I were in an industry group, I
would probably learn a lot about different strategies and business models within
that sector. Or, if I end up in a product group like mergers and acquisitions, I
would probably get a first-hand education in some of the negotiating and deal
structuring skills involved in completing a deal. Finally, while I have no grand
expectations of flying on jets with CEOs, I do think it would be personally
rewarding and fascinating to work closely with the senior management of your
clients on occasion. I think it would contribute to my own professional maturity
and development to have to speak intelligently with a senior executive on the
technical aspects of the deal we’re working on together. I imagine that once
you’ve done that, it would be big boost to your self-confidence—nothing much
would scare you after that!
Again, remember that it’s about more than just the candidate’s particular reasons for pursuing
this career that make him stand out: the specificity, sincerity, and the well-informed job
expectations driving his response collectively make this an A+ answer.
We probably don’t have to tell you this, but we don’t recommend that you simply memorize
the “good” answer outlined here. There should be more than a kernel of truth and sincerity
behind your answer; the bigger the kernel, the more convincing you’ll be. If you can bolster the
credibility of your answer by personalizing it with the specific experiences that sparked your
interest in the first place, so much the better. There are lots of good reasons for wanting a
career in the industry; don’t feel compelled to limit your response to the ideas we’ve included in
our sample answer.
Describe what you think the role of an investment bank is.
Describe what you think the role of an investment bank is.
Undergraduate analyst candidates—especially those with little evidence of prior exposure to
financial concepts—are more likely than MBA candidates to address this question. That
said, it’s an important one to get right. Not only should you know what an investment bank
does, but you should know the differences among its various functions. You should make clear,
for example, that you know the difference between investment banking, sales and trading,
equity research, and asset management—at the very least, make sure you know the specific
position for which you are interviewing.
Bad Answer
Candidate: Basically, investment banks are the dealmakers of the financial
world. When you think of the “deal of the year,” or that big IPO or merger on
the front page of the Wall Street Journal, there were investment bankers behind
that. Investment banks are the biggest securities firms in the world; they buy
and sell stocks and bonds, write research on companies for investors, and
provide corporate finance services.
There are two primary problems with this answer. First, the question asks what the role of
the bank is. To say that banks are out “doing deals” doesn’t really explain the advisory
services that they provide. In his enthusiasm to secure a job where he’ll be the analyst on the
deal of the year, the candidate gives a pretty vague, starry-eyed answer about IPOs and the
Wall Street Journal. Second, the candidate gives away that he does not fully understand the
distinction between investment banking, sales and trading, and equity research. These
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Finding Your Way
functions may reside under the same roof, but they are altogether separate jobs with different
client bases, daily routines, and job descriptions. This question is about the specific role of the
investment banking function within those large, global financial services and securities firms.
On this last point, we should take a moment to emphasize how the various arms of a global
securities firm differ in their job descriptions. Sales and trading professionals, generally speaking,
are in the business of working with institutional investors (their clients) to buy, sell, and
trade public debt and equity securities. They are market makers for the public financial
markets. The sales force explains to clients why they should buy newly issued securities
underwritten by their firm, while traders serve as intermediaries who can help public market
investors trade in and out of investments over time (for a nominal trading commission).
Contrast this role with equity research analysts, who provide independent analysis of publicly
traded companies that includes a forecast for a company’s future stock price and, thus, a
recommendation to investors as to whether the stock looks like a good buy today. Investment
bankers play an altogether different role, and their clients are the companies themselves.
Mediocre Answer
Candidate: Well, investment banks are the CEO’s closest financial advisor.
They advise on topics like M&A or IPO opportunities and are the ones who
execute their clients’ largest, most important deals. A bank is basically a consulting
firm that specializes in finance, and their job is to know everything there is
to know about mergers and financings so that they can step in when a transaction
arises.
Nothing about this answer is wrong, per se, but it’s a bit big picture and doesn’t delve into the
actual service provided by the bank. This answer implies that investment banks are financial
think tanks that wait for the phone to ring and then opine with CEOs on weighty matters in
the world of high finance. While CEOs do turn to their bankers for advice on big deals, and
while investment banks are surely hired largely for their expertise on mergers and financings,
this answer is a bit thin on the actual role or service that banks provide in such transactions.
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Finding Your Way
Good Answer
Candidate: As I understand it, an investment bank works with companies to
structure transactions that will enhance their value. This may include accessing
the capital markets in order to fund growth or expand operations or investing
in another company through a merger or acquisition. I think the value that
investment banks provide their clients is twofold. First, they function as intermediaries
between their clients (who need capital) and the financial markets
(who wish to invest capital). So in a way, investment banks are relationshipbuilders.
Second, and perhaps more important, the investment bankers provide
invaluable advisory services by structuring the transaction in a manner that best
meets the unique needs of its clients. Banks are not only the matchmaker
between the parties involved in a transaction, they are largely the architects of
the deal itself. So if I’m a client who wants to raise money, I would look to my
investment banker not only to introduce me to investors but also to design a
transaction structure that best meets my objectives.
Interviewer: I agree with all that. So what’s your role within the investment
bank? What do you expect to be doing day-to-day?
Obviously, you should tailor your response to the specific position—analyst or associate—for
which you are interviewing. Your answer should convince the interviewer that you have both
realistic expectations for the job, as well as an infectious enthusiasm for the work you’ll be
doing.
Candidate: Well, after I completed the analyst training program, I expect I’d be
assigned to one or more transaction teams within my group. On each of those
teams, I would work most closely with the associate on deal generation and
execution. I’d be responsible for collecting and analyzing company- and
industry-specific data relevant to the transactions I was working on and for
building detailed Excel models that forecast the company’s financials in a range
of different financing scenarios. If I were fortunate enough to work on live
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Finding Your Way
transactions (as opposed to just “pitches” for new deals), I would probably sit
in on organizational meetings and conference calls, where the team would
discuss the strategy and the timeline driving the deal. I’d also hope to participate
in meetings with the company to understand their business model and
strategize on the structure and timing of the transaction with the company’s
management. It’s this part of the job that I’m most looking forward to—really
understanding the company’s strategy and growth objectives, creating financial
models for a transaction that meets their needs, and then “selling” both the
company’s story and the merits of the transaction to potential investors.
Remember, you have two objectives when you’re answering this type of question: You’ve got to
convey realistic job expectations that prove that you’ve done your industry homework, and you
need to communicate a genuine enthusiasm for the role. This candidate weaves the two together
here. He knows what the analyst role entails, and he’s identified the components of the job he
finds most compelling.
Candidate: I’d probably also be expected to pay close attention to all of the
documentation involved with the deal (such as the prospectus and any internal
or external memos). As the junior-most team member, I’d probably be
responsible for a lot of the nuts and bolts of the deal: creating and editing
client presentations (under the supervision of associates), for example, and
coordinating the flow of information internally and externally among a lot of
different people (such as lawyers, accountants, and the other investment banks
involved in the transaction).
This level of detail is just icing on the cake: Without prior banking experience, you probably
wouldn’t be expected to know any of it, but as long as you’re not wildly off base, it doesn’t
hurt to demonstrate that you’re interested enough in the job to have learned a lot about its
specific responsibilities. In particular, this candidate makes it clear he doesn’t have any illfounded
delusions of grandeur regarding his likely role on the deal team. He knows that he
won’t be high on the investment banking food chain, and he’s probably scored points for that.
Undergraduate analyst candidates—especially those with little evidence of prior exposure to
financial concepts—are more likely than MBA candidates to address this question. That
said, it’s an important one to get right. Not only should you know what an investment bank
does, but you should know the differences among its various functions. You should make clear,
for example, that you know the difference between investment banking, sales and trading,
equity research, and asset management—at the very least, make sure you know the specific
position for which you are interviewing.
Bad Answer
Candidate: Basically, investment banks are the dealmakers of the financial
world. When you think of the “deal of the year,” or that big IPO or merger on
the front page of the Wall Street Journal, there were investment bankers behind
that. Investment banks are the biggest securities firms in the world; they buy
and sell stocks and bonds, write research on companies for investors, and
provide corporate finance services.
There are two primary problems with this answer. First, the question asks what the role of
the bank is. To say that banks are out “doing deals” doesn’t really explain the advisory
services that they provide. In his enthusiasm to secure a job where he’ll be the analyst on the
deal of the year, the candidate gives a pretty vague, starry-eyed answer about IPOs and the
Wall Street Journal. Second, the candidate gives away that he does not fully understand the
distinction between investment banking, sales and trading, and equity research. These
115
Finding Your Way
functions may reside under the same roof, but they are altogether separate jobs with different
client bases, daily routines, and job descriptions. This question is about the specific role of the
investment banking function within those large, global financial services and securities firms.
On this last point, we should take a moment to emphasize how the various arms of a global
securities firm differ in their job descriptions. Sales and trading professionals, generally speaking,
are in the business of working with institutional investors (their clients) to buy, sell, and
trade public debt and equity securities. They are market makers for the public financial
markets. The sales force explains to clients why they should buy newly issued securities
underwritten by their firm, while traders serve as intermediaries who can help public market
investors trade in and out of investments over time (for a nominal trading commission).
Contrast this role with equity research analysts, who provide independent analysis of publicly
traded companies that includes a forecast for a company’s future stock price and, thus, a
recommendation to investors as to whether the stock looks like a good buy today. Investment
bankers play an altogether different role, and their clients are the companies themselves.
Mediocre Answer
Candidate: Well, investment banks are the CEO’s closest financial advisor.
They advise on topics like M&A or IPO opportunities and are the ones who
execute their clients’ largest, most important deals. A bank is basically a consulting
firm that specializes in finance, and their job is to know everything there is
to know about mergers and financings so that they can step in when a transaction
arises.
Nothing about this answer is wrong, per se, but it’s a bit big picture and doesn’t delve into the
actual service provided by the bank. This answer implies that investment banks are financial
think tanks that wait for the phone to ring and then opine with CEOs on weighty matters in
the world of high finance. While CEOs do turn to their bankers for advice on big deals, and
while investment banks are surely hired largely for their expertise on mergers and financings,
this answer is a bit thin on the actual role or service that banks provide in such transactions.
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Finding Your Way
Good Answer
Candidate: As I understand it, an investment bank works with companies to
structure transactions that will enhance their value. This may include accessing
the capital markets in order to fund growth or expand operations or investing
in another company through a merger or acquisition. I think the value that
investment banks provide their clients is twofold. First, they function as intermediaries
between their clients (who need capital) and the financial markets
(who wish to invest capital). So in a way, investment banks are relationshipbuilders.
Second, and perhaps more important, the investment bankers provide
invaluable advisory services by structuring the transaction in a manner that best
meets the unique needs of its clients. Banks are not only the matchmaker
between the parties involved in a transaction, they are largely the architects of
the deal itself. So if I’m a client who wants to raise money, I would look to my
investment banker not only to introduce me to investors but also to design a
transaction structure that best meets my objectives.
Interviewer: I agree with all that. So what’s your role within the investment
bank? What do you expect to be doing day-to-day?
Obviously, you should tailor your response to the specific position—analyst or associate—for
which you are interviewing. Your answer should convince the interviewer that you have both
realistic expectations for the job, as well as an infectious enthusiasm for the work you’ll be
doing.
Candidate: Well, after I completed the analyst training program, I expect I’d be
assigned to one or more transaction teams within my group. On each of those
teams, I would work most closely with the associate on deal generation and
execution. I’d be responsible for collecting and analyzing company- and
industry-specific data relevant to the transactions I was working on and for
building detailed Excel models that forecast the company’s financials in a range
of different financing scenarios. If I were fortunate enough to work on live
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Finding Your Way
transactions (as opposed to just “pitches” for new deals), I would probably sit
in on organizational meetings and conference calls, where the team would
discuss the strategy and the timeline driving the deal. I’d also hope to participate
in meetings with the company to understand their business model and
strategize on the structure and timing of the transaction with the company’s
management. It’s this part of the job that I’m most looking forward to—really
understanding the company’s strategy and growth objectives, creating financial
models for a transaction that meets their needs, and then “selling” both the
company’s story and the merits of the transaction to potential investors.
Remember, you have two objectives when you’re answering this type of question: You’ve got to
convey realistic job expectations that prove that you’ve done your industry homework, and you
need to communicate a genuine enthusiasm for the role. This candidate weaves the two together
here. He knows what the analyst role entails, and he’s identified the components of the job he
finds most compelling.
Candidate: I’d probably also be expected to pay close attention to all of the
documentation involved with the deal (such as the prospectus and any internal
or external memos). As the junior-most team member, I’d probably be
responsible for a lot of the nuts and bolts of the deal: creating and editing
client presentations (under the supervision of associates), for example, and
coordinating the flow of information internally and externally among a lot of
different people (such as lawyers, accountants, and the other investment banks
involved in the transaction).
This level of detail is just icing on the cake: Without prior banking experience, you probably
wouldn’t be expected to know any of it, but as long as you’re not wildly off base, it doesn’t
hurt to demonstrate that you’re interested enough in the job to have learned a lot about its
specific responsibilities. In particular, this candidate makes it clear he doesn’t have any illfounded
delusions of grandeur regarding his likely role on the deal team. He knows that he
won’t be high on the investment banking food chain, and he’s probably scored points for that.
Describe your role in this group, focusing on the people management
I noticed that here at Stanford Business School, you currently serve as
the co-president of the student association. I wondered if you could
describe your role in this group, focusing on the people management
(rather than the project management) component of your job. If I spent
some time here on campus and spoke to students who worked with you
in this organization, what would they say that they liked (and perhaps
disliked) about working with you? Do you think that you were an
effective manager?
This question is a hybrid between an interpersonal aptitude question and a self-awareness
question. As we mentioned earlier in the guide, interviewers often ask associate candidates to
describe and assess their own managerial style. If a candidate’s response suggests that he’s
either a rigid taskmaster or a spineless pushover, then the interviewer will probably question
his ability to assume an effective managerial role on a deal team. Unlike their analyst
counterparts, associate candidates must demonstrate the ability to manage both upward and
downward; in your responses, be sure to present yourself as someone who can effectively give—
as well as receive—direction, guidance, and both positive and negative feedback.
103
Finding Your Way
Bad Answers
Candidate 1: Well, I think I would characterize my position as more of a
leadership role than a managerial position. I was elected by my peers into the
co-president spot, and as an elected student leader, I oversee eight committee
heads who plan and execute various student initiatives. They’re really the
“managers” of the organization, whereas the co-presidents are really responsible
for setting the overall vision of the association, speaking at various student
events, and basically representing the business school. That said, I think the
student association members would say that I’m a very effective leader. As an
organization, we’ve been very successful so far achieving all of the objectives
that we set for ourselves at the beginning of the academic year.
It’s unclear whether this candidate’s distinction between leadership and management is intended
to be self-congratulatory or self-deprecating. In either case, this response is ineffective. This
candidate doesn’t provide any insight into how he motivates and inspires people to be
productive; in fact, he doesn’t even really answer the question of how the association members
would describe him. His answer is so general and evasive that it almost undermines the value
of an otherwise impressive extracurricular achievement.
Candidate 2: If you spoke to any Student Association members, I’m pretty
sure they would tell you that I’m a very effective manager. As a manager, my
first priority is to recognize that I’m working with extremely competent people.
My management style is very straightforward: I tell the committee chairs what
needs to be done, and then I basically get out of their way. I don’t believe in
micromanaging people.
This candidate obviously doesn’t believe in providing a detailed response to the question asked,
either. We’ve said it before, and we’ll say it again; pay attention to the question that the
interviewer has posed. In this case, the candidate was asked both to characterize his management
style and assess whether his colleagues would consider it effective. Also, you should be
104
Finding Your Way
wary of coming across as too hands-off; if you’re interviewing for an associate spot, you’ll be
entrusted with supervisory responsibilities over the analysts on each of your teams. As such,
it’s important to come across as a manager who’s truly invested in the success of his junior
colleagues.
Good Answer
Candidate: Well first, let me give you a little bit of background about the
organization. The Student Association (or SA) is the business school’s student
government. Students serve as officers, senators, and committee members on
the SA. Basically, the SA is organized around various committees that focus on
different areas of the business school experience: For example, there’s an
academic committee that focuses on interaction between professors and
students, as well as an alumni committee, social committee, and so on. In total,
there are eight committees, each with its own committee co-chairs and student
representation. Basically, my job as co-chair is to oversee the committee chairs,
ensuring that the association as a whole addresses students’ needs.
Unlike the first two candidates, this associate hopeful gives a brief overview of the organization
to give the interviewer some context. In addition, it’s clear that this is a high-profile
leadership position within her business school community. In a recruiting context, student
leaders are basically the number-one draft picks of the investment banking universe. If you’ve
assumed a meaningful leadership role on campus, don’t minimize its importance! Understating
your accomplishments won’t win you any points here.
Candidate: I think if you spoke to the committee chairs that I’m currently
working with, they would probably say that one of my strengths is my teambuilding
capability. So far, I think I’ve been able to create and maintain a team
dynamic in an organization that had previously been perceived as highly
fragmented—each committee chair basically did its own thing and provided
valuable services to students, but there was very little collaboration among the
various committees. When I took over as co-president, one of my goals was to
105
Finding Your Way
create an environment where people were motivated by a strong sense of
affiliation, not just with their individual committee, but with the association.
Aside from introducing a team-oriented culture, I’ve also made a real effort to
be very approachable regardless of my own schedule or workload—I don’t
think any of my committee chairs would say that they don’t feel that they could
ask questions or look for guidance on the projects they’re working on.
These two managerial strengths—team-building and approachability—are certainly valuable
ones to highlight. Still, we might suggest that the candidate substantiate her claims with
specific examples. For instance, how did she go about encouraging collaboration among the
various committee leaders? When you’re preparing for interviews by considering how you’d
respond to questions like these, make sure you’re armed with specific details that will convince
the interviewer that you’re not all talk. Your interviewer may be satisfied with your general
overview, or he may just as easily probe for more detail—don’t let him call your credibility
into question by coming to the interview unprepared.
Interviewer: Okay, that’s what you think they would say about your managerial
strengths. What do you think they would suggest you improve about your
approach? In other words, if I asked your committee chairs for some constructive
feedback, what do you think that they would say?
This is an important point to remember: No interviewer is going to let you off the hook
without asking you to come clean on your managerial shortcomings.
Candidate: I think that some of the committee chairs think that I’m not
always specific enough when I provide my input on an event or initiative. When
we’re discussing an alumni dinner, for example, I’ll provide the alumni committee
chairs with very clear expectations about what the end result should look
like: the theme of the event, the types of student-alumni interaction we’re
trying to achieve, the number of people that attend the event, and so on. But
because my co-chair and I are overseeing eight different committees, my
106
Finding Your Way
perspective necessarily has to be big-picture. I don’t go into too much detail
about the specifics of each event with each co-chair: how to recruit volunteers
for the event, what the invitations should look like, that sort of thing. I leave it
to them. I trust their judgment to make any event-specific decisions and resolve
any committee-level issues that come up.
But some people really want more guidance than that, and I think they sometimes
become frustrated that I give them so much latitude and don’t always give
them enough specific feedback. I think they’d say I needed to work on developing
a more detailed understanding of the particular issues that each committee
faces so that I’m better prepared to give the committee chairs actionable advice
if they need it.
This response is effective because it’s both credible and trainable. Remember, you can be honest
about your shortcomings as long as you demonstrate both an awareness of your development
areas and a commitment to continuous improvement (provided, of course, that the underlying
“development area” doesn’t suggest that you’d self destruct if you actually got the job).
Interviewer: It sounds as though you have a sort of “anything goes” approach
to management—unless they ask for help, you pretty much get out of people’s
way and are pretty hands off. Are there times where you’ve had to really roll up
your sleeves and pitch in so that a committee chair could accomplish a
particular task?
Keep this in mind: Although you should certainly highlight any leadership experience you
bring to the table, you don’t want to give the impression that you consider yourself too
important to do the truly unglamorous work behind the scenes. Interviewers definitely look for
evidence of leadership potential in associate candidates, but a willingness to slog through the
trenches of Excel models and pitchbooks will be equally important.
Candidate: Oh, absolutely. I get involved in the nitty-gritty details all the time.
For example, the career management committee (which acts as an intermediary
107
Finding Your Way
between students and our career management office) recently planned to offer
a “mock interview day” here on campus. Because it’s been such a tough year
for recruiting, the career committee wanted to give students a chance to practice
their interview skills in advance of the recruiting season. They collaborated
with the alumni committee and contacted alumni at companies that regularly
recruit here, asking if they could take a day to come out and conduct oncampus
mock interviews with current students. This was a great idea, and one
that students were incredibly enthusiastic about, but the logistics were a little bit
difficult to execute. Basically, the project team underestimated the time it would
take to secure participants, and 3 weeks before the event, we still didn’t have
enough mock interviewers to accommodate student demand. So I came in over
the weekend with the rest of the project team and started making phone
calls—hundreds and hundreds of phone calls targeted to the alumni most
willing to participate in the event. Those types of things just happen
sometimes, and I try to help out wherever I can.
Good answer! Notice how much more effective this candidate’s response is as a result of the
example she provides. She’s probably resolved any lingering doubt the interviewer may have
about her ability to advance a collective effort as both a manager and an individual contributor.
As this dialogue illustrates, it’s not enough to simply assert your strength in a given area.
When you’re preparing for your interviews, think of specific instances in which you’ve
demonstrated those strengths in your professional, personal, or extracurricular pursuits.
the co-president of the student association. I wondered if you could
describe your role in this group, focusing on the people management
(rather than the project management) component of your job. If I spent
some time here on campus and spoke to students who worked with you
in this organization, what would they say that they liked (and perhaps
disliked) about working with you? Do you think that you were an
effective manager?
This question is a hybrid between an interpersonal aptitude question and a self-awareness
question. As we mentioned earlier in the guide, interviewers often ask associate candidates to
describe and assess their own managerial style. If a candidate’s response suggests that he’s
either a rigid taskmaster or a spineless pushover, then the interviewer will probably question
his ability to assume an effective managerial role on a deal team. Unlike their analyst
counterparts, associate candidates must demonstrate the ability to manage both upward and
downward; in your responses, be sure to present yourself as someone who can effectively give—
as well as receive—direction, guidance, and both positive and negative feedback.
103
Finding Your Way
Bad Answers
Candidate 1: Well, I think I would characterize my position as more of a
leadership role than a managerial position. I was elected by my peers into the
co-president spot, and as an elected student leader, I oversee eight committee
heads who plan and execute various student initiatives. They’re really the
“managers” of the organization, whereas the co-presidents are really responsible
for setting the overall vision of the association, speaking at various student
events, and basically representing the business school. That said, I think the
student association members would say that I’m a very effective leader. As an
organization, we’ve been very successful so far achieving all of the objectives
that we set for ourselves at the beginning of the academic year.
It’s unclear whether this candidate’s distinction between leadership and management is intended
to be self-congratulatory or self-deprecating. In either case, this response is ineffective. This
candidate doesn’t provide any insight into how he motivates and inspires people to be
productive; in fact, he doesn’t even really answer the question of how the association members
would describe him. His answer is so general and evasive that it almost undermines the value
of an otherwise impressive extracurricular achievement.
Candidate 2: If you spoke to any Student Association members, I’m pretty
sure they would tell you that I’m a very effective manager. As a manager, my
first priority is to recognize that I’m working with extremely competent people.
My management style is very straightforward: I tell the committee chairs what
needs to be done, and then I basically get out of their way. I don’t believe in
micromanaging people.
This candidate obviously doesn’t believe in providing a detailed response to the question asked,
either. We’ve said it before, and we’ll say it again; pay attention to the question that the
interviewer has posed. In this case, the candidate was asked both to characterize his management
style and assess whether his colleagues would consider it effective. Also, you should be
104
Finding Your Way
wary of coming across as too hands-off; if you’re interviewing for an associate spot, you’ll be
entrusted with supervisory responsibilities over the analysts on each of your teams. As such,
it’s important to come across as a manager who’s truly invested in the success of his junior
colleagues.
Good Answer
Candidate: Well first, let me give you a little bit of background about the
organization. The Student Association (or SA) is the business school’s student
government. Students serve as officers, senators, and committee members on
the SA. Basically, the SA is organized around various committees that focus on
different areas of the business school experience: For example, there’s an
academic committee that focuses on interaction between professors and
students, as well as an alumni committee, social committee, and so on. In total,
there are eight committees, each with its own committee co-chairs and student
representation. Basically, my job as co-chair is to oversee the committee chairs,
ensuring that the association as a whole addresses students’ needs.
Unlike the first two candidates, this associate hopeful gives a brief overview of the organization
to give the interviewer some context. In addition, it’s clear that this is a high-profile
leadership position within her business school community. In a recruiting context, student
leaders are basically the number-one draft picks of the investment banking universe. If you’ve
assumed a meaningful leadership role on campus, don’t minimize its importance! Understating
your accomplishments won’t win you any points here.
Candidate: I think if you spoke to the committee chairs that I’m currently
working with, they would probably say that one of my strengths is my teambuilding
capability. So far, I think I’ve been able to create and maintain a team
dynamic in an organization that had previously been perceived as highly
fragmented—each committee chair basically did its own thing and provided
valuable services to students, but there was very little collaboration among the
various committees. When I took over as co-president, one of my goals was to
105
Finding Your Way
create an environment where people were motivated by a strong sense of
affiliation, not just with their individual committee, but with the association.
Aside from introducing a team-oriented culture, I’ve also made a real effort to
be very approachable regardless of my own schedule or workload—I don’t
think any of my committee chairs would say that they don’t feel that they could
ask questions or look for guidance on the projects they’re working on.
These two managerial strengths—team-building and approachability—are certainly valuable
ones to highlight. Still, we might suggest that the candidate substantiate her claims with
specific examples. For instance, how did she go about encouraging collaboration among the
various committee leaders? When you’re preparing for interviews by considering how you’d
respond to questions like these, make sure you’re armed with specific details that will convince
the interviewer that you’re not all talk. Your interviewer may be satisfied with your general
overview, or he may just as easily probe for more detail—don’t let him call your credibility
into question by coming to the interview unprepared.
Interviewer: Okay, that’s what you think they would say about your managerial
strengths. What do you think they would suggest you improve about your
approach? In other words, if I asked your committee chairs for some constructive
feedback, what do you think that they would say?
This is an important point to remember: No interviewer is going to let you off the hook
without asking you to come clean on your managerial shortcomings.
Candidate: I think that some of the committee chairs think that I’m not
always specific enough when I provide my input on an event or initiative. When
we’re discussing an alumni dinner, for example, I’ll provide the alumni committee
chairs with very clear expectations about what the end result should look
like: the theme of the event, the types of student-alumni interaction we’re
trying to achieve, the number of people that attend the event, and so on. But
because my co-chair and I are overseeing eight different committees, my
106
Finding Your Way
perspective necessarily has to be big-picture. I don’t go into too much detail
about the specifics of each event with each co-chair: how to recruit volunteers
for the event, what the invitations should look like, that sort of thing. I leave it
to them. I trust their judgment to make any event-specific decisions and resolve
any committee-level issues that come up.
But some people really want more guidance than that, and I think they sometimes
become frustrated that I give them so much latitude and don’t always give
them enough specific feedback. I think they’d say I needed to work on developing
a more detailed understanding of the particular issues that each committee
faces so that I’m better prepared to give the committee chairs actionable advice
if they need it.
This response is effective because it’s both credible and trainable. Remember, you can be honest
about your shortcomings as long as you demonstrate both an awareness of your development
areas and a commitment to continuous improvement (provided, of course, that the underlying
“development area” doesn’t suggest that you’d self destruct if you actually got the job).
Interviewer: It sounds as though you have a sort of “anything goes” approach
to management—unless they ask for help, you pretty much get out of people’s
way and are pretty hands off. Are there times where you’ve had to really roll up
your sleeves and pitch in so that a committee chair could accomplish a
particular task?
Keep this in mind: Although you should certainly highlight any leadership experience you
bring to the table, you don’t want to give the impression that you consider yourself too
important to do the truly unglamorous work behind the scenes. Interviewers definitely look for
evidence of leadership potential in associate candidates, but a willingness to slog through the
trenches of Excel models and pitchbooks will be equally important.
Candidate: Oh, absolutely. I get involved in the nitty-gritty details all the time.
For example, the career management committee (which acts as an intermediary
107
Finding Your Way
between students and our career management office) recently planned to offer
a “mock interview day” here on campus. Because it’s been such a tough year
for recruiting, the career committee wanted to give students a chance to practice
their interview skills in advance of the recruiting season. They collaborated
with the alumni committee and contacted alumni at companies that regularly
recruit here, asking if they could take a day to come out and conduct oncampus
mock interviews with current students. This was a great idea, and one
that students were incredibly enthusiastic about, but the logistics were a little bit
difficult to execute. Basically, the project team underestimated the time it would
take to secure participants, and 3 weeks before the event, we still didn’t have
enough mock interviewers to accommodate student demand. So I came in over
the weekend with the rest of the project team and started making phone
calls—hundreds and hundreds of phone calls targeted to the alumni most
willing to participate in the event. Those types of things just happen
sometimes, and I try to help out wherever I can.
Good answer! Notice how much more effective this candidate’s response is as a result of the
example she provides. She’s probably resolved any lingering doubt the interviewer may have
about her ability to advance a collective effort as both a manager and an individual contributor.
As this dialogue illustrates, it’s not enough to simply assert your strength in a given area.
When you’re preparing for your interviews, think of specific instances in which you’ve
demonstrated those strengths in your professional, personal, or extracurricular pursuits.
Rules of the Road at a Glance
Self-Awareness Questions
Do you know where you’re going and where you’ve been?
Remember:
• Predict, prepare, and practice.
• Be honest, but emphasize the positive.
• Keep your audience in mind.
Capacity Questions
Do you have the necessary horsepower?
Remember:
• Be prepared for confrontation.
• Imply—but don’t state directly—that your previous achievements prove that
you’re highly capable of doing the work.
• Remember that capacity refers to more than just intellectual horsepower.
Interpersonal Aptitude Questions
Are you prone to road rage?
Remember:
• Where possible, highlight the team-based components of the pursuits listed
on your resume.
• No bragging, blabbering, or bluffing.
• Get comfortable, but not too comfortable.
1
At a Glance
Commitment Questions
Are you in it for the long haul?
Remember:
• Know exactly why you want to be an investment banker.
• Examine your resume and transcript for anything your interviewer might
perceive as a gap or inconsistency.
• Remember that investment banks love to be loved, just like the rest of us.
Technical Questions
Do you know what’s under the hood?
Remember:
• Keep your answers short, sweet, and simple.
• Think concepts, not formulas.
• If you don’t know, then just say that you don’t know.
Unasked Questions
. . . and throughout, your interviewers will be asking themselves:
• Can we put you in front of a CEO?
• Will you be fun to work with at 3 in the morning?
Do you know where you’re going and where you’ve been?
Remember:
• Predict, prepare, and practice.
• Be honest, but emphasize the positive.
• Keep your audience in mind.
Capacity Questions
Do you have the necessary horsepower?
Remember:
• Be prepared for confrontation.
• Imply—but don’t state directly—that your previous achievements prove that
you’re highly capable of doing the work.
• Remember that capacity refers to more than just intellectual horsepower.
Interpersonal Aptitude Questions
Are you prone to road rage?
Remember:
• Where possible, highlight the team-based components of the pursuits listed
on your resume.
• No bragging, blabbering, or bluffing.
• Get comfortable, but not too comfortable.
1
At a Glance
Commitment Questions
Are you in it for the long haul?
Remember:
• Know exactly why you want to be an investment banker.
• Examine your resume and transcript for anything your interviewer might
perceive as a gap or inconsistency.
• Remember that investment banks love to be loved, just like the rest of us.
Technical Questions
Do you know what’s under the hood?
Remember:
• Keep your answers short, sweet, and simple.
• Think concepts, not formulas.
• If you don’t know, then just say that you don’t know.
Unasked Questions
. . . and throughout, your interviewers will be asking themselves:
• Can we put you in front of a CEO?
• Will you be fun to work with at 3 in the morning?
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